Travel across China, and in theory you can leave your cash at home. All your transactions will take place on your mobile phone. Buy a coffee in Starbucks and the barista will scan the QR code in your WeChat app. Book a cab, and again, you won't have to leave WeChat to make the booking or pay the driver. Want to split a bill with a friend? Just open the app and send funds from your account to theirs.
It's a cashless economy, and that's what Facebook is trying to build now with Libra. The company has just launched a white paper explaining how its new cryptocurrency will work. Here are three things you need to know about Facebook's attempt to change the way we pay:
1. Libra is not decentralized like bitcoin.
Libra will look like bitcoin. You'll buy it on an exchange such as Calibra and send it across the web. There won't be any Libra notes or coins that you can leave in your wallet or lose down the sofa. It's all digital. But the infrastructure is very different. Bitcoin is decentralized. Thousands of bitcoin miners group together transactions into blocks and battle to add them to a chain in return for a reward. But a lot of nodes means slow processing. Bitcoin can only perform about seven transactions per second. Visa performs about 24,000 transactions per second.
Facebook has brought together a group of 27 partners, including Visa, Uber, eBay, Andreessen Horowitz, and Spotify, to manage the network. This "permissioned" infrastructure will be more vulnerable to attack, and more prone to the possibility of censorship. There isn't one central authority, like a fiat currency, but Libra will be more controlled than bitcoin. It will also have a faster network than bitcoin's and be cheaper, too, with fees as low as a fraction of a cent for each transaction. And because it has big backers who had to invest $10 million to join the program, it's also relatively safe. If someone hacks your Calibra or other wallet and takes your Libra, the network will pay you back.
2. Libra is stable.
One of the biggest challenges that bitcoin has faced has been its instability. When the value of bitcoin can jump around by thousands of dollars a month, it can't be used in transactions. Buyers won't give away a coin that's shooting up in value, and sellers won't accept a coin in freefall.
Libra will be tied to a basket of bank deposits and government securities priced in stable international currencies like the dollar, pound, euro, Swiss franc, and yen. The Libra Association, which runs Libra, will be able to adjust this basket, but the result should be a currency that's influenced by fiat currencies, and therefore by central banks, but one that's also stable and predictable enough to be used.
3. It's private, separate even from Facebook.
In a post on Facebook, Mark Zuckerberg made clear that "any information you share with Calibra will be kept separate from information you share on Facebook." While you can choose to connect your Facebook or WhatsApp data to your Calibra account, you don't have to. Nor will you need a Facebook or WhatsApp account to use Libra. Transaction data won't be shared with Facebook either, so if you use Libra to buy an ice cream, for example, you won't start seeing ice cream ads in your Facebook stream.
Considering the trouble that Facebook has had with privacy, that assurance is important.
So what's in it for Facebook? According to Facebook VP of blockchain David Marcus, the benefits are long term. "If more commerce happens, then more small businesses will sell more on and off platform, and they'll want to buy more ads on the platform, so it will be good for our ads business," he told TechCrunch.
Will Libra work? Will you want to use it? Neither is clear yet. WeChat's transaction features took off in a country with few credit cards. Libra may be aimed, in part at least, at people around the world who still lack bank accounts. But if we get used to sending one another Libras through WhatsApp, the banks might find themselves with some new competition -- and so might bitcoin.