Facebook on Tuesday introduced an ambitious cryptocurrency scheme called Libra, with the aim of making payments possible as early as next year.
The currency is to be linked to Facebook’s mobile messaging applications, Facebook Messenger and WhatsApp, which have more than one billion users, but would also be available via stand-alone software called Calibra.
Facebook said Libra could provide a low-cost way of transferring funds or paying for goods and services, and could potentially for the first time put such financial transactions within the reach of users without bank accounts, but with access to mobile phones.
Libra builds on the rise of cryptocurrencies such as Bitcoin, which were initially conceived as being independent of existing currencies or governments.
But it will differ from existing schemes in ways intended to offset some of cryptocurrencies’ disadvantages, including their typical volatility and their use in money-laundering and sales of illegal drugs and other contraband.
Libra is to be tied to an array of government-backed assets from around the world, to ensure its stability.
Facebook said compliance checks would be carried out on individuals and groups who want to use Libra, and that verification and other anti-fraud procedures typical of banks would be employed.
Libra is to use a closed blockchain, developed by Facebook itself, that is only accessible by selected people and groups, in a difference from the typical cryptocurrency blockchain that can run on any internet-connected computer system.
Facebook also said it would give refunds to those who lose Libras due to hacking or digital theft.
It said it would keep Libra data separate from the customer data it uses to sell advertising.
The company said it aimed to promote “better, cheaper, and open financial services”.
Decisions around the ongoing maintenance of the cryptocurrency are to be made by the Libra Association, a Geneva-based consortium, with Facebook stepping back from a leadership role after 2019.
The group has already been joined by 28 financial, not-for-profit and commerce firms, including Mastercard, PayPal, eBay and crypto-exchange Coinbase.
Uber and Lyft are members, as well as non-profit financial groups Women’s World Banking, micro-loan platform Kiva and the humanitarian aid association Mercy Corps.
Each joining member contributed at least $10 million (£8m) to the association, giving it more than $1bn in initial funding.
Facebok said it aims to have 100 members on board by the time the currency launches early next year.
No banks have joined the Libra Association so far, but Jorn Lambert, executive vice president for digital solutions at Mastercard, told Reuters there have been discussions with leading banks, and that they are waiting to see how consumers and regulators respond before making a move.
Chinese apps such as WeChat have already successfully moved into financial transactions and payments, and industry watchers said Facebook appears to be attempting to do the same.
But those plans face a number of hurdles, including winning over regulators and allaying concerns over the privacy implications of the scheme.
The company’s Kevin Weil, head of product for Libra, said Facebook wants to have “productive conversations” with regulators around cryptocurrency.
Markus Feber, a German politician in the European Parliament, said Facebook’s move gave new urgency to the need for cryptocurrency regulations.
“If Facebook will expose its two billion users to the risks of virtual currencies, this would be a good reason for the European Commission to start work on a proper regulatory framework governing the rules of virtual currencies,” Feber said in a statement.
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