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Wednesday, June 19, 2019

Libra, a marriage of social media and payments?

It's a collaboration that might best be described as a marriage of social media and payments: Libra, a cryptocurrency being created by Facebook and a team that includes Mastercard, Visa and PayPal. Facebook is also readying a digital wallet, called Calibra that businesses and consumers can use to store Libras. The wallet will be available as a standalone smartphone app, as well as a button within Facebook Messenger and What'sApp, Facebook revealed.

But the plan is getting blowback from lawmakers. Representative Maxine Waters, D-Calif., chair of the House Financial Committee, wants Facebook to put its crypto plans on hold. "Given the company's troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine [issues related to cryptocurrencies] and take action," she said in a statement.

Senator Sherrod Brown, D-Ohio, in a tweet, said Facebook should abandon its cryptocurrency plans altogether.

Facebook and its Instagram and What's App units, combined, have about 2.4 billion monthly users worldwide. And 2.1 billion of those individuals are active at least once a day, according to Facebook.

Security and stability

Libra is being built on new, secure and scalable blockchain, aptly called Libra Blockchain. The endeavor will be overseen by an independent Libra Association, which also will manage Libra Reserve, a reserve of assets backing Libra currency. All members will have an equal say in the management of the association.

"We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system. And this approach can deliver a giant leap forward toward a lower-cost, more accessible, more connected global financial system," Facebook said in a statement.

Libra is what is known as a "stablecoin." Stablecoins are backed by real assets (for example, dollars, euros, etc.) thereby avoiding the wild price volatility associated with other cryptocurrencies, like bitcoin.

"[T]he reserve assets are being chosen to minimize volatility, so holders of Libra can trust the currency's ability to preserve value over time," Facebook stated in a white paper accompanying news of Libra. "The assets of the Libra Reserve will be held by a geographically distributed network of custodians with investment-grade rating to provide both security and decentralization of the assets."

Facebook already has enlisted more than two dozen organizations for the Libra Association, which will be run as a nonprofit headquartered in Geneva, Switzerland. Facebook said it hopes a total of 100 will be involved by the time Libra goes live, which is slated for next year. Initial members, in addition to Mastercard, Visa and PayPal, include Stripe, eBay, multinational communications conglomerate Vodafone, blockchain platform Coinbase, Lyft, Uber, Spotify, micro-lending platform Kiva, and several venture capital firms.

The notion of marrying social networking to payments is not a unique to Facebook. China's WeChat bundles chat services with payments. But Western-born social media platforms, like Facebook and Google, have struggled to make a go of it. Facebook also has faced federal scrutiny over its failure to protect the privacy of user information.

Sen. Brown referenced this in his tweet. "Facebook is already too big and too powerful, and it has used its power to exploit users' data without protecting their privacy," he wrote.

Making a play for unbanked

In announcing the new venture, Facebook stated that Libra will extend the benefits of modern, digital payment methods to a large swath of the global unbanked population – about 1.7 billion adults by some estimates. Better than half of those adults have access to mobile devices, the company noted.

"The Libra Association has the potential to significantly expand access to the global economy," said Billy Alvarado, chief business officer at Stripe.

Jorn Lambert, executive vice president at Mastercard, stated the company is committed to ensuring that the Internet of everything comes with the inclusion of everyone. "By activating partnerships to explore, co-create and test new ideas, we can cultivate ideas to make inclusion a reality sooner than some may think," he added. end of article

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