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id="article-body" class="row" section="article-body"> Facebook and its partners are launching Libra, a new global cryptocurrency.

Getty Images Facebook's planned cryptocurrency has gotten a chilly response from regulators, nonprofits and politicians all expressing concerns about the social network's ambitious project. Even President Donald Trump bashed Libra, which was unveiled just a month ago, saying it will have "little standing or dependability."

The environment will likely get frostier when the Senate banking committee convenes a hearing on Tuesday morning to discuss Facebook's plans. Despite its dry title -- the hearing is called "Examining Facebook's Proposed Digital Currency and Data Privacy Considerations" -- the meeting will give legislators the opportunity to sound off about their concerns. They seem to have plenty. 

In fact, senators have been looking into Libra since before its was officially announced on June 18. In early May, Sens. Mike Crapo, R-Idaho, and Sherrod Brown, D-Ohio, the chairman and ranking member, wrote to Facebook CEO Mark Zuckerberg seeking information about Libra after months of leaks about the project. David Marcus, the Facebook executive running the Libra project, answered the senators' questions two months later. 

The House of Representatives has had a similarly skeptical view of Libra. Maxine Waters, the California Democrat who chairs the House Financial Services Committee, has called on Facebook to pause the project until legislators can vet it. The House committee holds its Libra hearing on Wednesday.

Until then, here's what you need to know. 

Why does Facebook want to have a cryptocurrency? 
This isn't actually Facebook's cryptocurrency. It's the project of the Libra Association, which Facebook co-founded. The association, which will serve as a monetary authority for the cryptocurrency, says Libra's purpose is to "empower billions of people," citing 1.7 billion adults without bank accounts who could use the currency.

The Libra logo.

Libra Association But Facebook has its own interest in digital cash that predates Libra. The social network ran a virtual currency, called Credits, for about four years as a way to make payments on games played within Facebook. In May, Mark Zuckerberg said that sending money online should be as simple as sending photos. Libra is designed to make it easier and cheaper for people to transfer money online, which might attract new users to the social network.

Facebook may also have bigger plans for Libra, though it hasn't shared them yet. A new subsidiary, called Calibra, will run a wallet that will be necessary in the initial rollout. "Facebook created Calibra, a regulated subsidiary, to ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network," according to a white paper describing the Libra project. Analysts at RBC Capital Markets say those services will likely include games and commerce.

Will Facebook have direct control over the new cryptocurrency?
No. Facebook is one of the members of the Libra Association, the nonprofit that will serve as a de facto monetary authority for the currency. (Facebook's membership is through Calibra.) Other founding members include MasterCard, Visa, PayPal, Uber, eBay, Vodafone and Mercy Corps. The association hopes to grow to 100 members, most of which will pony up $10 million to get the project going. Each member has the same vote in the association, which is headquartered in Switzerland. So Facebook won't have any more say over the association's decisions than any other member.

That said, Facebook will play an outsized role in the initial phases of the Libra project. In addition to running the Calibra wallet, Facebook expects to "maintain a leadership role through 2019." After the network is launched, Facebook says its role and responsibilities will be the same as those of any other founding member.

How is Libra different from other cryptocurrencies?
Let's start by addressing how Libra is similar to other cryptocurrencies, such as bitcoin and ether. Like them, Libra exists entirely in digital form. You won't be able to get a Libra note or coin. And like other cryptocurrencies, Libra transactions are recorded on a software ledger, known as blockchain, that confirms each transfer. The Libra blockchain will be managed by the founding members in the early stages but evolve into a fully open system in the future.

Here's what the Calibra wallet is expected to look like on a phone.

Facebook Unlike bitcoin, ether and some other cryptocurrencies, which aren't backed by anything and swing wildly in response to speculation, Libra will be pegged to a basket of assets that will anchor its value. The Libra Association hasn't said what those assets will be but indicated they will include "bank deposits and government securities in currencies from stable and reputable central banks." That suggests major global currencies, like the dollar and the euro, which don't fluctuate violently day to day.

The supply of Libra will grow or shrink based on how popular it is. If people want to use Libra, the association will buy more of the underlying assets and create, or "mint," new Libra. If people want to cash out of Libra, the association will pay them and destroy, or "burn," the proper amount of Libra.

Backing a currency with an asset isn't anything new. In fact, it used to be common. The US dollar was backed by gold until 1971. The value of the Hong Kong dollar is pegged to the US dollar and managed by a currency board, which can only issue new notes if it has enough in reserves.

How do Libra and other cryptocurrencies compare to the US dollar?
The US dollar is tried and true and pretty much accepted anywhere in the world. Some countries like the greenback so much that they use it instead of their own money. And dollars earn interest, although at current rates that won't add up to very much.

Of course, the dollar has weaknesses. Using dollars, particularly across borders, can be expensive because banks take a cut to convert them into local currencies. If you're using dollars on a prepaid card, the credit card company is probably charging the merchant a portion of your purchase. And if the US government prints too many dollars, inflation could follow.

Despite the hype, cryptocurrencies aren't widely used. Try buying a cup of coffee with ether. (Yes, currencyexchange.digital it's possible. But not widespread.) The value of cryptocurrencies is volatile, often rising or falling more than 5% a day, making it difficult to get a sense of the long-term worth of the asset.

Cryptocurrencies can make it easy to send money directly to someone. Though not private, cryptocurrencies can be pseudonymous. Some cryptocurrencies, notably bitcoin, have a cap on the number that can be minted, meaning that owners of existing coins don't have to worry about the arbitrary creation of new coins.

Is this just a ploy so Facebook can get its hands on my financial data and send me even more precisely targeted ads?
We hear you. Facebook doesn't have a great reputation for privacy protection.

The social network says don't worry ... not that you expected it to say anything else. Calibra, the maker of the wallet you'll need to use Libra, is set up as a subsidiary of Facebook. The arrangement allows for Calibra to be regulated by authorities to prevent money laundering and other financial crimes. But it will also keep Calibra's financial data separate from Facebook's social data, according to the company.

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