With this announcement, Facebook isn’t just moving into the cryptocurrency space—it’s also setting itself up as a financial services company. Unlike many other cryptocurrencies, Libra will be specifically designed for use as a payment medium, rather than a speculative asset. Bitcoin, Ethereum, and other digital currencies are generally difficult to transfer back and forth for everyday payments, partly because the price of the tokens is based primarily on market demand. The value thus fluctuates dramatically. If it works, Libra should be much less volatile since it will be pegged to traditional financial assets, including a raft of government-issued currencies. Other companies like Tether have tried to claim that their cryptocurrencies are backed by dollars, but crypto experts have been generally suspicious due to the lack of proof that they actually have the funds to make such a guarantee. Facebook, on the other hand, is a more established entity with plenty of resources.
Users will initially be able to send and receive Libra with a virtual wallet built into Messenger and WhatsApp, texting platforms owned by Facebook, and to quickly exchange the cryptocurrency for dollars. The New York Times reports that there will be “almost no” transaction fees. (Bitcoin, on the other hand, often takes multiple days to convert to traditional currencies and had a transaction fee of $2.50 last month.) After verifying their identities with government documents, people will use their bank accounts and debit cards to purchase Libra tokens. Facebook eventually hopes to allow people to purchase products online and in person with Libra, and to set up credit lines, subscriptions, bank accounts, and loans. Companies will also be able to build their own platforms for transactions on the Libra blockchain (the decentralized ledger technology that underlies the cryptocurrency), with the help of the Facebook crypto subsidiary Calibra.
But Libra’s purported stability and ease of use may mean that it will lack some of the features that have drawn people to cryptocurrency in the first place. The cryptocurrency won’t be quite as decentralized as Bitcoin since the Libra Foundation will be controlling the blockchain that facilitates transactions, partly to prohibit people for using it for illegal purposes like drug dealing. The identity verification eliminates the anonymity that users value in certain decentralized currencies. Cryptocurrencies also generally let most anyone set up a node, which is essentially a computer in the blockchain network that can verify and keep track of transactions. To set up a node for Libra, though, you’ll have to pay $10 million, a price that pretty much ensures that only major businesses can wield these powers.
There are also concerns that Facebook’s development of a ubiquitous currency for use throughout the world will further consolidate its dominance at a time when advocates and lawmakers are looking to break up the company. “Facebook is one of the world’s most dangerous and irresponsible monopolies. Trusting Facebook to launch and manage a global cryptocurrency is sheer insanity,” Sarah Miller, co-chair of the antitrust campaign Freedom From Facebook, said in a statement. “The FTC needs to stop dragging their feet and break up Facebook before this black hole of a corporation sucks in our financial information and currency systems, too.”