News circulated last month that Facebook had been meeting with credit card schemes, marketplaces, and other major companies in the hopes of raising a billion dollars in investments for its digital money project, Libra.
Facebook’s hard work paid off.
Facebook’s Libra cryptocurrency, which the social media heavyweight announced this week will debut in early 2020, has gained a firm backing from 28 of the biggest names in the world, including Visa, MasterCard, Spotify, and Uber, plus an initial estimated $10 million investment from each. The backers are being referred to as the Libra Association.
Small Differences Between Libra and Current Cryptocurrencies
Unlike Bitcoin Cash, Dash, and Ripple, Libra will be tied to a group of existing currencies. Libra will be associated to the U.S. dollar, as well as the pound, euro, and yen. This will limit volatility in a way, but owners will feel impacts when one of the existing currencies rises or falls against the other.
Facebook’s subsidiary, Calibra, will provide financial services for Libra through a digital wallet service that will be accessible through its own app, Facebook Messenger, or WhatsApp.
Bitcoin and others operate via decentralized blockchains. Libra is not really open and neutral because it is backed by real assets and operated by the association. With that in mind, the value of Libra will not dramatically spike and fall like other cryptocurrencies. In fact, the better way to describe Libra is to call it a fiat currency. Most importantly, fiat is what a person will get when he cashes out Libra tokens.
Is the Move from Credit Cards to Libra Imminent?
Will consumers abandon their debit and credit cards for Libra? No one really knows. As long as credit card companies offer discounts, rewards, and loyalty programs, shoppers may stick with their plastic. However, if online merchants begin offering discounts for those who use the new payment method because they won’t have to pay the high fees to process credit cards, it may lure in some new users. Transaction fees are expected to be near zero for Libra.
What Will Founders Get in Return for Their Investments?
Libra will compensate association members through incentive payments that they deliver through new enrollees and increased use, as well interest payment on the funds within the Libra reserve. Though Libra already boasts 28 founders, it hopes to increase the association to 100 members.
Additionally, Facebook will not lead or profit directly through purchase data or transaction fees from the Libra project. However, Facebook will benefit indirectly from ad sales if Libra drives more commerce onto its social media platforms. Eventually, Facebook hopes to offer Libra-based credit services through its wallet service, Calibra; it also is banking on new users flocking to Messenger and WhatsApp.
The Final Say
Given its corporate backing, its limited volatility, and near zero transaction fees, major retailers and swaths of consumers may be drawn to Libra, which is an area digital funds, like Bitcoin had been unable to lure them successfully to the alternative payment method.
However, those who were drawn to cryptocurrency for anonymity and the digital currency’s autonomous value outside the realm of already established currencies likely won’t be embracing Libra with open arms.
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