If you’ve been following any news about Facebook, which I believe you haven’t, you’d know that Facebook has been working on its own cryptocurrency.
While you might just go, “Wait, why is the social media giant working on cryptocurrency?”, you might want to know that Facebook does a lot more than just showing you images of your long-lost uncle playing badminton.
The listed company with revenue of more than USD$55.8 billion in 2018 has the popular Instagram and WhatsApp under its umbrella, and has more not-so-popular products such as Oculus VR that creates virtual reality hardware for games and even ProtoGeo Oy, an app that tracks fitness.
Because just like any sane business, they don’t put all their eggs into one basket.
Especially so when the blue social media app is facing so many scandals and privacy issues in the last two years.
So, what’s cryptocurrency, and why is it a big deal considering that Facebook comes out with some many new products regularly?
Basics of Cryptocurrency
When you see the word “cryptocurrency”, Bitcoin would come to your mind.
It’s actually more than that.
We’re all familiar with digital currency; for example, a physical $10 note you’ve in your wallet is a physical currency, while a $10 in your Paypal or GrabPay account is a digital currency.
Cryptocurrency is different since it doesn’t use the usual currency we’re used to: for example, one Bitcoin today is SGD$12,530.79. It’s like a new currency altogether (they call it a “coin”).
For normal currency, it’s usually managed by a state (i.e. country), and digital currency by the local bank.
For cryptocurrency, it’s not managed by anyone per se; using a technology known as blockchain, it’s “managed” automatically.
For example, when you transfer $10 to your friend via ATM, the bank’s system would do the transfer.
For cryptocurrency, when you transfer, it’ll automatically update a system which will be updated in every user’s account; there’s no “middleman”. The only change is a code change in the system which cannot be amended once it’s updated.
However, you might be wondering: why does cryptocurrency value change so fast?
One year ago, at this exact date (19 June 2019), one Bitcoin value is $9,123.89.
What causes it to change?
People Buying & Selling Bitcoins
Just like stock market, whereby a company’s share might be worth $10 today and $9 tomorrow, Bitcoin’s value is also determined by market forces.
If many people are buying Bitcoins, then the value would increase. If no one wants it, then it’ll decrease.
Now, of course you’re worried: Facebook’s coming out with a new cryptocurrency, so would it be affected by market forces?
No, it won’t. Read on and you’ll understand.
Facebook’s Cryptocurrency, Libra
Yesterday, Facebook finally revealed more details about their secret cryptocurrency, and from the looks of it, it could really change the way we make payment.
Firstly, it actually not a cryptocurrency managed by Facebook.
Instead, an association called the Libra Association would be “controlling” it. This group comprises super-big companies like Mastercard, Visa, Uber, Paypal and whatnot.
Companies that want to join the group need to have USD$1 billion in assets, and each company can only get up to one vote or 1% of the total vote—which explains why Facebook is hoping to have at least 100 companies joining before the official launch.
In other words, it’ll be a digital currency that’s managed by big companies and organizations (non-profit) all over the world; not sure if it’s a good thing or bad thing, but anyways.
How Does it Work?
It’s hard to explain with mere explanation so I’m going to use a simple example.
So, you transfer $100 into your Libra digital wallet. SGD$1 is ≋0.80 (that three curvy lines is really the symbol for the currency), so you’ll get ≋80 in your digital wallet.
And when you want to transfer money to your friends, you can use WhatsApp and just tap on transfer: if you, say, want to transfer $10, you just transfer ≋8 to your friend.
Pretty simple, isn’t it? It’s basically like Paypal or GrabPay, just like you’re using a new currency.
And the best-est thing?
There’s no transaction fee. At least, not yet.
How About the Value?
Remember how Bitcoin’s value fluctuates like your wife’s mood?
No worries; unlike Bitcoin that has no physical reserve (if it wants to collapse, it can just collapse tomorrow), the Libra Association will have a Libra Reserve, whereby each dollar that’s cashed in would be stored in what is known as a Libra Reserve.
In other words, while we’re using a digital currency, a physical amount is stored somewhere as well.
Pretty sure that’s all you want to know, though Facebook do provide a 100-page document about the system.
So here are the more interesting ones:
- Libra uses a new programming language called Move
- It’ll launch officially in the first half of 2020
- It’ll be in beta mode (testing stage) from now until launch
- It’ll be available in WhatsApp, Facebook Messenger and a standalone app
- Facebook won’t access to the financial data
And lastly? Facebook “invented” this technology but as mentioned, they don’t control it. And while it seems like its core purpose is for the betterment of society…
…it might not be.
Facebook is also creating a digital wallet called Calibra, and this could be how they’ll be making money from the digital currency.
Here, take a look at how it works:
Just think of Libra as the money, and Calibra as the bank.
And the Bank of Facebook needs to earn money, no?