Facebook’s New Libra Cryptocurrency Is Backed By Visa, Mastercard And Uber

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Written by Dana Sanchez
Facebook cryptocurrency
Facebook is pursuing a cryptocurrency for WhatsApp and its other platforms. Photo: Marco Verch/Creative Commons

In the decade since bitcoin started, consumers hardly use it to pay for things but Facebook hopes to change that with a crypto-based payments system built around its giant social network and 2.4 billion monthly active users.

Facebook has recruited more than a dozen high-profile backers to help start its own cryptocurrency called Libra and plans to raise about $1 billion for the effort, according to Wall Street Journal.

The social network plans to introduce the digital coin next week with a white paper and launch it in 2020, WSJ reported.

Facebook needs new avenues of growth to justify its valuation at a time when people are spending less time on the social network, Mayur Sontakke wrote on Market Realist:

“The world of social networks and instant messaging is fast integrating with the world of e-commerce and payments … Having its own cryptocurrency may help the company massively leverage this user base.”

Financial and e-commerce companies, venture capitalists and telecommunications firms from around the world are investing around $10 million each in a consortium that will govern Facebook’s digital coin.

Backers include Visa, Mastercard, PayPal, Uber, Stripe (a fintech firm), Booking.com (travel reservations) and Argentina-based e-commerce site MercadoLibre Inc.

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The money will be used to fund the coin’s creation. Libra will be pegged to government central bank-issued currencies, which is expected to help make it more stable than bitcoin and avoid the crazy market swings endured by other cryptocurrencies.

Secrecy has surrounded the Libra project. It’s not exactly clear how the coin will work. Facebook is expected to use the currency on its platforms — Facebook, messenger, WhatsApp, and Instagram — as well as with external merchants. Facebook may set up physical kiosks around the world to convert the cryptocurrency into hard cash, Mayur Sontakke wrote on Market Realist.

Facebook won’t directly control the coin, according to WSJ. Nor will the individual members of the consortium, known as the Libra Association. However, some of the members could serve as “nodes” along the system that verify transactions and maintain records of them, creating a brand-new payments network, according to people familiar with the setup.

However, as the developer of the underlying technology, Facebook could exert considerable influence over it. “Keeping the cryptocurrency network separate from Facebook’s platform gives the social-media company some cover with users and regulators should problems arise, a big advantage at a time when it is under pressure to address privacy shortcomings,” WSJ reported.

Forming a consortium with other industry players and keeping the cryptocurrency separate from Facebook’s platforms could spare it compliance headaches, Sontakke wrote. Some of the alliance members are more experienced than Facebook in dealing with regulatory issues globally. An alliance also helps Facebook market itself as a good player taking everyone along.

Hitching their wagon to Facebook helps consortium members test regulatory waters without having to go solo in uncharted territory. And don’t underestimate FOMO. “Fear of missing out on a possible cryptocurrency revolution may have forced the incumbents to be a part of Facebook’s Libra project,” according to Sontakke.