Facebook launches Libra and Calibra in a move to seriously disrupt the financial sector

Facebook today announced that it's going to launch its own cryptocurrency, Libra, in what looks like an unprecedented move into the financial sector.

At first glance Libra, due to go live in 2020, might seem like a chance for Facebook to just test the waters in a cryptocurrency market that's yet to see widespread adoption, but with the parallel launch of Calibra, a payment platform that sits on top of the cryptocurrency, it appears that Facebook plans to develop an entirely new ecosystem for digital transactions that is far bigger than anything that has come before.

While media attention right now is focused on Libra, it's important to understand that what we're seeing from Facebook is an attempt to tackle a number of huge challenges. On the one hand, both Libra and Calibra could help to unify a fairly fragmented digital payment market, but it also opens up a whole new market of people who, lacking a bank account, might not even currently be part of the digital economy.

The Libra Association as Facebook's foundation for the future of the digital economy

To get to this point Facebook has had to collaborate with some of the biggest organizations in the world to construct a foundational infrastructure for its plans.

The Libra Association is a nonprofit organization is made up of companies including PayPal, loan platform Kiva, Uber, and Lyft as well as many others - all of which have essentially brought into Facebook's vision. By grouping together, the Libra Association is perhaps the most serious attempt by a set of established companies and non-profits to make a cryptocurrency a success.

The fact that Facebook has taken steps to form an institution around Libra underlines how important the project is to the company. Its also a tacit admission from Facebook that to build a truly successful ecosystem it must work with other organizations. It can't simply go it alone.

Is Libra just like any other cryptocurrency?

Libra isn't like other cryptocurrencies such as Bitcoin or Ethereum. It should, in theory at least, avoid the notorious volatility of cryptocurrencies by being "tied to a mix of global assets", as the Guardian explains.

Libra isn't, then, strictly a decentralized currency. As the Reuters report highlights, "the Libra blockchain will be permissioned, meaning that only entities authorized by the governing association will be able to run the computers."

It's easy to gloss over this (Reuters has), but as the Financial Times' Alphaville publication points out, it's actually open to question to what extent Libra is actually built on Blockchain.

Writing on Alphaville, journalist Jemima Kelly identifies sections of the Libra white paperthat are confusing and contradictory:

 "...Unlike previous blockchains, which view the blockchain as a collection of blocks of transactions, the Libra Blockchain is a single data structure that records the history of transactions and states over time."

In essence then, maybe not quite a Blockchain...

There's probably some degree of smoke and mirrors at play. But given the challenging recent history of the cryptocurrency market, arguably this is the right move by Facebook and the Libra Association to keep some distance between Libra and 'standard' cryptocurrencies, while flirting with the hype that surrounds blockchain.

Read next: Containers and Python are in demand, but Blockchain is all hype, says Skill Up developer survey

What is Calibra?

Calibra is Facebook's payment platform that sits on top of Libra. The plan is for Calibra to become a cryptocurrency wallet that integrates with Facebook products. Initially it will be accessible as a button in Messenger and WhatsApp, but it could eventually help power transactions on Instagram - something that has long held promise but has never really been implemented in a way amenable to users.

Calibra, then, will likely become the primary way that users experience Libra, especially on services like WhatsApp and Messenger. As Kevin Weil, Calibra's VP of Product said in an interview with Verge, "there’s a lot of overlap between the things you want out of a wallet for currency and the things you want out of a messaging app.

As well as being accessible through Facebook products, Calibra will also be available as a standalone app that users can download.

Can Calibra make digital transactions accessible to those without bank accounts?

One of the potential benefits of Calibra is that it can be used by anyone with a smartphone. Most payment services, like PayPal, require a bank account - Calibra will make Libra accessible to millions of people who might typically only have access to cash (according to the Verge report, almost 1.7 billion people don't have a bank account).

This brings a great swathe of the global population into the digital economy. From Facebook's perspective, enabling that becomes very valuable strategically. Indeed, it could elevate the organization to Amazon or Google levels of economic power. That's a long way off, but Calibra at least provides the company with a foundation.

Is Libra and Calibra really such a good idea for Facebook?

Facebook has faced significant scrutiny over the last few years. This means Libra and Calibra will both be entering the world at a tumultuous time for Facebook.

Perhaps it's not that surprising - given all the challenges Facebook faces, this is a huge strategic initiative that could help the company re position itself as a core part of the digital economy's infrastructure, rather than simply a tool for misinformation and hate speech. Think of it this way - although both Google and Amazon are facing a number of issues ranging from privacy to working conditions, both companies largely appear to be withstanding difficult times.

Whether Libra and Calibra actually work out for Facebook - and whether users actually use it - is another matter completely.

While there's undoubtedly a demand for a more seamless payment service that goes one step further than the likes of PayPal, that guarantees both privacy and minimal friction, for Facebook to look at itself as the company to provide the solution to this enormous challenge takes considerable confidence and a big dash of hubris.