Libra: PayPal Upgraded
If the project overcomes its current controversies and setbacks, Facebook’s Libra cryptocurrency could become the most significant development in online payments since PayPal.
At least in its ambition, Libra is an attempt to do for cryptocurrency what PayPal did for online spending, while at the same time strengthening the position of both Facebook and the apps it owns as leading online marketplaces.
To get an idea of the scope of Facebook’s ambition with Libra, one need look only at the leadership of the project. The head of Libra is David Marcus, who is not only the former president of PayPal but also sits on the Coinbase board of directors, while also serving as the head of Facebook Messenger.
Libra, if successful, will unite all of these areas (spending, cryptocurrency, and communication) in one place.
A Trusted Way to Spend Cryptocurrency
At the turn of the millennium internet spending was in its naissance and unfamiliarity with technology meant that people were skeptical about making payments online, much in the same way many people are skeptical about cryptocurrency in 2019. Ebay acquired PayPal in 2002, and soon 70% of ebay auctions accepted it as a payment method – leading the charge in utilising the retail potential of the internet through providing a trusted way to transfer money online.
Libra offers a similar breakthrough in terms of familiarising people with cryptocurrency. There is skepticism about cryptocurrencies because they are alien to the way in which most people are used to dealing with things financially: a centralised institution such as a bank keeps your money safe, and you spend it.
With the backing of one of the world’s most recognisable companies, Libra will be able to position itself as a payment method that can be used on Facebook’s platforms (just as PayPal was on ebay). The twist then comes in the fact that this payment method is a currency all of its own, rather than just a middleman.
Libra will be both PayPal and the bank, and as people hold more Libra they will shop more on Facebook’s platforms.
Payment System and Currency Combined
Libra’s potential comes from its nature as a cryptocurrency. Whereas PayPal facilitates online transactions for its users, it still does this with ‘conventional’ money and payment methods. The user has a more seamless experience, but they are still paying with money that comes directly out of their bank account.
Libra is different, as it will not only facilitate millions of payments, but transact those payments using cryptocurrency that people will have to buy. Transactions will then be recorded on a (partially) decentralised blockchain, without the need for a centralised bank to verify spending or accept/make payments.
The payment system for one of the largest and most far-reaching companies in the world will be independent of centralised banks if Libra achieves its goals.
A Ready-Made Crypto Marketplace
Once people have bought their Libra, they’ll need a place to spend it.
Facebook has already spent years building up the infrastructure necessary to supply this. If people get used to having a little bit of Libra in their wallets most of the time, they’ll be more inclined to go where they can use it: Facebook.
Libra will be incorporated into ready-built online retail spaces such as Facebook Marketplace, but more importantly Instagram and later WhatsApp (imagine the ease of sending money to your friends/paying for a taxi over WhatsApp using Libra just as you’d send a message). This will further strengthen peoples’ connection to spending money through Facebook’s platforms.
This will then have a ‘snowball effect’, driving more sellers to Facebook and increasing revenues, as David Marcus explained during a recent briefing in San Francisco: “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.”
It seems unlikely that Libra itself will be a big earner for Facebook as a stand-alone project. The cryptocurrency and its blockchain is set up to be run and administered by an independent body, and although there will likely be small ‘gas’ payments (transaction fees) on the network, it seems probable that these will be distributed. It is normalising spending behaviour through Facebook’s ready-built platforms that seems to be Libra’s purpose.
A Long Way to Go
There are still a lot of hurdles in front of Libra, with stories hitting the news every day about potential challenges or pitfalls, but even the discussion about Libra seems to be a watershed moment in the history of cryptocurrency.
One indication of the way the wind is blowing is that both VISA and Mastercard (another early collaborator with PayPal in 2008) are set to be founding members of the Libra Association, the organisation set up to manage the currency and its blockchain. It would seem that the big players feel they can’t afford just to ignore Libra.
Libra has the potential to disrupt the way money changes hands around the globe, rather than simply provide another method to make bank payments. In 2020 we could be seeing the advent of a new generation of internet spending.