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Facebook cryptocurrency: what it aims to be, why it has led to concern

While this signals Facebook’s plans to expand into the digital currency market, it has also raised privacy concerns.

Written by Shruti Dhapola | New Delhi |
June 20, 2019 12:12:45 pm
Facebook Libra, Facebook cryptocurrency, Facebook currency, Libra from Facebook, Facebook Libra cryptocurrency, Facebook Calibra wallet, Facebook Calibra wallet Facebook’s plans to expand into the digital currency market. (Source: Bloomberg/File)

There is a new cryptocurrency called Libra, courtesy Facebook which announced on Tuesday that it will be rolled out by 2020. While this signals Facebook’s plans to expand into the digital currency market, it has also raised privacy concerns.

How cryptocurrency works

It is a virtual currency, which users buy and store in any of several available digital wallets, and use it for transactions on a decentralised network that is not controlled by one bank or a government. Bitcoin is among the best known cryptocurrencies. Cryptocurrency is powered by a technology called blockchain, which functions like an open ledger that gets updated in real time. Each transaction on a blockchain network is preserved, and reversing it is impossible. Because data are encrypted, cryptocurrency is supposed to be secure and anonymous. From a digital wallet, however, it is possible for stored coins or currency to be stolen.

For Libra, Facebook announced a dedicated wallet app called Calibra, which will be built into WhatsApp and Messenger as well, to let users store and use Libra coins.

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Is Libra different?

The values of most cryptocurrencies, such as Bitcoin, tend to fluctuate against real currencies. The plan is to ensure Libra is stable and give users confidence. Libra will be backed by a reserve of assets designed to “give it intrinsic value” and ensure stability. These assets includes securities and fiat currencies (like dollar, pound). Libra’s website says the cryptocurrency will be backed by “short-term government securities in currencies from stable and reputable central banks.” However, the “value of the one Libra in any local currency may fluctuate”, cautions the page.

Libra is planned as a “global currency” for use anywhere in the world without transaction fees. It will target those who are unbanked, who are believed to number around 1.7 billion across the world. What remains a question, however, is how and why someone without access to formal banking would jump to cryptocurrency.

India question mark

The Ministry of Corporate Affairs’ Investor Education and Protection Fund (IEPF) Authority favours a ban on cryptocurrencies, The Financial Express reported in April. IEPF Authority CEO Anurag Agarwal was quoted as saying: “What I am saying is when it comes to investor protection, we have to take a stand against certain things, whether it is a ponzi scheme. And we think that cryptocurrency is a ponzi scheme and it should be banned.” Any such ban would hugely restrict the reach of Libra.

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The Libra model

Libra will be controlled by the Libra Association, a non-profit based in Geneva. Facebook will have a leadership role for 2019, but will later become one of many members of the association. Other prominent names backing Libra are Uber, Visa, Lyft, Mastercard, Paypal, and PayU from India. The association has 28 members now and aims at 100 founding members by the first half of 2020.

Calibra is a separate company.

Privacy concerns

Regulators, lawmakers and government officials around the world issued critical statements about the project, various news agencies reported. In the US, the head of House Financial Services Committee, Maxine Waters, said: “With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users.” Waters and Senator Sherrod Brown, who is on the Senate Banking Committee, both called on financial regulators to examine the project closely.

France’s finance minister, too, was quoted as saying that he had asked central bank heads from G7 countries to write a report on the project by mid-July.

Facebook response

In a statement, Facebook said: “We look forward to responding to lawmakers’ questions as this process moves forward.”

It has stressed it will respect user privacy and transactions will not be linked to the user’s real world identity. Calibra being a subsidiary company separate from Facebook, the data will not be shared with Facebook, it said. Facebook CEO Mark Zuckerberg wrote that Calibra will have a dedicated team of experts in risk management to prevent fraudulent use. If someone loses their Libra coins from Calibra wallet, they will get a refund, Facebook said. For Libra, a new programming language is being built, called Move, which the organisation claims is more secure and private.

What’s in store

The currency: Libra will be a digital currency backed by a reserve of real assets, including bank deposits. Facebook will aim for stability in prices and stresses that privacy concerns will be addressed.

The wallet: Calibra will store Libras. It will be available as a standalone app, also within Messenger and WhatsApp.

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