Facebook has officially announced the details of its cryptocurrency project Libra and released a white paper explaining the technical aspects of the currency and its blockchain system.
In its white paper, Facebook states that the Libra’s mission “is to enable a simple global currency and financial infrastructure that empowers billions of people.” It describes it as a new cryptocurrency designed for payments ranging from micropayments to cross-border remittances without fees.
Libra is the most ambitious cryptocurrency project since Bitcoin, and it faces two primary challenges: building a global currency on top of blockchain technology and convincing billions of consumers globally to adopt it despite the fact that Facebook built it.
Here are the top 5 insights revealed by Facebook in the Libra White Paper.
#1 — Libra Will Be A Global Currency
Libra coin will let you buy things within Facebook’s marketplace and send money peer-to-peer with nearly zero fees, including cross-border payments. Facebook is going to introduce its own product, a wallet application called Calibra. Calibra will be built into WhatsApp and Messenger, allowing 2.5 billion users to buy, store, and send Libra coins seamlessly peer-to-peer with all transactions stored on the blockchain.
#2 — 100 Founding Partners Will Govern Libra Association
Facebook announced that Libra blockchain is going to be an open-source project, owned and controlled by the founding members of the Libra Association. In the beginning, there will be 100 authorized partners within the Libra Association, each of whom will be a node on the Libra blockchain. There are already 28 partners, including payment networks like Visa and MasterCard; finch firms like Stripe, Coinbase, and PayPal; e-commerce and software companies like eBay, Uber, Lyft, and Spotify; and the venture capital firms like Andreessen Horowitz. These companies have committed to invest at least $10 million each to participate in the governance of and control over the Libra Association.
Interestingly, there are no commercial banks included as Libra partners, and none of the Facebook’s giant tech peers like Google, Apple, and Amazon are included as well.
#3 — Libra Will Be Operated On A Permissioned Blockchain
Each founding partner of the Libra Association will be authorized to operate a node on the blockchain, and have a voice in corporate governance determining changes to its code and managing the reserve.
Nominally, having just one node on the Libra blockchain grants to Facebook only 1% vote in the governance of the Libra Association, thus precluding it from having any undue influence or control. However, in practice, the list of chosen partners shows that most of them share the values and ambitions similar to those that have been shaping Libra so far.
Also, even though the Libra blockchain is designed like a true blockchain, it’s not a real blockchain. It won’t be truly decentralized, because only the founding partners of the Libra Association will be able to run a node and see the ledger of transactions. The Libra cryptosystem looks more like a conventional bank’s database controlled by 100 administrators instead of one and isn’t structured like a true blockchain.
Facebook knows about this deficiency and vowed in its white paper to move to a permissionless Libra network over the next five years. However, no one knows whether they’re going to commit legally to this transition to not. For now, it’s just an intent.
#4 — Libra Will Be Structured As A Low-Volatility Stablecoin
Libra coin will be structured as a stablecoin. Its market value will be pegged to a basket of safe-haven (trusted) currencies. Thus, it’s expected to be a low-volatility currency with a primary function being a medium of exchange, not an investment vehicle.
Libras will be fully reserved. Every time the system issues a new Libra coin, the traditional currency used to buy that Libra coin will go into the reserve. Those cash reserves will serve two primary functions: to ensure that the value of the Libra coin is kept stable and to generate interest income off the reserves to the Libra Association’s partners. The higher the global adoption of the Libra coin, the higher the cash reserves, and the higher the interest income earned on those reserves. This incentive makes participation in the Libra Association commercially attractive.
#5 — Libra Could Create Unmatched Ad Targeting Capabilities For Facebook
Importantly, Facebook claimed that it wouldn’t mingle the users’ Libra payments with their personal Facebook data, meaning that payment information won’t be used for personalized ad targeting.
However, hypothetically, the availability of transactional data of actual purchases would allow Facebook to create a nearly perfect ad targeting engine based off of actual consumption preferences and likes of every user.
Even though Facebook has promised that it won’t abuse its power in this respect, let’s not forget that, by the end of the day, ads targeting is a primary revenue source for Facebook, and Libra creates a very tempting opportunity to increase its ads revenues substantially.
However, there is an alternative tie-in with Facebook’s core ads revenue business: The volume of commerce on Facebook’s marketplace. If more businesses will sell more on Facebook’s marketplace, and they’ll be willing to buy more ads on the platform, which will drive Facebook’s ads revenues up.
The ultimate goal for Libra is to create a stable currency built on a secure and open-source blockchain, backed by a reserve of safe-haven real currencies, and governed by an independent association.
We recognize that Facebook’s aspiration to create a groundbreaking global cryptosystem is a tough goal and won’t be achieved in isolation — all interested stakeholders have to come together on a road of turning this dream project into a reality.
Most importantly, Facebook has yet to convince billions of people around the world of its intentions, which makes the job for Mark Zuckerberg much harder.
- Alex Sovpel, Director of Research at Monfex | LinkedIn
This report is for information purposes only and should not be considered a solicitation to buy or sell any cryptocurrency or cryptocurrency product. Monfex accepts no responsibility for any consequences resulting from the use of this material. Any person acting on this trade idea does so entirely at their own risk.