Facebook unveils global blockchain-based Libra payment method – update

Facebook unveiled the Libra payment method and the Calibra service with various partners on Tuesday. Through an app, users can pay each other ‘as easy as sending messages’. WhatsApp and Facebook Messenger will receive standard support for it in 2020.

Facebook’s announcement involves two parts; on the one hand, there is the Libra payment method based on the open source blockchain of the same name. The Geneva, Switzerland-based non-profit organization Libra is responsible for this payment method with Facebook as the driving force, but other participants include Mastercard, Visa, PayPal, eBay, Spotify, Uber, Lyft and Vodafone.

On the other hand, there is Calibra. This is a wallet implementation for Libra, which is being developed by Facebook subsidiary Calibra. Calibra is therefore a financial service provider. The Calibra wallet for the Libra currency will be available in 2020 as an app for iOS and Android, and will also become a standard part of WhatsApp and Facebook Messenger. In order to create a Calibra account, people must send a copy of their ID. Users who do not have Facebook, Messenger or WhatsApp can also create an account this way.

According to Facebook, Calibra should make it possible to send Libra to almost anyone with a smartphone “as fast as sending a text message at little or no cost.” In the long term, users should also be able to pay their bills and buy products, for example by scanning codes.

The social network promises to provide similar authentication, support and fraud protection as banks and credit card companies. The company also promises to reimburse if malicious parties gain access to their Libra accounts. Furthermore, the promise is that Facebook will not use payment data from Calibra for advertising purposes. After permission, the company does share data with Facebook and third parties and without permission this is done for purposes such as combating fraud and being able to carry out transactions. Calibra will use Facebook data in reverse to “comply with the law, secure accounts, mitigate risk and prevent criminal activity.”

The idea behind Libra is that people worldwide will pay less for financial services. The use of a blockchain should prevent a single entity from taking control of the network. The currency is backed by reserves to minimize volatility and facilitate exchanging against existing currencies. The value does not seem to be linked to just the dollar: the Libra Association talks about a reserve of a collection of bank deposits ‘in currencies of stable central banks’. Users will experience fluctuating exchange rates when converting their local currency to and from Libra.

The Libra blockchain is maintained by a distributed network of nodes: the validators. They must collectively agree on the total number of transactions on the basis of a protocol. The transactions are based on smart contracts developed in a new programming language called Move. In the first instance, these are smart contracts drawn up in advance, but in the long term these must be adaptable by users. More details about the Libra blockchain can be found in the accompanying white paper.

Update, 13.00: Only members of the Libra Association are eligible to set up nodes, or validators. The Libra blockchain is therefore a so-called permissioned blockchain. The association currently consists of 28 organizations, but that should increase to a minimum of one hundred and in the long run five hundred to a thousand. There is also the Libra Association Council, with a representative of the Founding Members per validator node. The board determines the policy regarding the nodes and the reserves. Decisions require at least a two-thirds majority, as is validation by nodes within the blockchain network.

To recruit new members for the association, there appears to be a second token: Libra Investment Token. To participate in the Libra Association, members must invest a minimum of $10 million. In addition, there are other requirements in terms of market value and cash reserves. In return, they get not only nodes and say, but also Libra Investment Tokens. These tokens can be issued to merchants and other companies and earn interest based on the Libra money reserves. The more successful Libra becomes and the larger the reserves, the more investors can earn from their tokens.