The Libra Masterplan

How Facebook plans to become WeChat by using the Bitcoin playbook.

Gustaf Hard
Jun 30 · 10 min read

Written by Tomas Roaldsnes, Gustaf Hård af Segerstad, and Vladyslav Munin

Now, during the past year, there has been a lot of speculation whether Facebook ever was to get into blockchain and cryptocurrencies. Finally, the date for a whitepaper release was set to June 18th. Nobody really knew what to expect, but Facebook certainly went into the blockchain world with a bang. Libra is not like Bitcoin or any other cryptocurrency, but it contains features and ideas from there.

  • What is Libra?
  • How does it work?
  • Why did Facebook create Libra?
  • Is it any good?

What is Libra?

You can view Libra as a financial ecosystem, with three (in reality four) main components.

💰 Libra The Currency
“1 Libra”
is a unit of value in the Libra ecosystem. Libra, the currency, is a stable-coin pegged to a basket of currencies such as USD, Euro, Yen, etc. All payments in the Libra ecosystem is facilitated by transferring Libra.

🚅 Libra Blockchain
The Libra Blockchain is the financial payment rail where Libra lives. Just like we use Visa or Swift to move USD today, the Libra Blockchain is the layer that moves money around.

🏰 Libra Association
Libra was created and developed by Facebook, but Libra will not be Facebook company or product. Regulatory speaking of course. The Libra Association is a non-profit foundation based in Switzerland, tasked with governing and growing the Libra ecosystem. The founding members are Facebook and 27 other big, global corporations. All founding members have contributed 10M dollars each in return for voting power. Each company in the Libra Association only have 1 vote (1%), including Facebook.

The goal is to have 100 members before mid-2020 when Libra is said to launch.

📱 Calibra
Calibra is the e-wallet where users will manage their money. Just like our very own Vipps and Swish, but for Libra. Calibra is a subsidiary of Facebook Corp. Calibra will be available as a standalone app and users will be able to use Calibra directly in all apps of the Facebook ecosystem, namely WhatsApp, Messenger, Instagram, and Facebook.

You can use Calibra to send money to anyone, anywhere in the world. You will be able to use Calibra to pay for everyday purchases, such as coffee or shoes. The biggest reason for merchants and retailers to accept Libra for payments is very low transaction costs. It’s likely Libra will launch with fee-less transaction costs, or at least near fee-less.

Know-your-customer for Libra is done through the application-layer, so all users will need to send government issued ID documents for verification in order to use Libra.

🤔Wait, is this a cryptocurrency?

Libra is something like a middle-ground between traditional finance and cryptocurrencies. Compared to banking, SWIFT, and PayPal, Libra is very much like a cryptocurrency. When compared to decentralized, borderless and anonymous cryptos such as Bitcoin, Ethereum and Monero, Libra is then more similar to PayPal. Technically speaking is Libra built with blockchain technology and Libra inherits many of the same aspects as cryptocurrencies when it comes to governance and regulatory compliance.

🖐Hold up, what is a “stable-coin” and a “basket of currencies”?

Cryptocurrencies are normally not stable, meaning they are highly volatile in terms of value because of their speculative nature. A stable-coin is a term for cryptocurrencies that have low volatility, as in 1 stable-coin = 1 USD.

This is commonly done by ‘pegging’ the stable-coin to a FIAT currency, usually the Dollar or Euro. Simply explained you transfer 1 NOK to a bank account (usually located in Switzerland) and you get an eNOK in return, representing your ownership of the 1 NOK you transferred. You can then spend the eNOK as you want, or exchange it back to NOK. Then you will get your 1 NOK back and the singular eNOK will be ‘burned’, or deleted if you will.

Libra is not tied to a singular currency, but rather a basket of many major currencies. The US Dollar, British Pound, European Euro, and Japanese Yen. It is also stated in the Libra Whitepaper that the basket will include other assets such as debt in stable governments. The Libra Whitepaper also states that the basket will be spread across different banks and countries to reduce risk.

👷‍♂Why did Facebook create Libra?

Libra’s stated mission is to create a more inclusive financial infrastructure.

Libra foundation wishes to empower more than
1.7 billion people around the world who
currently do not have a bank account

For all the criticism and pushback, let’s not minimize the factor that Libra has a decent chance at helping millions of people avoid middle-men fees, generate wealth and financial sovereignty.

Facebook has stated that data from Calibra and Libra will not be shared with the social media side of thing and used for targeted marketing. Facebook has lost a lot of trust in recent years with its security breaches and privacy violations. Either way, nobody should expect privacy when using Libra, but this applies to most of the digital payment solution of today.

👀 Facebook wants to become the next WeChat

If you had to install only one app on your phone, Facebook wants to make sure it’s one of their own. You should browse the web through it, chat with your friends, pay your bills, buy a cup of coffee and your primary workplace communication. The goal is that you never need to leave their app or ecosystem.

Libra is an important step in that direction now that Facebook introduces, not only payments but their own financial infrastructure to the Facebook ecosystem. Why use your mobile bank, when you can have it in Messenger or Whatsapp. Why use your card to pay for the Uber, when you get 10% off if you use Facebook? It’s a financial lock-in effect, backed by half of Silicon Valley.

Why do it with a cryptocurrency?

🧾 Regulatory loopholes, of course!

The exploit works by following a playbook that was written by the Bitcoin industry. The exploit emerges in the gaps of a little puzzle consisting of a few key players:

Cryptocurrency exchanges (“on- and off-ramps”) where you can buy and sell Bitcoin for dollars

Banks that give the exchanges their bank accounts

Regulators who set the know-your-customer (KYC) & anti-money laundering (AML) rules

Blockchain analysis firms who monitor cryptocurrency transactions for “suspicious activity”

Bitcoin users who buy and sell Bitcoin at cryptocurrency exchanges and then distribute them into the global Bitcoin ecosystem

- Eric Wall, writer for OneZero

Creator: Eric Wall

With financial infrastructure comes a lot of regulatory responsibility and scrutiny. Libra is how Facebook gets into banking without ever becoming a bank while pushing the tough compliance part away from Facebook and over to exchanges.

😵 Well, is it any good?

I don’t think any of us really had any big expectations when Facebook introduced their blockchain initiative. There were some strong indicators that they weren’t messing around when David Marcus was appointed and several blockchain companies where acquired. There were rumors that a flood av talent was going to the blockchain department from Facebook’s Growth-team.

To sum it up; Yes. It’s really good.

Facebook burrowed the best ideas from the blockchain world and made some improvements. While it’s too early to say anything with certainty, we are at least pretty impressed with the whitepaper.

Move language which is used to write Libra modules is designed to be verification-friendly language and restricts functionality, which supposes to make it easier to write different tools and create less bugs in the code. Account system in Libra blockchain is structured as key value database and maps account to their values. An account value in the ledger state is a collection of published Move resources and modules.

ELI5: Facebook created a new language called Move to interact and build on top of Libra. It’s a very developer friendly. While the capabilities are limited right now, there is no reason to suspect that we won’t be able to build some really cool stuff on top of Libra in the future.

The Libra blockchain doesn’t use real blocks to operate on history. The Libra protocol uses a single Merkle tree to provide an authenticated data structure for the ledger history. Validators make commitments for each ledger state, and all of the historical ledger states are also committed to in Merkle trees. Clients can query any validator (or a third-party replica of the database) to read a specific database value and verify the result using the authenticator and a short proof. Therefore, clients do not need to trust the party that executes the query for the correctness of the resulting read.

Libra Blockchain uses a variant of the HotStuff consensus protocol, called LibraBFT. Libra team evaluated several BFT-based protocols against the dimensions of performance, reliability, security, ease of robust implementation, and operational over- head for validators. The goal was to choose a protocol that would initially support at least 100 validators and would be able to evolve over time to support 500–1,000 validators.

The HotStuff modifications sound reasonable: [4]
- Resist non-determinism bugs by having validators sign the state of a block rather than just the sequence of transactions.
- A pacemaker that emits explicit timeouts, and validators rely on a quorum ofthose to move to the next round — this should improve liveness.
- Unpredictable leader election mechanism to limit DoS attacks against leader.
- Aggregate signatures preserve the identity validators who sign quorum certificates to vote for block acceptance.

The Libra system is likely able to meet the demand of 1,000 transactions per second based on analisys.

ELI5: Oh boy. Libra is not a “block-chain” persé, but it doesn’t really matter. It’s pretty cool, but there are some worries if it will work at scale. Scaleability and speed is the focus, and it’s certainly not slow. The consensus algorithm is based on HotStuff, which is…pretty hot-stuff and more importantly well-received by many cryptography experts. All in all, pretty good stuff technically speaking.

🙏Some final thoughts, thanks for reading!

It has been a little more than a decade since the inception of bitcoin and the following rise of the word “blockchain”. Interest in the technology and its possibilities has gone up and down in waves over the years, involving many different industries with all kinds of uses cases. During this time, blockchain has also come to mean many different things. Blockchain is often used as a marketing word containing a variety of underlying technologies.There has also been a growing debate about what is a blockchain and what is not. But regardless of what a true blockchain is, the idea of ​​creating a larger system without a single central intermediary has created lots of innovation power and ideas and now the idea of Libra Foundation is a very interesting project to follow.
- Gustaf Hård af Segerstad

If Libra succeeds with its launch, it may very well be a huge onramp to Bitcoin because it brings legitimacy to the crypto space and because 2.4 billion people gets a reason to learn what crypto actually is. After all, most people in the world still doesn’t really know what a cryptocurrency is and why they exists. With broader education and understanding of this space, we might see sudden and quick changes in the way money functions and works. Will Facebooks Calibra include other cryptocurrencies such as Bitcoin, Ethereum and others or will it only be Libra? Time will tell…

Furthermore, in a global world where ever more people and businesses are doing business over country borders with many different currencies resulting in multiple currency risks, high transactions fees, slow transfers, and often unclear and large spreads when exchanging between different national currencies, it makes sense that we start using one currency for this. Will it be Libra? Will Libra be cable to handle that type of transaction? Will we trust Libra? Who knows? But it is for sure a new way of thinking of value and what money might look like in the future. Having a basket of already big and global currencies combined with other assets (that have not yet been revealed) and that also can change over time cannot be seen as anything but a very well thought out attempt to create one true global currency. It would also become far more stable than any of today’s existing currencies.

Also, Libra will not be using the existing the payment rails… Unlike western union and PayPal, Libra will not use ACH payments and similar central bank payments systems which is a big advancement in tech and might give power to a lot of people in the world.

I also think that a project like this comes with huge ethical and legal responsibilities, probably bigger responsibilities than the world have ever seen before… this makes me think of the following words. The questions is, will regulators stop Libra? Can they stop Libra? Have they already agreed to let Libra go through on a number of unknown conditions? Who knows…
- Gustaf Hård af Segerstad

“It’s not great, but it’s not terrible either” — is the only way I can sum it up. It’s really exciting either way. It’s still a big chance Libra gets stopped in its tracks by regulators, but simply the scale of it is insane. As a product guy, I’m reeeally excited to see what we can build on this.

I’m not a big fan of Facebook. I love their services and products, but on the other hand you have Cambridge Analytica. Libra is one of the coolest things ever, but I catch myself thinking “Man, why did it have to be Facebook?”
- Tomas Roaldsnes

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