Facebook Libra for business and e-commerce (executive summary)

This blog post summarizes the key facts about project Libra by Facebook and partners from business perspective. I have read and analysed Libra whitepaper and publications on the topic to produce a short summary to give our customers and readers a chance to understand possible implications and opportunities Libra creates for their business, without having to spend too much time.

Project “Libra blockchain” has solid technical and organizational backing. It isn’t so much about blockchain at this stage, it’s rather Paypal 2.0 (based on decentralized database). Short-term benefit for businesses and e-commerce is the emerging new market of millions of users worldwide who are going to become holders of a cryptocurrency that is easy to transact. Facebook products such as Messenger, WhatsApp and FB Marketplace are likely to be the main gateways into Libra at initial stage. E-commerce and merchants will most certainly be the first to benefit from Libra due to better access to customers and payments. Blockchain-based and tokenization projects aren’t likely to directly intersect with or benefit from Libra in the short term and should stay their course for now.

Longer version below. Please note I’m not focusing here on technicalities, philosophy and religion of decentalization or sentiment around ‘Facebook taking over the world’. Notes below highlight aspects that I think are key for understanding of the project form business perspective.

It is a stable coin(linked to a basket of historically stable international currencies securities consisting of USD, EUR, GBP, JPY in the beginning). This means price is not going to be volatile making it convenient for financial transactions. Note: for same reason it is not very suitable for investment or speculative trading. The start value of 1 Libra will be close to that of a dollar, euro or pound.

It is a reserved collateralized currency. This means each Libra coin is backed by funds users have put into system. The reserves will be held by the founding members of Libra Association such as Facebook who will earn interest. Users will be able to purchase Libra using their local currency through wallet apps and local resellers such as grocery stores. Businesses would simply withdraw Libra exchanging it into local currency as there seems no point in holding it for any other purposes.

Calibra wallet vs Libra. Calibra is the the first custodial wallet for Libra. Note that Calibra (wallet) is just one way to use Libra (coin and blockchain network). Calibra is a subsidiary of Facebook while Libra is governed by an independent board. Users will have to pass KYC, provide photo ID etc to be able to use Calibra wallet either as a stand-alone app on iOS and Android or as WhatsApp/Messenger integration. Users and transactions will be subject to anti-fraud monitoring. Calibra users are to be compensated in case they lose money due to fraud, scam or lost password. This makes whole experience closer to that of a Paypal or a bank account. This is not in line with decentralized money philosophy but will be welcomed by businesses and those end users who are not crypto savvy.

Transactions. Users will be able to send Libra payments to friends and merchants specifying the amount and description. It is also possible to request payments and to make expedite payments by scanning merchant’s QR code. In-store payments and POS terminals integrations will follow.

Applications / use cases: Intended short term uses likely to become available with Calibra, Messenger and WhatsApp integrations: cross-border payments between friends and family, micropayments, small business transactions, Facebook marketplace transactions. As Libra documentation puts it, their measure of success will be “a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee”.

Technology. I must admit I’ve had somewhat negative prejudice to whole affair prior to reading Libra white paper. Beyond all the Facebook related sentiment, being a techie I’m always looking for optimisation and unification of standards where possible. Why on earth have they decided to create yet another blockchain and programming language? Why introduce more fragmentation into blockchain ecosystem when there are so many types of networks available already, couldn’t they simply pick something Ethereum-based or Hedera for example? Having read the whole thing – and I definitely recommend the version highlighted and commented by Philippe Castonguay here: https://github.com/PhABC/LibraWhitepaper/blob/master/the-libra-blockchain_Annotated_by_PhABC.pdf I can conclude there is actually some brilliant thinking behind some of its design concepts. While Libra architecture and Move programming language don’t solve main problems Ethereum struggles with, they do propose elegant solutions which can be considered as a valid fresh approach if not breakthrough, in some aspects at least. In short, technology and architecture seem to be meeting the expectations so far and judging from limited information that is shared with us. Libra and Move will get their place under sun, but in the end of course it will all depend on practicalities, pace of development and ecosystem.

Integration (basic). Merchants will most definitely need a valid KYC-passed Calibra wallet to be able to receive payments via WhatsApp and Messenger but details on this are not clear yet. Initially merchants will have to rely on interfaces built into WhatsApp, Messenger, Facebook Marketplace for receiving such payments. Given both Stripe and Paypal participate in Libra, we assume they are going to support the ecosystem with their payment gateways. Many online businesses use Stripe and Paypal for payment processing and both providers are likely to enable Libra for their customers. Furthermore, by way of example, while Stripe supports Bitcoin too, depending on use case sometimes it works better for businesses to integrate crypto payments directly. We expect same should be possible for Libra. In future nothing should stop a business from writing their own smart contract in Move language and accepting Libra directly. This however isn’t supported currently as 3rd party developers are not allowed to contribute modules (smart contracts) into Libra blockchain for undeclared time and until it is mature enough.

Integration (advanced). The following conditions will need to be met before you’re able to fully deploy your financial application to Libra:

(1) Customers to on-ramp their cash into Libra (via Calibra wallet app, online and offline partners);

(2) Customers to have interface to discover your business and your Libra address (it is currently not clear how this is going to happen outside of Facebook products ecosystem);

(3) Your developers gain access to one of the Libra nodes to be able to deploy your own modules (smart contract) code into Libra blockchain.

While it’s clear (1) is going to be there and you will be able to get exposure via your business presence in Facebook ecosystem (2), there is no ETA on (3).

At the same time Facebook and other founding members have a head start and inevitably will remain gatekeepers, at least during initial years of operation. Furthermore, there is no guarantee that discovery interfaces and game rules in relation to (2) are going to be fair, transparent or consistent. Many developers building applications (and sometimes whole businesses) on top of Facebook have had their fingers burned in the past with social network changing rules of engagement, restricting access or simply killing APIs and platforms at own convenience.

2.4bn market. There is no doubt however businesses will flock to the platform simply because nothing can beat the 2.4 billion strong community of potential customers. This is good news for crypto globally too as adoption and currency -> crypto on-ramp used to be one of the major problems. Millions of people around the world will become crypto holders and will start making transactions.

Incentives. If the notion of 2.4 billion customers is not good enough, Libra Association is planning to offer incentives to early adopters among developers and merchants, such as a percentage of transaction paid back, which businesses can keep or pass on to their customers.

Regulators stance. Calibra wallet won’t work in India, China and other markets that take stand against cryptocurrency or are under U.S. sanctions. French Finance Minister Bruno Le Maire says “Libra being a sovereign currency is out of question“. US House Financial Services Committee Chairwoman Maxine Waters urged Facebook to stop the initiative until hearings can be held. This potentially introduces major delays to the roll out and/or geographical limitations for production launch of Libra network (originally planned for 2020).

Competition and alternatives. Google, Apple and Telegram are all working on their own versions of global financial platforms that are blockchain based. The space definitely gets disrupted and businesses will have to adapt to this changing landscape and get used to tech giants offering financial services. Those who manage to keep up with integrations and new ways of transacting will be able to ride the wave of decentralized finance revolution and gain access to massive customer bases.

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