Whispers about Facebook's plans to launch its own cryptocurrency have been circulating since December 2018. Today, Facebook has officially announced the launch of a new coin, Libra, which will allow users to frictionlessly transact with one another through Facebook services and a standalone app.
Initially leaked by Bloomberg, the cryptocurrency was reportedly going to be aimed towards the remittance market in India, where there are hundreds of millions of Whatsapp users and most financial transfers are made via mobile payments. However, today's announcement hints at a much wider scope, with the claim that the currency - billed for launch in 2020 - will be available to use anywhere.
It's worth noting however that this coin won't be a typical cryptocurrency, it will be a 'stablecoin', the value of which will be pinned to a folio of financial assets.
It also won't be, in the way of Bitcoin and Ethereum, completely decentralised. Instead, it will be a form of permissioned or 'enclosed' blockchain, where transactions will be verified by a number of pre-selected agents. These will be provided by the Libra Association Council, which includes a number of financial not-for-profit companies, and commerce businesses such as Mastercard, PayPal, Coinbase, and eBay. Each member had to contribute a minimum of $10 million to join the council, contributing a collective $1 billion towards the venture.
Calibra is the newly launched payments company, a subsidiary of Facebook, which will reportedly manage the running of the currency. Calibra will be the wallet that Libra is accessible through, and will be integrated into Facebook apps like Messenger and Whatsapp as well as a standalone app.
It represents a departure from other internet payment methods like Paypal and Venmo in that people won't need a traditional bank account and credit card to register.
A move into payments from the social media giant has been predicted ever since it appointed former PayPal president David Marcus to run its Messenger app in 2014. In May 2018, Marcus was then appointed to head up Facebook's blockchain initiatives. He also sat on the board of crypto exchange Coinbase up until August 2018.
However, Facebook is not alone in this space. Telegram, the secure messaging service favoured by crypto enthusiasts, Isis, and drug dealers alike, is also planning the launch of a within-app cryptocurrency soon, and so is its rival Signal.
For Facebook, the development could herald a whole new chapter, where the platform finally pivots away from its overwhelming dependence on targeted ads to make profits. Facebook's intention to become the 'everything company' in the mould of China's WeChat has been apparent for a while now, and if it successfully manages to crack into the global payments space it will be able to further entrench its services even more firmly in our lives.
Read our thoughts on whether cryptocurrencies could eventually replace national currencies here.
What is a stablecoin?
Stablecoins are crypto coins with values pegged to that of an already existing currency or security. As the name would suggest, this ensures that the values of these coins are not subject to the wild fluctuations that affect currencies like bitcoin and ether.
Instead, the value of these coins only fluctuates at the same rate as the currency they are tied to, which is in most cases the US dollar.
Due to these features, stablecoins have proved popular recently, with a large number of new coins being launched in the past year. However, there have also been some high-profile flops, such as Tether and Basis, and the most used coins continue to be the older, more traditional forms of cryptocurrencies.
However, the financial clout and impressive technological know-how of Facebook may signal a new lease of life for the stablecoin market. The impact that this coin were to have if successful could be vast, given Facebook's huge potential reach into a receptive market of 2.4 billion monthly users.
But would these coins, linked to vast conglomerates such as Facebook, be truly decentralised as other cryptocurrencies are?
Is it a cryptocurrency?
Purists will deny that Libra is a true cryptocurrency. This is because Facebook has opted for setting up a permisisoned blockchain in the first instance. This comes with obvious benefits for the tech giant, namely that it will still have control over its development, and a say in any future decisions about how to monetise the currency.
There is evidence in the whitepaper that the currency is intended to shift onto a 'proof of stake' model over time, where those holding the greatest reserves of currency would make decisions about its development. This is the model that Ethereum has been in the slow process of shifting on to.
Will Facebook make money from this?
Facebook has claimed that users will be allowed to set up a pseudonymous account and that - for once - they won't be able to get their grubby paws on the data generated by transactions. Therefore, the financial incentive is ostensibly nothing to do with serving ads.
However, another obvious avenue for creating revenue - charging transaction and transfer fees - has also been discounted by the company.
"We want to reduce fees for everyone. We're not planning to charge fees for peer-to-peer [payments]. There may be low fees for merchant payments, but that's just to cover the cost of the risk and fraud and chargebacks," Kevin Weil, vice president of product at Calibra told The Verge.
He instead pointed to Facebook's ambitions to create a financial services ecosystem that can be used by any internet-based service to facilitate payments.
How will it affect the whole cryptocurrency market?
Clearly, these projects could offer a huge boost to the crypto market if successful, given the billions of potential users. They may also encourage users to experiment with other cryptocurrency coins too, and begin using more decentralised apps.
The main effect for the cryptocurrency sector may be an increase in the ease of payment. Setting up an account and buying crypto is still an extreme hassle - read about Techworld's experience of it here - which acts as a deterrent to all but the most committed crypto enthusiasts.
In other words, it may normalise the idea of crypto and blockchain applications and drive mainstream adoption. In fact, it may be just the boost that crypto needs to push the whole market forward.
However, there is also the chance that new, partially permissioned cryptocurrencies in Libra's mould will begin to overwhelm demand for earlier cryptocurrencies like Bitcoin and Ethereum, especially if more competitors like tech giants (we're looking at you Google) or banks launch their own versions.