Facebook, one of the most powerful companies in the world, is launching a new global economy. Called Libra, the new cryptocurrency promises to allow individuals across the world to send funds cheaply without a bank account.
But what is Libra really about? What is the real purpose? What is the tech behind it and is it positive or negative for the crypto-community? And most importantly — will this new currency spark innovation around the world? Let’s go through Libra, its main characteristics, and the main challenges surrounding this new blockchain project.
Libra’s cryptocurrency
Libra’s mission is clear — enabling a simple global currency and financial infrastructure that will empower billions of people. It would expand the access to capital and allow users to send money across the world without a bank, directly from a mobile phone, for very low fees. This is one of the main promises of cryptocurrencies, yet few have gained widespread adoption. With billions of users, Facebook’s cryptocurrency has a massive reach.
Backed by a range of bank deposits and treasuries from high-quality central banks that experience low inflation and present the advantages of a geographically diversified portfolio of assets (called the Libra Reserve), the Libra coin is a “stable” coin. However, the exact components of the basket of assets backing the Libra at this moment undefined.
Currently, most stable coins are pegged to fiat currency. Libra, however, will have a basket of currencies, and other financial instruments to prop it up in order to avoid volatility. The Libra whitepaper claims that the coin will remain fully backed.
Each user will be able to hold their Libra Coin on Calibra, Facebook’s consumer-facing custodial wallet that will be available first on WhatsApp and Messenger and will then spinoff into an autonomous app for iOS and Android. Any person interested in opening a Calibra account will need an official ID that will be verified to be compliant with the different financial regulations.
Calibra meanwhile, is a regulated subsidiary of Facebook. This is why the crypto community is particularly aggressive towards the Libra Coin. Despite the multiple protection layers put in place to isolate Facebook from Calibra, the social network’s security record leaves many skeptical.
The Libra Association
Even though the idea came from Facebook, the social media company did not develop it. Facebook also does not control the cryptocurrency. Instead, the Switzerland-based non-profit Libra Foundation calls the shots. Of course, Facebook will be influential, because of its stature as a thought leader in this association, but the decisive power will remain in the hands of the Association.
The Libra Association includes 28 founding members including the most reputable actors of multiple industries. Representatives from payments, telecommunication, blockchain, VCs, non-profit organizations, and academia including but not limited to MasterCard, Paypal, Vodafone, Uber, Spotify, and eBay. The fact that banks are not present in the Libra Association is not very surprising. David Marcus, who leads the Libra Project at Facebook- “absolutely and strongly denied the fact that we’ve approached banks and banks have said no”.
Each of these founding members aside the non-profit organizations and academic institutions spent $10 million to join the consortium. The founding members of the association will run one of the validator nodes that form the network and operate the Libra Blockchain and receive the Libra Investment token as a financial reward. The Libra Investment token represents an expectation of returns from interest on the reserve, further incentivizing the validators to keep the system operational, according to the Libra whitepaper.
Is it Decentralized?
Decentralization is really at the core of any crypto discussion. However, its definition is often blurry and depends highly on the context.
Libra is not decentralized in the way Bitcoin is decentralized. Nevertheless, it’s necessary to understand that the context Libra is in is very different than that of Bitcoin.
Bitcoin aims to bring a way to transact between people without third-party entities. Instead of trusting a third party, users trust the code. However, this same characteristic is what alarmed regulators worried that Bitcoin could be funding vice and enabling tax evasion. This makes unregulated cryptocurrencies incompatible with most serious businesses. In fact, the whole idea of a centralized business goes against the ethos of crypto-anarchists. Of course, maximalists argue the same violations can arise with traditional fiat but everything lies in the context.
Would you accept fiat of a reputable VC that wants to invest in your business? Probably yes, even if it’s fiat. Would you accept the same amount coming from an obscure company in Panama? The problem does not really lie in the medium of exchange but in the context surrounding it.
Libra aims to bring banking to people without banks, doing it in a totally decentralized way would not only be illegal but also inefficient. Same goes for any financial sector. Rules, restrictions, and regulations are just part of the landscape, so don’t ignore them.
Libra is more decentralized than payment entities such as Paypal or Western Union because the whole infrastructure does not lie in the hands of one entity. It is certainly not in line with the vision of Bitcoin maximalists but still constitutes a big step towards mass adoption, which is the single biggest problem in the crypto industry today.
Let’s Move.
Move is the programming language behind the Libra coin. It’s very different from a programming language such as Solidity (Ethereum programming language) because it’s not Turing complete (you can’t create any logic you want). In other words, you can’t program anything you want on Libra.
Compared to Solidity, Move is similar to a domain specific language, or DSL. That means that by its own nature of not being Turing complete, Move solves a lot of the problems that usually come with Turing complete languages —smart contract hacks and other vulnerabilities. The two reasons to choose such a language are for the safety and the stability of applications written in Move.
It is not inherently something new, other blockchains such as Stellar have a similar approach where they provide an SDK a framework usable with a popular programming language but that restricts how this framework can be used.
The idea behind Move, restricting what the user can do, is in the end very similar to design patterns in software design. Design patterns are a way of organizing and writing code in order to solve specific problems, they are restrictive but in the end, bring solutions to specific problems.
Conclusion
Nothing is perfect. The Libra Coin will not be running on a fully decentralized system but aims to become more decentralized over time.
However, there are numerous positive points. First, this may be an on-ramp for mass adoption of crypto-currency. It may also kick off a burst of innovation for tech and blockchain entrepreneurs. The fact that one of the most powerful companies in the world is encouraging mass crypto adoption is excellent coverage for the blockchain industry.
However, numerous questions will need to be solved, especially on the regulatory territory – given the absence of a clear regulatory framework in this field. The future of the coin is uncertain due to potential regulatory problems. Despite their open behavior towards financial regulators, the Libra coin had an almost Immediate political opposition in Europe and the USA, worried about the fact that Facebook could become a Shadow Bank, or could include infringing privacy, money laundering and financing terror.
Libra will undoubtedly continue to dominate the blockchain discussion and captivate the crypto community.
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