Facebook has announced its own form of cryptocurrency called Libra alongside a digital wallet named Calibra, which will allow users to pay for everyday items directly using their smartphone.
Here is a look at how the new digital currency will work.
What is Libra?
Libra is the name of the new cryptocurrency Facebook is backing which will launch in 2020, and once in circulation will be used to buy service digitally from a user’s smartphone.
The digital currency will be stored in a digital wallet called Calibra, a standalone app on a user’s smartphone or housed within Facebook-owned services such as WhatsApp and Messenger.
It has been backed by Visa and Mastercard, as well as businesses such as Uber, Spotify and eBay, meaning eventually users will be able to use the currency to pay for almost anything from their weekly shopping to an Uber journey or their Spotify subscription.
How does cryptocurrency work?
Cryptocurrencies are entirely digital forms of money which use encryption to carry out transactions securely and in many cases anonymously between two parties, which many argue make it more secure against fraud.
A key benefit of cryptocurrencies is also that they are decentralised, meaning that no one entity controls the currency in contrast to how a central bank controls traditional currency.
The currencies are often built on blockchain networks, a type of digital ledger technology where all transactions are publicly verified and recorded and cannot be altered — creating a chain of information and improving transparency.
How is Facebook’s different?
The two biggest issues for cryptocurrency so far, Facebook argues, have been scalability and volatility. Bitcoin, for example, has seen its price fluctuate violently in recent years as its price is linked to supply and demand.
However, Libra is to be backed by a reserve of assets — including linking it to several international currencies — from a number of central banks in order to keep its pricing stable.
The developers have said that launching it through Facebook apps will also make it immediately accessible to more than two billion people globally — the number who use a Facebook app each month.
How can users buy Libra?
When the Calibra wallet for Libra is launched, those wishing to use it will need to sign up for an account using a government-issued ID.
Users will then be able to convert their money into Libra and add it to their digital wallet. Once in place, the currency can be used to pay for “everyday transactions, like buying a coffee, buying groceries or taking public transportation”.
Facebook said initially the new payment system will support peer-to-peer payments between individuals, as well as some other ways to pay for goods and services — for example by scanning a QR code.
The system will eventually be expanded to include integration into point-of-sale systems in stores, which would allow in-store payments that would work in a similar fashion to paying with a debit or credit card or using contactless technology.
Because it will also be built into WhatsApp and Facebook Messenger, users will also be able to send and receive money between their friends and families just by sending them a message.
This will also work with any businesses they interact with on those platforms, Facebook said.
When will it be available?
Still being finalised in its development, the full system of Libra and its Calibra digital wallet is expected to launch next year.