Facebook announced its plans to create a financial system that relies on a cryptocurrency, The New York Times reports. The social media company’s plan includes 27 partners including MasterCard and Uber, but could face early skepticism from those who wonder how Facebook will use this data. Since this announcement, members of congress have reacted with disdain for this proposal. The cryptocurrency, called Libra, also faces questions about how effectively Facebook protects it users’ private information—a critical task for any entity that handles financial transactions.
If Facebook can pull off the project, which it hopes to start next year with 100 partners, it would be the most far-reaching attempt by mainstream company to enter the cryptocurrency world, according to The New York Times. Facebook hopes that Libra could become the foundation of a new financial system that’s free of Wall Street and central banks’ control.
“It feels like it is time for a better system,” David Marcus, head of Facebook’s blockchain technology research, said in an interview. “This is something that could be a profound change for the entire world.”
Facebook Chief Executive Mark Zuckerberg has been interested in crytpocurrencies for years, according to The Times and has promised to offer users better privacy on company-owned services such as Facebook, WhatsApp and Instagram. The payment system would allow Facebook and other companies in the United States compete to for financial transactions in developing nations. For example, WeChat, which the Chinese company Tencent developed, currently offers a highly profitable payments system that is built into its messaging product.
Facebook’s Libra digital token can be directly backed by a basket of currencies like the dollar and the euro, according to The Times. This allows its digital currency to differ from Bitcoin, whose cryptocurrency can fluctuate in value. Libra can be acquired through the new Facebook subsidiary Calibra. Users will likely have to present government-issued identification to do so, which would make the digital currency less attractive for black market transactions like purchasing drugs.
The Libra Association, an independent social network and non-profit organization in Switzerland, will oversee the project’s direct management. Other companies will oversee the association and have voting power over Libra’s design and release, according to Facebook officials.
Visa, Spotify, eBay and PayPal are among the 27 companies listed as partners for the project, but none of them have committed to much beyond donating funds and participating in the association’s and currency’s design. Each enterprise partner is expected to invest at least $10 million, according to The Times. Calibra will handle Facebook’s involvement and the subsidiary would not be permitted to share any financial customer data with other Facebook divisions, company officials said.
“Your financial data will never be used to target ads on Facebook,” said Kevin Weil, Vice President of Product for Calibra.
As for the actual currency, it’s being built so any software developer can create a digital wallet or other additional services—similar to how Bitcoin can be sent between users. Libra currency’s structure is also based on the blockchain technology Bitcoin made popular. The blockchain concept made it possible to hold and move digital currencies instantly—often with low transaction fees. As shared databases, blockchains do not need a central operator to operate. Numerous companies can oversee Libra with this structure. Customers can hold and spend their Libra with companies that accept the currency, while there will be services that can turn Libra into traditional currencies and send the funds into traditional bank accounts, per project documents.
Facebook plans to make its wallet available to billions of Facebook Messenger and WhatsApp users when Libra’s released next year. Company officials also said Calibra could offer financial services to customers like lending and investing if Libra becomes popular. The Libra Association plans to offer financial incentives to merchants and customers like free Libra for opening a wallet or discounts on Libra transactions for merchants who accept the currency to encourage adoption.
“Libra has the potential to bridge the gap between traditional financial networks and new digital currency technology while reducing the costs for everyone — especially consumers,” Uber Head of Payments and Risk, Peter Hazlehurst said in a statement.
Financial regulators could halt Libra before it’s released due to concerns the technology could enable crimes that have become common with Bitcoin like money laundering. Representative Maxine Waters (D, California) who’s the chairwoman of the House Financial Services Committee, asked Facebook to stop development until regulators could look at the potential risks.
Facebook executives argue Libra will be most attractive to those in the developing world who cannot easily access cheap digital bank accounts and credit cards.
“Our hope is to create more access to better, cheaper and open financial services — no matter who you are, where you live, what you do or how much you have,” according to a paper released by the Libra Association.