Facebook’s Libra: Here’s what you need to know

Libra is set to officially launch in the first half of 2020 with about 28 other partners
  • On Tuesday, June 18th, Facebook announced its cryptocurrency to the world: Libra. A cryptocurrency that they plan to launch in the first half of 2020 with about 28 other partners.
  • While it’s too early to know just how much the adoption of Libra will impact trade and financial markets, there’s a possibility for immediate impact in Africa - the potential 40 Billion dollar remittance market.
  • For Facebook, success is simple. “Success will mean that a person working abroad has a fast and simple way to send money to family back home.”

On Tuesday, June 18th, Facebook announced its cryptocurrency to the world: Libra. A cryptocurrency that they plan to launch in the first half of 2020 with about 28 other partners. So what is it exactly? While it is digital money which means it carries less risk and scarcity than Bitcoin and will be available to people without bank accounts or credit cards it’s not necessarily that simple. 

The end goal, Facebook says, is to “empower” unbanked populations across the world by providing access to the global financial system. Sound familiar? It’s very similar to Kenya’s M-Pesa and one can even argue it was a long time coming and a matter of when not if.

In 2016, during his first visit to sub-Saharan Africa, Mark Zuckerberg made a stop in Nairobi to learn about M-Pesa.

“I’m here to meet with entrepreneurs and developers, and to learn about mobile money—where Kenya is the world leader,” he wrote on Facebook.

Three years later and Libra is here so indeed It’s very similar to the journey Safaricom embarked on in the early 2000s with M-Pesa - to empower the 60%+ of Kenyans who we’re unbanked via a singular medium - USSD on mobile phones.

For Facebook, however, they’ve set a very ambitious target with the population of people unbanked estimated at 1.7 billion people globally. Although a majority of the unbanked population are in Africa, Facebook’s 2 billion users across its apps include substantial users in regions like Africa and Asia that have been benefactors of their Free Basics Internet Initiative.

How it works 

Users can access Libra through apps and use it to pay for things or to send money to each other - similar to M-Pesa. 

In order to hold or exchange Libra, users will need to use a “wallet” that will be integrated into existing apps, similar to the way mobile money is integrated into other apps. As it has done with several of its products, Facebook plans to open up Libra for developers to make their own wallets.

Libra’s value, unlike other crypto-currencies, is tied to a government-issued currency like the dollar and euro. This is one of several ways Libra aims to avoid scams, fraud and gambling that one might see with cryptocurrencies. 

What about security? Can we trust Facebook with even more of our data? Facebook’s answer to this is Calibra - a separate company that will house users financial data and account information which “will not be used to improve ad targeting on the Facebook family of products.” 

From the backend, Libra will handle transactions with a blockchain, similar to Bitcoin. A blockchain is a distributed record of transactions that records who owns how much of a coin, and who transferred what coin to whom. Libra’s blockchain, however, will be managed by the Libra Association. 

Who is the Libra Association? 

Although being driven by Facebook, the new currency and its code are controlled and operated by the Libra Association, a 28-partner consortium of companies and foundations. 

Other founding partners include companies you may know, such as eBay, PayPal, Vodafone, Spotify, as well as a few non-profits, investment firms and cryptocurrencies. Partners of the Libra Association have each invested at least $10 million to build reserves of regular dollars to be available for exchange of Libra - earning them votes on group decisions. The goal, Facebook says, is to have a group of at least 100 financial contributors which then also become voting board members of the Libra Association.

How does this affect Africa? 

While it’s too early to know just how much the adoption of Libra will impact trade and financial markets, there’s a possibility for immediate impact in Africa - the potential 40 Billion dollar remittance market. Sub-Saharan Africa has a significant amount of its population in the diaspora across Europe and North America who regularly need to send money back home to family and friends. 

According to the World Bank, remittances to Sub-Saharan Africa grew to $37 billion in 2017 and are projected to reach nearly $40 billion this year. With the average cost of sending $200 amounting to almost $20, senders stand to benefit more than the remittance companies that charge them so high.

What does success look like? 

For Facebook, success is simple. “Success will mean that a person working abroad has a fast and simple way to send money to family back home.” In other words, if all Libra does is enable more effective cross-border money transfers that are faster, cheaper and more convenient for both senders and receivers - it will have achieved something. 

As big a deal as this is, do remember that Facebook announcing a digital currency and successfully being a legitimate player in the global financial system are two different things. Whether or not it has a place in the world remains speculative at best, but one thing is for sure - we’ll be watching. 

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