Facebook published its white paper and took the wraps off of its secretive Project Libra.
Libra is a new type of digital currency designed for the billions of people using Facebook’s apps and social network. Users will soon be able to shop with and send their Libra currency via Messenger and Instagram, as well as use it with a wide variety of other merchants like Uber, Spotify, and MasterCard.
Facebook did not provide specifics about exactly when and how consumers will get ahold of the currency, but executives suggest it will first be distributed on Messenger and WhatsApp in mid-2020.
Another thing to note is that Facebook is playing the long game. The company is also launching a subsidiary called Calibra, which will act as a digital wallet. It serves to protect users’ privacy by vowing not to combine users’ Libra payments with their Facebook data so they can’t be used for ad targeting. In other words, your real identity won’t be tied to your publicly visible transactions.
Facebook’s goal to create a new global currency is an audacious one. According to David Marcus, a former PayPal executive who is leading Project Libra for Facebook, one of the initiative’s main goals is to reach the 1.7 billion people worldwide who lack access to the banking system.
“It’s an anomaly that the Internet has no protocol for money,” Marcus tells Fortune, adding that Project Libra will also provide more competition in financial services, along with increasing access to capital.
Unlike Bitcoin, Libra will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks. The New York Times notes that to acquire Libra digital tokens, people would probably have to show government identification. That would make it unappealing for illegal activity.
Last week, I posed some questions about Project Libra in Term Sheet. My colleague Jeff John Roberts wrote two articles that helped answer these questions. You can read the detailed overview of Libra here & the Q&A here.
Who is backing Libra?
While Facebook has been driving the project, the company is framing its role as one member of a federation of dozens of companies and non-profit organizations that will together manage the currency through a Swiss foundation. Corporate members of the organization, known as the Libra Foundation, will be required to contribute a minimum of $10 million to help the currency gain traction, an effort that will likely see users receive a small amount of Libra to test it out.
Initial members of the foundation are Facebook and 27 other partners, including Visa, MasterCard, PayPal, Coinbase, and venture capital firms like Andreessen Horowitz and Union Square Ventures. Marcus hopes as many as 100 partners will be onboard by the time the currency debuts, by which time the group will have crafted a formal charter that sets out voting rights and other rules.
The Libra blockchain—like other blockchains—will provide a tamper-proof record of transactions on the network. But, unlike Bitcoin and other public blockchains, only authorized bodies—in this case, foundation members—will be allowed to run a node.
In addition, members will also maintain the supply of Libra in response to demand—meaning they will issue new Libra as needed, and destroy the digital currency when people redeem them.
Members are also required to support a reserve fund to keep the value of the currency stable. In order to avoid the notorious volatility of cryptocurrencies like Bitcoin, each unit of Libra will be backed one-to-one in a basket consisting of dollars, pounds, euros, and Swiss francs.
Is Facebook trying to be a financial services company now?
In launching the currency, Facebook appears to be betting that customers will treat it as a financial service. According to Calibra’s head of product Dante Disparte, customers in the U.S. will be subject to so-called “know your customer” requirements, meaning they will have to provide detailed personal information to use the service.
This raises the question of why Facebook is leading Project Libra in the first place. Based on conversations with Facebook executives, the company appears to see an opportunity to cut into the remittance market by offering users an easy, low-cost way to transfer funds across borders.
Disparte noted, in particular, that many low-income people already use WhatsApp to photograph receipts as part of a process to collect remittances from local money changers. He says this project could be expedited enormously by building the ability to transfer money—in the form of Libra—directly into WhatsApp.
Initially, Libra would be used for payments — but in the future, the NYT notes, it could be used for lending and investing.
What about privacy?
Facebook is setting up its new Calibra wallet as a separate company, and is promising not to combine user data with its other apps, like Facebook and Instagram—unless you give it permission. So, in theory, only Calibra will have a record of your transactions. But many Calibra users may decide to use its integrated Facebook friend-finding feature, and if they do, their data will be combined. Libra may be stored in competing digital wallet apps built by other companies that provide higher levels of privacy.
And finally, why does this matter?
If adopted by companies and users, Libra can become a more convenient way to pay online. Facebook likely plans to sell products on Instagram and WhatsApp, but other websites could also use the cryptocurrency for e-commerce. But beyond e-commerce, especially for people in developing countries that lack a banking infrastructure, Libra could be useful for storing and transferring money, without paying high fees. So, if you want to send money to another country, Libra may be a cheaper way to do it than what’s currently available.
More broadly, it Libra is successful, it could become the foundation for a new financial system not controlled by central banks or today’s power brokers on Wall Street.
FEEDBACK: I am eagerly awaiting your thoughts on this project and whether you think it has a shot to disrupt financial services as we know it. Email me at email@example.com with the subject line “Project Libra” and note that your responses may be used in a future Term Sheet.
BRAINSTORM FINANCE KICK-OFF: Fortune’s inaugural Brainstorm Finance conference kicks off tomorrow. We’ll discuss Libra, Bitcoin, and so much more. You can watch the livestream here or follow Lucinda and me on Twitter for some added commentary and snark.
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