Explained: Facebook’s new cryptocurrency Libra, backed by PayPal, Uber and Visa

Users can send the digital coin to each other and make purchases on Facebook and across the internet

FILE - In this March 29, 2018, file photo, the logo for social media giant Facebook, appears on screens at the Nasdaq MarketSite, in New York's Times Square. Facebook on Tuesday, June 11, 2019, launched an app that will pay users to share information with the social media giant about which apps they're using. (AP Photo/Richard Drew, File)
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Facebook - the world's biggest social media platform with 2.3 billion active users - plans to roll out its own cryptocurrency, Libra, this week with backing from top players in finance and technology.

The National looks at this new digital currency.

Who is backing Facebook's foray into crypto assets?

The Silicon Valley giant is leading a group of more than a dozen companies - including Visa, Mastercard, Uber, PayPal and Booking.com - that calls itself Libra Association backing a new digital currency, according to a report from the Wall Street Journal.

The group is aiming to raise as much as $1 billion (Dh3.6bn), with each participating firm pledging an initial investment of $10 million to float an initial coin offering. Facebook is targeting participation of 100 companies in the fund.

Why does Facebook want to launch its own currency?

Facebook plans to develop a stablecoin, a type of digital currency pegged to a basket of government-issued currencies to minimise volatility and is planning to roll out the currency in 12 countries by the first quarter of 2020.

Reportedly in development for more than a year, the project revolves around a digital coin that its users can send to each other and use to make purchases both on Facebook and across the internet, the WSJ reports, but how it will work exactly is still unknown.

Rolling out a cryptocurrency offering would open a new stream of revenue for the company, which has been struggling. Its net profit plunged 51 per cent year-on-year to $2.4bn in the first-quarter.

Using its existing platforms such as Messenger and WhatsApp, Facebook could emulate WeChat in China, which allows users to chat, shop and play games in one place.

Will it be similar to Bitcoin?

Unlike Bitcoin and other cryptocurrencies, Libra is expected to be governed by strict regulations. The group has met with the Bank of England governor, US Treasury officials and money transfer companies to clarify their proposed scheme and to evaluate the opportunities and risks involved. It will be more apt to compare it with other internal blockchain-based payments systems such as JP Morgan’s JPM Coin and IBM’s World Wire.

What are the hurdles to bringing Libra's crypto asset to market?

There are regulatory hurdles as there is widespread acknowledgment that digital assets are potential tools for money laundering and financial fraud.

Facebook, which is already under fire over privacy concerns, will release a detailed whitepaper on Libra on June 18.

The company hired Jeff Cartwright, formerly the director of regulatory risk at US crypto exchange Coinbase, as a policy and compliance manager. Another former Coinbase employee Mikheil Moucharrafie was hired as compliance officer. Christopher Giancarlo, head of the US Commodity Futures Trading Commission, said Facebook was in the “very early stages” of discussion with the commission.