Is Facebook’s New Cryptocurrency Another Bitcoin in the Making?

Facebook has been working on its crytocurrency, Libra, for the past one year.

Facebook is planning to launch its own cryptocurrency in 2020.

(Photo: istockphoto altered by The Quint)

Now that Facebook has gotten hold of your data, it’s after your money!

Not that any third-party entity will try to steal that as well, but Facebook has declared that it’s ready to jump into the cryptocurrency (CC) business to offer its users an option to use digital currency on its platform.

The social media giant has launched its own CC and it will be called Libra.

But why the sudden fondness for digital currency and why should Facebook users be interested in such a proposition? Let’s ‘mine’ for some answers.

What is Facebook's Cryptocurrency?

Any form of currency that relies on blockchain technology is considered cryptocurrency. Since a large user-base and network are essential components of a CC ecosystem, Facebook starting something like this actually makes sense.

The social network giant has been hush-hush about its cryptocurrency plans. It started working on it about a year ago convincing the likes of MasterCard, Visa and PayPal to provide a stable support system for this venture.

Though Facebook has just made the official announcement of its CC plans, it expects to launch it only next year.

How Will Facebook's Libra Work?

Facebook hasn’t announced the official value of its currency. However, it’s speculated that it will be used to carry out transactions on its network of apps like Messenger, WhatsApp and even Instagram. It will enable the 2.4 billion users on Facebook to convert cash to digital money and then use it within Facebook’s ecosystem. It will be just like the tokens you see in games like PUBG.

Calibra, a subsidiary of Facebook which was formed to oversee its crypto efforts, is also among the founding members.

Facebook also hopes that its partnership with e-commerce platforms will also allow users to shop online using Facebook’s CC.

Apart from financial institutions like PayPal, MasterCard and Visa, it has also partnered with Uber, Lyft, Stripe and even Vodafone. Currently there are about 12 partners in this consortium.

These firms are required to invest $10 million each in this project and Facebook is expected to rope in about 100 partners before the project officially starts. Reports suggest that this CC will not be regulated by Facebook, but will be overseen by some members of the consortium.

How Is It Different From Other Cryptocurrencies?

Many experts and analysts define a cryptocurrency as being “volatile” and unpredictable. If you’ve been following Bitcoin, you’d know that its value jumped from a few dollars to a whopping $18,000 dollars per Bitcoin at a time.

Currently, Bitcoin is valued at $9,318 dollars (Rs 6.50 lakh approx) which is expected to keep fluctuating. Such fluctuations and volatility is not expected from Facebook’s CC.

Individuals who plan to sell their CC have to send out an Initial Coin Offering for people to invest in their currency. However, Facebook won’t need to issue anything as such due to the reach of its existing user-base.

Also, since Facebook’s CC will be in a closed ecosystem, its value won’t fluctuate as much as other digital currencies. Since anybody with powerful hardware can mine CC, it is expected that Facebook won’t let people mine cryptocurrencies on its platform.

Facebook will peg this project to a basket of government-issued currencies in order to limit the volatility. This will also strengthen its legitimacy. Facebook will let users skip the hard part of creating a coin and mostly focus on creating a cohesive channel for transactions to flow smoothly.

The social media giant is also looking towards building ATM-like booths where users will be able to convert their cryptocurrency value for real cash. But this is at a much later stage.

Can Users Trust Facebook's Currency?

Considering Facebook’s history with user data I am sure many of you will be sceptical about putting your money at risk. But get this, Facebook isn’t the one calling the shots here so there’s very little to worry about.

Most of the CC regulation will be taken care of by multiple companies and Facebook is reported to have very little to do with its regulation.

Cryptocurrencies have always had bad apples where many have lost their entire savings which is why Facebook is keeping its hands out of this cookie jar.

Yes, it will gain access to huge amounts of data in terms of transaction patterns and purchase trends, which it can feed to other firms to attract investments, but it claims these firms will not get their hands on your hard-earned money.

There will be a time when Facebook will need to serve banks and corporate clients. However, it will not compromise on the sanctity of its massive user-base which is core to Facebook’s existence.

Since users are expected to invest in this venture, Facebook will have to put into place certain regulations and standards to ensure there is no form of money laundering or malpractice. This will also help Facebook crack down on fake users and profiles.

But, like every platform has its own set of loopholes, there is no guarantee that people won’t find ways to exploit this cryptocurrency as well.

Can Facebook Pull This Off?

There have been many companies like Kodak and Playboy which have tried their hand at creating their own cryptocurrency. However, they couldn’t really pull it off due to lack of resources. This is exactly where many would back a Facebook or an Amazon to pull a rabbit out of the hat.

The fact that Facebook has vast data centres and enormous computing technology to successfully operate a cryptocurrency gives it the upper edge.

Facebook reportedly has even discussed matters with Bank of England, the US Treasury and even money transfer firms like Western Union over some of the regulatory aspects of such a venture and what Facebook needs to do to make sure it doesn’t fall apart.

Where Facebook might lose out on is in markets like India where cryptocurrency is currently banned. However, since it’s operating in a closed ecosystem and judiciously regulated, the Indian government could have a more lenient approach with such a system coming to India.