Rumors have circulated online regarding Facebook releasing its crypto-based currency, and the talks appear to be accurate as multiple companies – from financial companies to booking websites – have signed up to back up the Facebook money.
Reports suggest that multiple companies, including VISA and Mastercard, have signed up to back the digital currency that Facebook is planning to launch by 2020. Other companies include Paypal, the popular money transfer service, Uber, the ride-hailing application, and Booking.com, a travel booking platform.
The cryptocurrency is reportedly said to be named Libra, and the financial and e-commerce companies, venture capitalists and telecommunications firms will invest around $10 million each in a consortium that will govern the digital coin. The consortium, known as Libra Association, was built for Facebook to establish a group of companies that will back its monetary efforts.
Facebook opens a Swiss company to focus on the digital money venture
A few weeks ago, the social networking giant reportedly opened up a company in Switzerland to focus on payment and blockchain technology, similar to the technology that powers bitcoins and other cryptocurrencies.
People familiar with the matter said that Facebook is planning to unveil the new digital currency next week and will start the operation next year. The money is expected to act as a “stable coin” because it is hinged on government-issued currencies in order to limit the volatility of the value of the coin; an issue which Bitcoin has faced for some time. According to a Swiss publication, Handelszeitung, the Facebook cryptocurrency would be tied to the US dollar and therefore will remain stable unlike bitcoin, which started crashing since 2017.
Owned by Facebook Global Holding II in Ireland, the Swiss company will focus on developing the software and hardware for crypto-related functions like payments, blockchain, analytics, big data, and identity management.
Facebook is hesitant to comment regarding their plans for the digital currency and did not confirm nor denied the reports of its existence. Nonetheless, the news is consistent with an earlier report that Facebook created a team of 50 individuals to develop their cryptocurrency and blockchain technology to be used across the network and on its WhatsApp messaging services.
That design would be geared toward avoiding a speculative frenzy like the one that caused the value of the primary cryptocurrency, bitcoin, to soar and then crash. While Facebook also did not confirm anything related to the leaked project at the time, the California-based company confirmed that they are interested in blockchain technology.
“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology,” the company said in a statement. “This new small team is exploring many different applications.”
It isn’t known, even to some members of the consortium, how the coin will work or what their roles will be, people familiar with the project said. However, it is also noted that regulatory hurdles are still high for Facebook to overcome with this new project. People familiar with the matter said that the concerns were raised regarding the potential of the new currency to be used by terrorist organizations and money launderers in their operations – something other cryptocurrencies have since been associated with.
Interesting partnership with potential competition
But investors are nonetheless interested in the project as other companies back up the new digital money in hopes of gaining traction with millions of Facebook users around the world. It is interesting that to note that the involvement of VISA and Mastercard to a service that will practically, if successful, would pose a threat to their business as one of their biggest competitors.
Other analysts have seen value with this partnership, however. Still, the lure of Facebook’s nearly 2.4 billion monthly active users was too strong for many companies to pass up. Card companies have long fretted that a technology giant could muscle into their business, creating a payment option that cuts out card networks. Participating in Libra allows them to closely monitor Facebook’s payment ambitions while sharing in the upside should the project gain traction with consumers.
Meanwhile, Facebook will not be having control over the new venture – nor will the consortium. Some of the members could serve as “nodes” along with the system that verifies transactions and maintains records of them, creating a brand-new payments network, according to people familiar with the setup.