Facebook released details about its cryptocurrency this morning. The social media giant has been teasing details about the venture for the last six months, with periodic leaks in the mainstream and trade press. The move is widely anticipated to herald a reinvention of Facebook, enabling it to pursue new lines of business.
Facebook’s plan is to have to two cryptocurrencies. The first one is a global cryptocurrency is called Libra and is targeted to be launched during the first half of next year. It will run on the Libra blockchain – a collection of nodes responsible for approving and storing transaction data. Organizations running nodes in Facebook’s network will have to pay $10 million in licensing fees and will have access to transaction data relating to the Libra coin. It is also expected to have low-volatility, meaning that its value will mostly remain stable and maintain parity with respect to a basket of goods or fiat currencies.
Libra will be backed by $1 billion in reserves, consisting of real world assets, such as short-term government securities and a basket of bank deposits, to ensure stability.
It will be governed by the Libra Association, a Switzerland-based foundation whose council members are a mix of partners associated with the venture. The foundation’s team is diverse and consists of, among others, venture capital firms, financial services organizations, and non-profits. According to the whitepaper, all decisions pertaining to Libra will be brought to the foundation’s council and major policy or technical decisions will require the consent of two-thirds of council members.
The second cryptocurrency is called the Libra Investment Token. The company plans to hold a security token offering, an offering of tokens akin to an IPO, to raise funds for operating its network. Investors in these tokens will not have much say in Libra’s governance but they can, presumably, expect an appreciation in its price.
A Regulated Subsidiary
Facebook plans to toe the regulatory line and has already received permission from FinCEN to operate as a money services business (MSB) in all 50 states. Developers on Facebook’s blockchain will be responsible for complying with local regulations for their apps.
The company has also created a subsidiary called Calibra to allay privacy concerns and separate social and financial data. “Calibra will not share account information or financial data with Facebook, Inc. or any third party without customer consent,” it stated.
Calibra will be responsible for managing the cryptocurrency and will run validator nodes within the Libra blockchain. The blockchain itself will be permissioned. This means that transaction data on the chain will be accessible only to members of the network. Over time, the network is expected to become permissionless and open to the public. (The whitepaper mentions a timeframe of five years to develop technologies for making it open to the public.)