There’s a maze of cryptocurrencies available through the Internet, and new ones seem to appear every week. Their values rise and fall wildly, and people are understandably wary of them. But now there’s something new: a cryptocurrency brought out by a major business and designed to have a stable value! It’s called Libra.

Facebook is the driving force behind this currency, which will go live in 2020. However, Facebook doesn’t have exclusive control over it. A large organization of major players will share control of the network. It should prove very interesting to small businesses who want a better way to handle online payments.

Libra will come with its own infrastructure. People will be able to make instant purchases through Facebook Messenger, providing a ready-made market. Businesses both small and large will be able to take advantage. The experience for buyers will be like PayPal, only smoother and with lower transaction costs. Sellers will receive payment immediately, without having to go through credit card processing or deduct substantial fees. The opportunities are especially exciting for very low-price transactions, which are impractical with most current online payment methods. It’s like being handed cash.

Libra isn’t “another Bitcoin”

What is money? It’s whatever people are willing to use as a unit for buying, selling, and exchanging. A cryptocurrency is money which is based on cryptography. Bitcoin is the best known example. You can’t create it except by following strict rules. You can’t counterfeit, change, or erase a transaction that has taken place. All transactions are recorded on a blockchain, a permanent set of records secured by cryptographic algorithms and multiple independent copies.

What gives it value? Simply that people are willing to accept it as payment. But the value of Bitcoin can and does swing wildly over time. Investors may like that; businesses setting prices on their products and services don’t.

Libra is different. It’s the first “hard” cryptocurrency. Its value is tied to a reserve of bank deposits and short-term government securities. It won’t keep a fixed US dollar value, but the fluctuations should be modest, comparable to exchange rates for the euro or the Canadian dollar. This will make it a more practical currency for e-commerce.

Like other blockchain currencies, Libra supports “smart contracts.” They’re software programs built into the blockchain which automate transactions. A smart contract could, for example, cause a monthly payment to happen automatically, perhaps adjusting for the current exchange rate.

There’s a transaction fee associated with each use, but it’s tiny, a small fraction of a cent. Libra is practical for very small payments.

The Libra Association

Facebook recognized that if it had full control over Libra, people wouldn’t trust it very much. It isn’t just Facebook; any single company would be presumed to put its own interests first. The controlling organization is the Libra Association, a non-profit organization with 28 founding members. Each one has invested at least $10 million in the association. They include big names like MasterCard, Visa, eBay, and Uber.

Opportunities for small businesses

A long-sought goal on the Internet has been a way to make micropayments practical. Being able to sell a single play of a song or video for a few cents, or inviting people to support a website with a tiny payment for each visit, would open up new business models. Fees for credit cards and PayPal transactions are just too big on that scale. The fees for Libra transactions will be practically unnoticeable, even with ten-cent payments.

Not everyone has a checking account, and payments by check aren’t always ideal even when they’re possible. Checks can be stolen from mailboxes, and they take days to deliver and clear. Many people who don’t have a bank account still have a smartphone, and crypto wallets don’t have minimum balance requirements. Libra will be a quicker and more secure form of payment than checks.

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