The Lowdown on Libra: Facebooks New Cryptocurrency

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Table of Contents  
  1. What is Libra?
  2. Our Thoughts on Cryptocurrency
  3. Show Notes

In its ongoing quest for world domination, Facebook is set to launch a cryptocurrency called Libra. And a digital wallet to store those Libra called Calibra. Given the company’s somewhat shady privacy practices, would you trust Facebook with your money?

It wasn’t very long ago that the Cambridge Analytical scandal broke and as a result, Facebook earned a $5 billion fine.

Facebook allowed Cambridge Analytica, a British consulting firm to the Trump campaign, to harvest the personal information of its users.

The firm used the data to build political profiles about individuals without the consent of Facebook users. The FTC approved a fine of roughly $5 billion against Facebook for mishandling users’ personal information.

Clearly, the public backlash against the Cambridge Analytical scandal and the resulting fines have done little to dissuade Facebook from jumping into such a controversial area as cryptocurrency.

There is no question that Facebook has an enormous reach. The hip young kids may have moved on to Instagram (Facebook owns Instagram) and Snapchat, but with 2.41 billion users across the globe, Facebook remains the biggest social network in the world.

It’s one thing to have a Facebook account. You don’t have to verify your identity to create one. You can create an entirely fake account, and the data the site is collecting from it isn’t attached to your real identity. This is a problem for Facebook. One they hope to solve by getting into the cryptocurrency game. Here’s what you need to know.

What is Libra?

Libra is a cryptocurrency like Bitcoin. Libra can be used to buy things (from businesses that agree to accept it) and to transfer money at a very low cost. Bitcoin, the best-known cryptocurrency is exceptionally volatile. Nothing is backing it. Libra will be different.

Libra will be a “stablecoin,” meaning it’s asset-backed, Fiat collateralized.

Backed by fiat currencies, these centralized stablecoins rely on a single actor to issue IOUs redeemable at a 1:1 ratio for the underlying asset, with reliable convertibility of the IOU helping to maintain the 1:1 peg. Fiat-collateralized, or fiat-backed, stablecoins store their value in fiat currencies such as the US dollar or Euro.

It will be backed by the Libra Reserve, which is a reserve of real assets. The assets will be “a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”

A certain amount of fiat is locked up as collateral and coins issued 1:1 against it. Instead of fiat currency, gold, silver, oil, etc. are kept as collateral.

According to Libra, it’s a payment tool, not an investment. People won’t buy and sell or buy and hold it like other cryptocurrencies with the expectation that it will increase in value. Libra is meant to spend like cash. People will use it to buy things and transfer money.

The supply of Libra will grow or decrease based on how many people use it. If people are using it, the Libra Association will buy more of the underlying assets and create additional Libra. If people want to cash out of Libra, the Libra Association will pay them to destroy the correct amount of Libra.

Libra is set to launch in 2020.

What Companies are Involved?

Libra is governed by a consortium of companies known as the Libra Association. If you ever wondered what companies you might find in a real-life, modern-day James Bond villain’s lair holding a meeting on how to take over the world for their own profit, this is the list:

  • Facebook
  • Uber
  • Lyft
  • Visa
  • Mastercard
  • Stripe
  • Spotify
  • eBay
  • And more

Here is how the Libra Association describes itself:

The Libra Association is made up of a group of diverse organizations from around the world. The Founding Members of the association each run one of the validator nodes that form the network that operates the Libra Blockchain. One of the association’s directives will be to work with the community to research and implement the transition to a permissionless network over time.

Why Libra?

So what altruistic motives are surely behind this new cryptocurrency?

Anyone who is taking your money is on board with taking more of your money.

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There are some 1.7 billion people in the world who are “unbanked.” Unbanked means not having an account at an insured institution and instead use alternative financial services like check-cashing stores and payday lenders.

Mapping the unbanked

And being unbanked isn’t limited to people in the developing world. Some 6.5% of the U.S. population were unbanked in 2017; this is about 8.4 million households. People are unbanked for several reasons. They may not trust banks, they might not live in an area with banks, or banks may blacklist them. 

For those who don’t have bank accounts, doing things like paying bills, sending money to family and friends, cashing paychecks, and borrowing money are expensive. Libra wants to bring the banking services that most of us take for granted to those who don’t have similar access and decrease the cost of moving money.

And there is the security aspect. We’re all aware of massive hacks like Experian and more recently Capital One, and some of us have had our own bank accounts or credit cards hacked. Libra uses blockchain technology to help protect sensitive financial data from hackers. 

cryptocurrency market blockchain

If you traveled to Europe pre and post-Eurozone, you know how much easier it became to deal with money. Countries in the Eurozone all use the Euro as their unit of currency, so you didn’t have to change over your money from country to country or figure out a bunch of different exchange rates. Libra wants to be the Euro of global currency.

What is Calibra?

Calibra is Facebook’s digital wallet, where you can store your Libra. It will be available on Facebook Messenger, WhatsApp (owned by Facebook) and as a separate app. Calibra too will use blockchain technology. Users will be able to send Libra to almost anyone with a smartphone just as fast and easily as they can send a text message and at little to no cost.

Calibra too is expected to launch in 2020.

How Do Libra and Calibra Make Money?

Gawd, do you ever stop thinking about money?! There is more to life than money, you know. David Marcus, head of the group, certainly cares about more than money.

“Our first goal is to create utility and adoption, enabling people around the world — especially the unbanked and underbanked — to take part in the financial ecosystem,” said Marcus,  He said that Facebook won’t make money in the early phases of Calibra and will ensure that “customers’ account and financial information will not be shared with Facebook, Inc., and as a result cannot be used for ad targeting.”

But of course, there is money to be made. If Facebook isn’t selling your personal financial data to third parties for targeted ads (WINK!) how will the great philanthropists over at the Libra Association make a crumb?

Transacting the Libra is going to be “little to no cost.” But a little can add up to a lot, yes? And, likely, Libra will eventually get into the money loaning business. Don’t you worry. Mark Zuckerberg’s babies won’t starve!

This is Good Right?

Oh, yes, of course. Don’t worry your silly little head. Oh wait, have a look at this. It’s two little sentences buried in the fifth section of a white paper released by the Libra Association.

An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.

I bolded the most important part. If we’re being generous, we can say that this will help stop money laundering. If we’re feeling not so generous, this will solidify their knowledge of your identity. Go back to the top of this article and read the last paragraph of the opening section. That’s what this is really about. These companies want to know who you are because one way or another, they make money off your identity. 

The Libra Association claims it will only share customer data with third parties under specific circumstances like as to comply with laws, stop fraud, or facilitate payments. It also claims it will ask for consent before using Facebook data to improve the features of the currency. As a legendary fool once said, “Fool me once, shame on-shame on you. Fool me-you can’t get fooled again.”

Cryptocurrencies are also an additional step to remove us from our spending habits. Cash is tangible. When you spend it, you can see the amount of it you have in your wallet dwindle. Credit and debit cards are a step removed from cash.

Spending cryptocurrency is a further step removed.

The further we are from tangible currency, the easier it is to spend. And the more we spend, the more money the Libra Association will make however they monetize this.

Our Thoughts on Cryptocurrency

We have done very few episodes on or discussed cryptocurrencies very often. We typically don’t like to discuss things we don’t believe in. Not even as a cautionary tale sort of thing because doing so carries the risk of putting it on someone’s radar who otherwise wouldn’t ever have thought about it. And just hearing a personal finance podcast talk about it might give it a legitimacy we don’t think cryptocurrencies deserve.

At best, cryptocurrencies are a gamble and certainly not an investment. That goes for Libra too even though this rogue’s gallery behind it are claiming it’s meant to be used as cash would be. Facebook and all of these other companies already no way more about us than they have any business knowing. Don’t give them more.

Libra Association

You know how we invest our money; long term investing like Betterment, rental properties, and REITs. Not some fly by night thing dreamed up by The Legion of Doom at a Bilderberg Meeting.  

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Show Notes

Passion Pool from Mikkeller and Friends: A gose.

Craft Lager from Upslope Brewing Company: An American style lager.

Candice Elliott - Senior Editor
Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.
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