What is Libra? Facebook Coin Explained Simply

Summary

Facebook's Libra is a cryptocurrency project initiated by Facebook, intended to launch in late 2020. It aims to create a global digital currency to connect billions of people, particularly those without access to traditional banking systems. Libra is designed as a stablecoin, backed by a reserve of assets to maintain low volatility. The project is led by the Libra Association, a non-profit consortium of global companies, social organizations, and academic institutions, with Facebook as a founding member. The Libra wallet, Calibra, will integrate with Facebook and WhatsApp, allowing users to send funds with ease. Initially centralized, Libra plans to become decentralized within five years. However, concerns exist regarding its centralization, regulatory compliance, privacy, and the potential for corporate control over a global currency.

Takeaways

• 🚀 Libra is a cryptocurrency project initiated by Facebook, aiming to launch in late 2020 with the goal of creating a global digital currency accessible to billions.
• 🤝 Libra is designed to be a stablecoin, backed by a reserve of assets and currencies, which aims to provide financial inclusion for unbanked and underbanked populations.
• 💼 Facebook has established Calibra Inc. to develop the first Libra wallet, which will integrate with Facebook and WhatsApp, allowing for easy and low-cost fund transfers.
• 🔑 The Calibra wallet requires identity verification with a government ID for users to sign up, and it will facilitate the purchase of Libra in exchange for fiat currencies.
• 🌐 Major companies such as Uber, Coinbase, Spotify, and Vodafone are partners in the Libra project and will be part of the Libra Association, managing the currency's development.
• 🕒 Libra starts as a centralized currency but plans to become fully decentralized within five years, similar to Bitcoin, through a transition that involves running validator nodes.
• 💰 To become a founding member of the Libra Association, a significant financial stake and meeting certain scalability and operational criteria are required.
• 📈 The Libra reserve, which backs the currency, will be invested in low-risk assets, and the yield will support the Libra association's operations and be distributed to Libra Investment Token holders.
• 🔗 Libra's value is tied to major fiat currencies, which could expose it to the same volatility it aims to avoid, and its governance model faces regulatory and political challenges.
• 🔒 Privacy concerns arise with Libra, as transactions are pseudonymous, and user verification could potentially lead to financial information being compiled and leaked.
• ❓ The Libra project has faced criticism and regulatory pushback, with some major partners withdrawing support, casting uncertainty over its launch and future success.

Q & A

What is Facebook's Libra cryptocurrency project?

Facebook's Libra is a cryptocurrency project initiated by Facebook with the aim to connect billions of people through a single digital currency. It is designed to work like a stablecoin, backed by a reserve of assets to maintain low volatility in value.

What is the purpose of Libra in the global economy?

The purpose of Libra is to facilitate participation in the digital economy, especially for unbanked or underbanked individuals who lack access to traditional banking systems, as the world moves towards a cashless economy.

How does Libra aim to maintain its value stability?

Libra aims to maintain its value stability by being backed by a reserve of stable and liquid assets, which helps to reduce volatility compared to cryptocurrencies like Bitcoin or Ethereum that are subject to price speculation.

What is Calibra Inc. and how does it relate to Libra?

Calibra Inc. is a subsidiary set up by Facebook that is developing the first Libra wallet, also called Calibra. It is designed to work as an independent wallet for Libra and will also integrate with services like Facebook and WhatsApp, allowing users to send funds with low fees.

Who are the partners in the Libra project and what is their role?

The Libra project has partners such as Uber, Coinbase, Spotify, and Vodafone. These companies are part of the Libra Association, which manages the development of the currency and its network.

How is the Libra currency expected to transition from a centralized to a decentralized system?

Initially, Libra will be a centralized currency managed by the Libra Association. Within five years, the plan is for it to become completely decentralized, similar to Bitcoin, through a transition that involves opening up the network to more participants and validators.

What are the requirements to become a founding member of the Libra Association?

To become a founding member of the Libra Association, an entity needs to stake $10 million, run a validator node, and meet certain scalability requirements such as having a market value of over $1 billion for commercial companies, or significant assets under management and a track record in social organizations.

How does the Libra Association distribute power among its members?

The Libra Association is governed by the Libra Association Council, which consists of one representative from each member. The council votes on key decisions, with voting power generally proportional to the stake invested by each organization, but also capped to prevent power concentration.

What is the Libra reserve and how does it function?

The Libra reserve is a backing of stable and liquid assets for every Libra created. It helps maintain the currency's stability by allowing users to sell Libra coins close to the value they bought them for. The reserve expands or shrinks according to market demand for Libra.

What is the Libra Investment Token and how does it benefit the founding members?

The Libra Investment Token is a security issued by the Libra Association to the founding members in return for their initial investment in the reserve. It represents a share in the Libra association, and if the reserve generates a profit, it will be distributed to the token holders.

What are some of the criticisms and concerns surrounding the Libra project?

Criticisms of the Libra project include concerns over it being controlled by corporations rather than central banks, potential privacy issues due to user verification requirements, the unclear transition to a decentralized system, and regulatory challenges as it would need to comply with various countries' regulatory regimes.

Why is the Libra project considered groundbreaking despite its challenges?

The Libra project is groundbreaking because it signifies a shift towards a new world where corporations, not just governments, can create money. It represents a significant step towards the acceptance and integration of cryptocurrencies in the global economy.