Facebook’s crypto dream

Facebook is planning to launch a cryptocurrency in 2020.

It’s called Libra, and Facebook already has a bunch of high-profile partners lined up — Uber, Spotify and, notably, big players in the payment space, like Visa, Mastercard and Paypal.

The partners will jointly manage the currency through a nonprofit association. And Facebook said there will be a firewall of sorts between users’ finances and the social network. It won’t use financial data to improve ad targeting on Facebook.

So why create a new digital wallet? And why do it with a cryptocurrency? Lisa Ellis, who covers payments and cryptocurrencies at the research firm MoffettNathanson, told host Tracey Samuelson that Facebook wants to be a commerce platform.

The following is an edited transcript of their conversation.

Lisa Ellis: They have a major goal to start facilitating commerce over their platforms as a whole new revenue stream for them beyond the social media revenue streams, and payments are essential to facilitating commerce. Eighty-five percent of Facebook users, when you look across all their properties including WhatsApp and Instagram and Facebook, are actually in developing markets. So as a means for empowering their WhatsApp users that are sitting in all these countries where those WhatsApp users have a phone and have a WhatsApp account but may not have a bank account, or even if they do, they may limit their use of the local currency because of its volatility — they’re trying to empower that group of individuals.

Tracey Samuelson: So talk to me about the trust factor, right? Because that’s been a huge issue around Facebook. And now we’re introducing a wallet into that scenario.

Ellis: Yeah. It’s perhaps one of the most challenging things, let me put it that way, that this initiative will have to work through, is the process of distancing itself from Facebook. So they’re quarterbacking the creation of Libra, but once it’s up and running in 2020, they will be one of 100 or so, roughly, members of the association with, in theory, no more control over the system than any of the other core constituents. Even their wallet, which is being called Calibra, they’re setting up as a separate subsidiary from Facebook specifically so that it can meet all of the appropriate regulatory compliance and kind of maintain the data separation.

Samuelson: What could go wrong? What should we be worried about?

Ellis: Well, payments are extremely messy and highly regulated and very different in every jurisdiction. And so most countries haven’t even decided how they want to treat cryptocurrencies. Are they a commodity like gold? Are they a currency like dollars? Are they a security like stock in a company? It’s actually treated in all three of those ways in different places, so given that not only will Libra have to navigate 200-plus countries’ different treatments, most of the countries don’t even have the treatment established.

Related links: more insight from Tracey Samuelson

That big, open question of regulation? Ellis said how receptive countries are to Facebook’s currency will likely have a big impact on where it rolls out the currency and when. It could take a phased approach.

If you really want to nerd out on this, you can check out Facebook’s white paper for more on the mechanics of how Libra will work, how it’ll be backed by a reserve of real assets and the association that will govern it.

And for something maybe lighter, remember the Winklevoss twins? Tyler and Cameron sued Facebook founder Mark Zuckerberg, saying he stole their idea, and settled for $65 million.

The twins have been big crypto investors and said on CBS’ “Sunday Morning” that they need to be “frenemies” with Facebook.

In May, the Financial Times reported that Zuck and the Winklevi had actually talked about the new currency.