The global payments industry is a massive business, with at least one-third of banks’ revenues generated by card and other payment transaction fees. Facebook’s Mark Zuckerberg has had his eye on this $2trn business – plus the trillions more that are outside the formal banking sector. The banking industry has been adapting to disruption, but the introduction of a Facebook cryptocurrency, called Libra, could be an earthquake of epic proportions. Standing in Zuckerberg’s way are concerns about Facebook’s ability to keep personal data safe following a number of data breach scandals. Hours after Facebook announced the details of the payment service that will operate through Facebook apps and WhatsApp, Democratic congresswoman Maxine Waters urged it to agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have had their say. Facebook says it is looking forward to responding to policymakers’ questions about Libra. In the meantime, South African tech analyst Rebecca Mqamelo takes us through what the world might look like when Libra arrives. – Jackie Cameron

Hello, World: Libra, Facebook’s new cryptocurrency revealed

By Rebecca Mqamelo*

Yesterday, I wrote about Facebook’s latest venture: a global cryptocurrency called Libra. Today, Facebook released the much-anticipated white paper explaining the details of this new digital money. The reaction within the cryptocurrency and finance industry has been overwhelming, with a mix of both positive and negative sentiment.

Read this article, and you’ll soon understand why. We’re witnessing a profound moment in tech – and in fact, human – history. One of the world’s largest tech giants is about to create what could be the “new normal” of money.

What is Libra?

Libra is the name of the cryptocurrency that will allow users to buy things and send money to people with near-zero fees. On Facebook platforms like WhatsApp and Messenger, sending money across the world could become as easy as sending a message.

Libra will function on the Libra blockchain, an open source distributed ledger that will initially be run by 100 founding members of the Libra Association, an independent consortium of companies that will pay at least $10m to become a node operator on the network. Being a node operator gives these organisations the power to validate transactions on the network. So far, 28 companies have signed up to be founding members, including:

• Payment providers: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
• Tech companies and marketplaces: Booking Holdings, eBay, Facebook, Farfetch, Lyft, MercadoPago, Spotify, Uber
• Telecommunications companies: Iliad, Vodafone Group
• Blockchain companies: Anchorage, Bison Trails, Coinbase, Xapo Holdings Limited
• Venture capital firms: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
• Nonprofit organizations and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

One glance at this initial list of companies tells you that Libra is about to become one of the most widely used cryptocurrencies.

How it will work

Libra will be fully backed by a basket of reserves linked to real assets, such as bank deposits and short-term government securities. Libra will be pegged to these low-volatility assets in denominations of USD, GBP, EUR and JPY in an effort to bring stability to its price. Users will be able to cash in and cash out of the cryptocurrency via local exchanges and service providers. Interestingly, the Libra white paper clearly states that the Libra blockchain “is pseudonymous and allows users to hold one or more addresses that are not linked to their real-world identity.”

More than just a cryptocurrency

Libra is clearly geared towards mainstream adoption. Libra’s mission is to “enable a simple global currency and financial infrastructure that empowers billions of people.” In other words, Facebook has its eyes on the nearly 2 billion unbanked people in the world. But the success of such a currency could mean that the unbanked never “bank” at all. In the same way that much of Africa skipped landline connections and jumped straight to mobile phones, innovations like digital money pose a serious threat to traditional finance. Saifedean Ammous, author of “The Bitcoin Standard”, tweeted a fair warning on what this could imply:

For billions of people, a FB-based payment network will offer more and cheaper transactions than any other KYC/AML platforms. If it succeeds, Libra will likely eat most fiat payment processors like Visa, Paypal, and Western Union, particularly those functioning in the third world

— Saifedean Ammous (@saifedean) June 18, 2019

The genius of a “new Paypal”

To say this move is bold doesn’t do it justice. Facebook’s ad-based revenue model has been under threat for some time. The company’s reputation as a tech conglomerate has been in steady decline thanks to scandals like Cambridge Analytica, Russian trolls and various data breaches. Since the inception of Bitcoin in 2008, the development of blockchain technology has greatly aided a strong movement against centralised platforms whose revenue feeds off user data. Time is money. Data is money. Decentralisation promises paid participation and an organic distribution of power (at least in theory).

Also by Rebecca: Lessons from a mountain hike. Switzerland, SA – what’s to learn?

So Facebook turned a threat into a massive opportunity. Tracking clicks and likes tells you something about human behaviour, but following the movement of money tells you a lot more. Facebook takes a clear stance on how they will treat user data. David Marcus, Facebook’s VP of blockchain and now head of the Libra cryptocurrency wallet Calibra, says, “We realise people don’t want their social data and financial data commingled. The reality is we’ll have plenty of wallets that will compete with us and many of them will not be in social, and if we want to successfully win people’s trust, we have to make sure the data will be separated.”

Marcus has also explained that the global cryptocurrency will become an integral part of the company’s revenue model in the future. “If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”

Now we can only wait

Libra is set to go live in 2020. Already, there are signs of concern over the open source nature of the Libra blockchain and the extent to which the Libra Association is independent of Facebook. Facebook and its partners could earn huge dividends on interest if the masses decide to cash in their money for Libra. But there are many who believe the “decentralisation” model of Libra is a euphemistic facade and instead marks the ongoing corporatization of the executive arm of governments’ financial, intelligence and foreign policies.

Consumers will ultimately decide. If Libra works well, it will be a saving grace for millions of people. No more exorbitant bank fees for sending remittances home; no more exposure to national currency volatility.

One thing is certain: Libra marks a new era in global finance. It’s not the only cryptocurrency poised to disrupt on a large scale (Bitcoin has already achieved this in many ways), but it could be the most widely adopted.

Will Facebook pull it off? My guess is it will. Whether we like the outcome or not, however, is another question entirely.

• Rebecca Mqamelo, who grew up in dusty Mthatha in the Eastern Cape, turned down a full scholarship to an SA university to attend disruptive Minerva in San Francisco which “turns tertiary education on its head…” Access her blog by clicking here.