CRYPTOCURRENCY: The future of how we spend... or crazy fad?
WHEN Facebook announced plans for its own currency, experts hailed it a “gamechanger” and “another nail in the coffin for banks”.
The US social media giant, run by billionaire Mark Zuckerberg, called Libra a “truly global currency designed for the digital age”.
Libra is, like Bitcoin, the latest in a long line of cryptocurrencies.
We explore what they are and whether they will replace money.
Q Just what is a cryptocurrency?
A “Crypto” means secret, because of the hidden way transactions are made, and currency for a form of electronic cash. Bitcoin is the best known one, but there are lots of others such as Ripple, Litecoin and Ethereum.
Q How do cryptocurrencies differ from cash?
A They’re electronic. The other key difference is they bypass any central bank or government. They have been dubbed by some as anti-bank and anti-state.
Q How can I get them?
A Bitcoins can be bought from individuals or special websites called exchanges. Facebook has given some details about getting Libra coins. You will need to sign up for Calibra, a new service, and use money to buy currency that goes in a digital wallet.
Q Where are the cryptocurrencies stored?
A Once you’ve bought a coin, a line of computer code is written down in a ledger, known as a blockchain. One problem with most cryptocurrencies is that, if you lose the code, you’ve lost your money.
Q How does Libra differ?
A Facebook claims its currency tackles some of the major issues that have plagued others. Libra’s value will be tied to real world assets, including currencies such as dollars.
Every time a user swaps cash for Libra through an exchange that cash will be added to a reserve. While most cryptocoin payments are processed by computers all over the place, Libra’s will be done by the servers of members who make up the Libra Association, including Facebook, Paypal and taxi app Uber.
Q What can I buy with cryptocurrency?
A In short, not much, at least for now. No major high street shop accepts cryptocurrency. It is generally slower to pay with cryptocurrency too. Facebook claims that is another way Libra will differ. It says, once launched, the currency can be used to pay for everyday transactions, such as a coffee. The idea is that it will work in a similar fashion to paying with a bank card or using contactless.
Facebook hasn’t said which companies will accept Libra but it is most likely to include Uber and eBay, as they are both backing it.
Q Why have there been so many warnings about cryptocurrencies?
A Partly because of fears that investors will lose a packet. The value of Bitcoin, for example, has had big ups and downs.
Legendary US investor Warren Buffett said of Bitcoin: “Stay away from it. It’s a mirage, basically.”
Facebook claims, by linking Libra to real assets, the value will be more stable. The other big criticism is that they could be exploited by hackers. The fact that most types are untraceable makes it a dream for drug dealers and money launderers.
Q What about the concerns over Libra?
A Some are suspicious that the processing of payments will involve the Libra Association’s club of mega-corporations.
Then there are concerns about Facebook itself, with its reputation battered by privacy issues.
Facebook, which has 2.7billion users and owns photo-sharing giant Instagram and messaging service Whatsapp, has vowed to make changes.
But the unveiling of Libra came just over a year after the Cambridge Analytica scandal, in which the political consultancy obtained data on millions of Facebook users.
Q Will it really happen?
A Doubts are growing that it will go live next year, or at all. Reports say payments giants Visa and Mastercard, two backers, are considering backing out. The firm also needs to convince officials.
The Bank of England has said Libra must meet very strict financial standards to be allowed in the UK.
The Information Commissioner’s Office has joined authorities from around the world in calling for more openness about its infrastructure.
A statement to Facebook and 28 firms behind the project asked them how personal data will be processed.
There is also the question of whether it is wanted. A survey found just 1 per cent of Brits said they would be willing to pay with Libra.
Facebook says of Libra: “Moving money globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo, no matter where you live, what you do, or how much you earn.”
Time will tell if cryptocurrencies herald a revolution or are a fad that fizzles out.