Lyra is Libra Done Right
What’s In a Name
More appears to be in common here than just a name starting with L and ending with -ra. It’s almost enough to make us think the folks at Facebook read our Dec. 2017 white paper. (Perhaps they did, but we don’t flatter ourselves.) Still, there are clearly a number of common aspects. Like Lyra, Libra is an asset-backed stablecoin purchased into existence by customers, which uses a blockchain for specific purposes (but as a means, not as an end in itself), and circulates among wallet clients linked together by a federated XMPP network. This is a much closer kinship than either one has with, say, Bitcoin.
The following table displays a blow-by-blow comparison of the feature sets of Lyra and Libra, also including Bitcoin as a standard reference point.
A quick glance over this table reveals that Libra has much more in common with Lyra than either does with Bitcoin, or other first-generation blockchain cryptocurrencies. But let’s delve more deeply into the similarities and differences.
Similar But With Important Differences
- Issuance model: Lyra and Libra are both “purchased” into existence. That is, coins are minted into circulation in response to market demand. In considering whether a cryptocurrency could serve as a global reserve currency, Charles Hugh Smith (a financial commentator always worth reading!) notes that: “the issuer of the quatloo [our hypothetical digital currency] would have to carefully issue more quatloos only when demand justified the need for more monetary "grease" for the global economy.” Certainly any currency created to meet market demand would meet this criterion. He goes on to note that: “If on the other hand skyrocketing demand/scarcity drove the value to the stratosphere, holders of the quatloo would rejoice, but this volatility would present its own set of risks for those seeking to use the quatloo as a reserve against currency volatility in the home-country currency. If a digital currency can leap ten-fold in a short time, then might it not drop with equal volatility? Volatility is the enemy of reserves.” This is precisely why Bitcoin, and other “deflationary” cryptos with fixed supplies, cannot act as currencies by themselves, contrary to the assertions of many crypto pundits. An inflexible, finite supply virtually guarantees a consistent increase in price over time. Good for an investment, not so good for a stable currency.
- Permissioned blockchains: Both Ascension and Facebook will deploy a blockchain. However, Libra’s blockchain won’t really be a blockchain in the strict sense, because the hash of the last block is not an input to the next block (as pointed out in this excellent dissection of the Libra white paper by Jameson Lopp). So there’s a sequence of signed ledger states used to bundle transactions, but no “chain” as such. Lyra and Libra will both rely upon permissioned validators, i.e. masternodes with special privileges, to clear transactions and arrive at network consensus. However, Libra’s validators will be operated by other large corporations (similar to Ripple’s), while Lyra’s will be run by independent entrepreneurs under contract. Bitcoin theoretically allows anyone to validate, but if you don’t control enough hashing power to have a realistic chance of mining blocks now and then, forget it.
- Reserve assets: The asset backing for Facebook Libra is to be bank deposits in fiat currencies (such as dollars, euros, yen, pounds) plus a portion in short term government securities (such as 28 day US Treasuries). In our view, this is simply not good enough. As Charles Hugh Smith concludes, “Libra will be backed by state-issued fiat currency, so it's nothing but a corporate-controlled proxy for all the unbacked, prone-to-hyperinflation state currencies.” Succinctly put and exactly right. On the other hand, we also need to avoid a proxy for a scarcity currency which will appreciate to the skies even as those state currencies hyperinflate. Bitcoin (and perhaps even gold) will go to the moon when that happens. Gresham’s Law dictates that no one will spend their “good” money, when as the ad slogan goes, “for everything else there’s MasterCard.” We believe that the best way to achieve a stable commercial-use currency is by establishing a fractional backing in hard, fixed supply currencies such as gold and bitcoin. It cannot be a mere proxy for the backing itself. This is why Lyra has a projected 30% backing against a basket of hard assets. Wild price swings can be smoothed out by adding reserves, or by selling reserves to buy back excess Lyra, or by adjusting the reserve ratio. The market will be our guide, and success our reward for getting it right.
- Bottom up vs. top down: The nature of Libra’s reserves (bank deposits and short maturity government paper) makes it all too clear how Facebook is going to make a profit with the system, even in the absence of spend fees. They’ll simply sell say a trillion dollars worth of Libra, put the reserves into bonds and CDs, and pocket $25 billion a year in interest, or some such. (Interest on Libra reserves will be paid to the Libra Association, and apparently to validators, but not to users.)The banking cartel and the governments will be happy, and the users won’t miss anything because banks don’t pay small depositors any interest worth sneezing at anyway. The Lyra model is very different: a portion of new Lyra minted is paid out to existing holders who “stake” some of their Lyra for a period of time. Since additional mintage can compensate for reserve appreciation, this effectively allows the users of Lyra to receive income from the appreciation of Lyra reserves, simply by deploying some of their savings held in the form of Lyra. The almost complete replacement of savings by debt as a source of investment capital is one of the reasons the mainstream economy is going off the rails in the first place.
- Privacy and anonymity: First, let’s define these terms, because they’re not the same thing. Privacy means: “no one knows what you did.” Anonymity means: “no one knows who you are.” On a public blockchain, there is anonymity (or at least pseudonymity). But there is absolutely no privacy, because all transactions are published to the public ledger. So everyone always knows what was done, although they may not know who did it. (However, some two thirds of BTC addresses have been successfully de-anonymized by firms like Chainalysis.) Facebook Libra makes it clear that there will be neither privacy nor anonymity on their network. Transactions will all be recorded, plus all wallet users will be subjected to KYC/AML procedures. This of course is a totalitarian wet dream from way back, but what else can we expect from Facebook, a corporate behemoth which became such by monetizing your private data, largely without your knowledge? On our Lyra blockchain, the same level of anonymity and privacy exists as with BTC, but on our wallet transaction layer the privacy is total! Lyra can be seen moving on the blockchain to or from the reserve which backs the vouchers circulating in the wallets. But vouchers are always destroyed and re-created in every transaction, so at the wallet level there is simply no way to trace spends between wallets. It’s truly a digital version of a physical cash system. (Or would be, if the serial numbers on physical cash notes got replaced every time they changed hands.) While KYC might well be required by an exchange selling Lyra, there’s no KYC of any kind to create or operate a wallet, and no linkage whatsoever of wallets to any identity, not even an email address. (If identities are required to buy and sell, the first thing to be bought and sold will be identities.)
- User communications: Facebook will be integrating Calibra (the Libra wallet) into WhatsApp and Instagram. This means that users of these apps will be able to send messages to other users which bears money, in the form of Libra, as a kind of payload or attachment. (Only after both sender and recipient have jumped through the necessary KYC hoops of course.) WhatsApp was implemented as a federated XMPP network. XMPP, or Jabber, is an XML-based protocol for instant messaging. “Federated” means that you can only contact other users within the same service. (Generic XMPP works like email, delivering chat messages between users across different domains.) Ascension’s wallet client can also be used as a generalized Jabber client, but the wallet functions are only accessible when connected to the network of a Voucher Publisher. We also allow the option of anonymous logins. While using a random chat handle makes it impossible to utilize a friends roster, it increases anonymity when making wallet spends. Nevertheless, we regard Facebook’s intention to integrate spends with chat apps as social proof of the maxim we coined more than five years ago: “A payment is just another kind of message.” We agree that it’s extremely useful for wallet users also to be able to communicate securely one on one, or inside a chat group. And of course, unlike Facebook we already support this!
- Multi-asset support: There’s no evidence in the materials published so far that Calibra wallets will ever support holding or transacting in any currencies besides Libra, such as Bitcoin. We introduced “Silent Bitcoin” and “Silent Litecoin” back in 2014, as a way to apply our voucher transaction settlement and privacy layer to bitcoin and a leading altcoin. Consequently our wallet users can move not only Lyra into their wallets, but other currencies as well, including BTC and LTC, and make untraceable spends of those assets too. (They can also spend their vouchers back to addresses on the source blockchain whenever they wish.) We doubt very much whether Facebook would ever implement these features. Ascension wallets are not “hosted wallets,” meaning all private key manipulation takes place only in the local client, never on the server side. It’s not clear whether it will ever be possible for Ascension to deploy a DApp written in Move on Libra’s blockchain, which would enable us to establish a reserve that could back Libra vouchers circulating on our own platform. But if it ever becomes possible, it’s certainly a form of adversarial interoperability that we would earnestly consider.
- Governance: Where monetary policy is concerned, Libra’s governance will be provided by a corporate oligarchy, nearly 30 and ultimately 100 big name companies from a variety of industries. The trouble with this is obvious: none of these companies (other than Facebook) have anything to gain by protecting the interests of Libra users. In stark contrast, Lyra’s monetary policy will be set by a board composed of stakeholders, who will have everything to gain by protecting the interests of Lyra users.
- Potpourri: Both Lyra and Libra can scale linearly to meet demand for transactions, as can any relatively centralized clearing system. Both prevent 51% attacks by carefully controlling who gets to run a validator. Bitcoin does not scale, but a 51% attack is prohibitively expensive. Importantly, all three are examples of free market money, in that they are not issued by states. It’s revealing that nobody seems to think that Libra as proposed would constitute a security. Neither of course does Bitcoin, or Lyra. Facebook claims that, like Ethereum, they will one day migrate Libra to proof-of-stake validation. (Though as Lopp pointed out, in that case they had better solve the vexing problems that Ethereum has yet to conquer.) Lyra, like Bitcoin, will remain a proof-of-work system.
- Disintermediation: In the eyes of the legacy financial system, this is a really obscene word. It refers to draining money out of establishment institutions and into external, competing institutions or markets. Offshore banks in low-tax jurisdictions disintermediate money from onshore banks in high tax jurisdictions, which is why the OECD countries sicced the FATF on them, wielding blacklists and sanctions. ICOs disintermediated capital away from IPOs and the brokerage and law firms which conduct them, which is why the SEC, OSC, et al went on the warpath against them. Cryptocurrencies, especially Bitcoin, have disintermediated billions out of other asset classes, which is why Wall Street firms are now beginning to sell BTC to their retail clients, so that they can gradually buy up the majority of the coin supply and thereafter control it in-house. It’s abundantly clear however that Libra will disintermediate exactly zero value from establishment banks and capital markets. In fact every dollar/euro/whatever spent acquiring Libra will flow right back to those same institutions. It will simply move from many small accounts to a few very large accounts. (That should also transfer deposit base from smaller banks to larger ones, where Facebook is likely to do its banking.) Lyra, on the other hand, in true crypto fashion is all about genuine disintermediation. That’s how we build a robust, borderless, wealth generating, free market ecosystem.
Lyra > Libra
In conclusion, we’re very flattered at how many of our ideas Facebook has either borrowed or duplicated for their Libra project. But like seeing yourself reflected in a mirror at a fun house, it’s a distorted reflection of our vision. Total control, zero privacy, a fresh new look for tired existing statist currencies and systems that serve only the oligarchs, piggybacked on the form but not the substance of cryptocurrency. This is emphatically not what the crypto industry needs, no matter how much legitimacy it confers.
Unfortunately, being pushed by Facebook, and being so obviously designed for the benefit and protection of the existing big players, it seems likely that Libra will be a “go” by this time in 2020. Of course first the politicians and regulators will need to do a lot of posturing about protecting the public, and Facebook will need to agree, “reluctantly,” to abolish whatever privacy might still exist in the design at this point. (Automatic tax withholding for all Libra merchant accounts, anyone? Hashes of govt ID images stored on the blockchain alongside addresses?) The sad end result will satisfy almost nobody in the crypto space, but just like credit cards, will doubtless get used everyday by many millions of people.
But this does not mean that there is no room for Ascension’s Lyra, or other alternative systems. Niche markets can be large, and can have a positive impact on economies, businesses, and people’s lives. (Think Apple in the 1990s.) One Currency To Rule Them All is a very poor idea anyway. It would take a Sauron, or the IMF, or Facebook, to endorse it. One of many currencies, competing with others to serve its users better. Now that’s a slogan we can get behind. Lyra, like all true cryptocurrencies, will always serve as the people’s money. Accept no corporate substitutes!