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Here's How Facebook's Libra Currency Will Work

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Facebook (FB) - Get Free Report is making a foray into blockchain-backed payments, with reams of data in a newly published white paper.

So now the key questions are: What is it and how does it work?

The coin is what is termed a "stablecoin," which means it is pegged to a basket of existing currencies such as the dollar and the euro, and allows users to buy and sell goods on the platform by use of a digital wallet that the system facilitates through its Calibra application.

"Being able to use mobile money can have an important positive impact on people's lives because you don't have to always carry cash, which can be insecure, or pay extra fees for transfers," CEO Mark Zuckerberg said. "We aspire to make it easy for everyone to send and receive money just like you use our apps to instantly share messages and photos."

WhatsApp and Messenger will be connected to offer seamless payments around the world at low or no cost in order to bring further accessibility to the effort, especially as WhatsApp remains overwhelmingly popular in underbanked regions like India.

The effort will be backed by a blockchain called the "Libra protocol" that allows "validators" across authorities with program resources "owned by different user accounts authenticated by public key cryptography and adhere to rules specified by the developers.

"All of this is built on blockchain technology," Zuckerberg explained. "It's decentralized -- meaning it's run by many different organizations instead of just one, making the system fairer overall."

For the time being, the validators will be 27 founding members that include major corporations across the tech industry including PayPal (PYPL) - Get Free Report , Uber (UBER) - Get Free Report , and Lyft (LYFT) - Get Free Report .

"Facebook teams played a key role in the creation of the Libra Association and the Libra Blockchain," a note explaining the governance structure adds. "While final decision-making authority rests with the association, Facebook is expected to maintain a leadership role through 2019."

As far as investment impact, some Wall Street analysts are forecasting the new currency to be the biggest impact on the company in years, akin to the "iPhone moment" that took Apple (AAPL) - Get Free Report to staple investment status over a decade ago.

"We think this is among the most important initiatives at the company and may be critical to commercializing the value of its messaging infrastructure," Loop Capital analyst Alan Gould said.

Still, with the lingering concerns surrounding Facebook's corporate governance and potential antitrust practices, there is certainly room for caution on the new initiative.

Recently, Donald Trump said Facebook's Libra will have "little standing or dependability," and suggested that the social media giant would have to seek a banking charter to proceed with the project.

Additional details on the investment outlook are available here.

For more on the potential pitfalls that could curtail the currency play, click here

Watch: Will Facebook's New Crypto Venture Kill Bitcoin or Fuel the Fire?

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