When Libra’s white paper came out on June 18th, 2019 suffice to say it immediately changed the landscape of cryptocurrency and blockchain globally.
It’s even gotten attention from the most mainstream quarters. The Federal Reserve Chair, Jerome Powell, on July 10th, 2019 indicated that Libra raises serious concerns. He cited worries about privacy, money laundering, and consumer protections, as well saying Libra poses serious risks to global financial stability due to the enormity of Facebook’s user base.
While calling itself a cryptocurrency with a Libra Association based in Switzerland with B2B partner nodes, and using blockchain tech, here with Libra is the validation that a 2 Billion social platform could launch a new payment system through blockchain. Some even believe that it’s a lot closer to traditional web-commerce systems than you might think.
Libra as Facebook’s long-anticipated entry into cryptocurrency was a catalyst in a Bitcoin rally and the entrance of major payment systems as equal partners. Partners who are part of a not-for-profit that will oversee all things Libra, paying $10 Million USD each for the privilege. Even Binance is considering being a member of the Libra Association.
Mechanisms of the Libra Blockchain
- The Libra Association is an independent non-profit organization based in Switzerland.
- Libra is an open source currency based on Blockchain, like other cryptocurrencies such as Bitcoin
- This cryptocurrency is backed by a basket of financial assets (Libra Reserve) provided by node operators. In its initial release scheduled for 2020, Libra will be backed by assets denominated in four fiat currencies: USD, EUR, JPY and GBP.
- The Libra Association’s group of 28 founding members includes Visa, Mastercard, PayPal, Uber, Lyft, Coinbase and others. They aim to have 100 members by 2020 when the mainstream launch occurs.
- Within the next 18 months, Libra will be incorporated into the Facebook ecosystem built around Messenger, WhatsApp, and Facebook.com (using the Calibra wallet interface).
The Lightbulb Libra Moment
In the summer of 2019, Libra was the moment many people realized the future of digital currencies might one day even compete with the USD and government issued currencies.
What if decentralized digital currencies prove that a currency does not need to be issued by governments to have value? Libra’s mechanism of a stablecoin could in theory outperform and outcompete current blockchain projects whose main use case is MoE, payments such as BCH, Dash, Nano, etc… This is implicated in the MoE vs. SoV debate, representing Medium of exchange and Store of value respectively.
If Bitcoin is the global SoV, perhaps Libra could become the crypto MoE by default.
Libra will be on a Proof-of-Stake (PoS) blockchain with a 2-token system. This new financial infrastructure will rely on the BFT-consensus algorithm and will support smart contracts after it completes its transition from a permissioned to a permissionless environment.
Facebook’s Blockchain as the Gateway To Bitcoin Adoption?
With the incredible success of WeChat payments and Alipay, even Facebook realized that it could, by banking the unbanked, become a FinTech player and use blockchain tech and even Bitcoin’s global popularity as a springboard.
Many crypto pundits praised Facebook’s initiative with Libra blockchain, and Bitcoin soared to 18-month highs in late June, 2019. Many believe Libra will bolster Bitcoin and other SoV cryptos, as they increase mass adoption of crypto and reduce the barrier to entry to own, exchange and use crypto and invest in digital assets that become part of the alternative to Wall Street and investing in public companies themselves.
It’s unclear how Libra itself will be affected by global financial regulations, government monetary policy decisions, and probes by the American Department of Justice on Facebook’s practices. There’s been much speculation that Libra will face a lot of scrutiny and that Calibra itself was built for regulatory purposes.
Nervos vs. Libra — What Libra Means for Cryptocurrency and Blockchain
How closely does Libra resemble a peer-to-peer digital cash bitcoin-like system? In the initial version of the system, only founding (node) members will be able to be a node that participates in the consensus algorithm.
That doesn’t sound like a system such as Bitcoin, where owners have full control over their assets. The entire use case of authentic cryptocurrencies are those based on decentralized financial services.
As a Proof of Stake system, Libra belongs to the other kind of blockchain, while projects such as Nervos understand that smart contract platforms have to be store of value. That is, preserving the value of assets issued on top of a platform is an essential part of its cryptoeconomic design, according to Kevin Wang, one of the founders of Nervos.
So here is where it gets interesting. To gain mass adoption and be more regulatory friendly, Libra sacrifices some of the more decentralized aspects of cryptoeconomic design that make it simultaneously friend and foe to cryptocurrencies. Libra cannot truly rival Bitcoin, because they are the original and clone of two vastly different kinds of blockchain.
Due to this, many believe Libra will boost Bitcoin without being able to disrupt its more decentralized nature.
When the Nervos project talks about building a trust engine for the future of cryptoecononomy and the token economy of the future, it’s the next iteration of the internet. Libra might be a bridge to that world computer, but it’s not the end goal at all, in this author’s humble opinion.
Libra is more “PayPal on blockchain” than “Bitcoin cloned for the masses”. Either way, it’s brought forth a lot of enthusiasm about the future of payments.
If you compare Calibra with other peer-to-peer payment services, PayPal is regulated as a money transfer service in the U.S. Venmo, a PayPal subsidiary, relies on PayPal’s license to operate. Square Cash also complies with a long list of money transmission regulations.
Creating a subsidiary (Calibra) makes the process of obtaining regulation and on-boarding B2B payment node partners easier for Facebook. Just as creating a Libra Association with node operators makes the Libra Blockchain appear more democratic and like a council of partners based on collaboration instead of being packaged as a “Facebook Globalcoin”.
Libra Isn’t Just about Payments but Blockchain Identity
With access to global apps easily totaling over 2 billion users, Libra can essentially create a digital identity system (MIT Tech Review) that could dominate the future of the internet with blockchain.
Blockchain’s most important use cases are hidden in the ambitions of the Libra blockchain and the white paper of June 18th, 2019 backs this up. The white paper suggests that Facebook’s vision for how we manage our identifying credentials may be just as important as making a digital asset a global standard of online transactions.
In short, this isn’t just about Facebook becoming a digital bank, but also a store of our digital ID on the blockchain. When Facebook “banks the unbanked”, it’s not just giving them convenience and a bank account that they are after.
Facebook’s new cryptocurrency is likely more than just a cryptocurrency. It’s a walled garden shared by at least 28 nodes that could mirror the future architecture of how we intersect with blockchain, services, and access to convenience both online and offline.
I think it’s important to note then that Libra is likely to foster rapid expansion of its existing 2.4 billion user base to adopt (and transact with) the cryptoasset across the globe. But also with a digital ID, new interactions on WhatsApp, with advertisements, with E-commerce, in apps, with partners and more utilities than we can at present even imagine.
Is Libra a Disruptive Force Nobody Saw Coming?
Facebook wants to replicate the Super-app nature of WeChat on WhatsApp and encrypted private chat with Libra. Facebook wants to use blockchain to uplift its own app ecosystem in an attempt to keep up with the “mini-programs” of the Chinese app economy.
If Blockchain is simply a technical tool, “crypto” is how to interest young people, to access your new in-app services along with those of your Silicon Valley partners for the ultimate “win-win”. Libra in this sense could be a Trojan horse and the most innovative thing Facebook has ever done or sought to achieve.
Libra can popularize cryptoassets and even potentially disrupt traditional digital legacy banks with a fresher and open-source ecosystem, all the while becoming the defacto provider of open-source tools for digital apps, sites, E-commerce and new unprecedented digital FinServe interactions.
Libra can bolster and spark additional cryptocurrency volume with incredible on-boarding, growth and increased accessibility, all the while profiting by being the new middleman, just as Wechat or Alibaba have become in China. Libra is then both an attack on institutional players of banks, other tech companies and a disrupter of certain kinds of PoS blockchain projects.
There is also a lot of amusing irony and symbolism here. The Winklevoss twins have Gemini, a cryptocurrency exchange. Libra is a wink at them, as well as being the ultimate plan to monetize WhatsApp, one of the leading chat apps on the planet with well over 1.5 Billion users, popular in the developing world.
Is Libra a Cryptocurrency?
While Libra uses cryptocurrency technology and has a public ledger, only some people are allowed to mine the coin.
Libra is even restricted in the way the blockchain works, but is a safe hybrid between fiat (backed by real world value) tethered to a basket of currencies so that it can be practical in utilizing blockchain tech, while being more or less controlled by a centralized body of corporations.
If Libra is successful, it could completely change how online payments take place in the Western world. Binance Research admits Libra could be the beginning of a new set of gatekeepers (that) may emerge in the digital world which would threaten the existing positioning of banks as “payment facilitators.” Libra is like a conductor of how blockchain payments, ID and services might exist online.
Libra’s PoS system would mean the Libra network could ultimately provide new financial services for end users across the globe that become so ubiquitous, as digital money becomes more common than fiat, with Facebook as the middle man, advancing greater freedom of money and lowering capital restrictions worldwide and giving corporations even more power than banks in the future. This would likely lesson the power of central banks and popularize cryptoeconomic principles and the potential of a token economy.
The Impact of Libra To Be Continued
In June, 2019 we’ve seen a wave of cryptocurrency traders that are reinvigorated by Facebook’s launch of its own digital coin and momentum appears to be stirring up fresh new investors. In a world of mass adoption of Libra, what will happen to the altcoins of old, do you suppose? A world where Bitcoin is hunted and hounded by cryptocurrency bans and where ICOs are all but a forgotten relic of the past.
Libra’s blockchain has a lot of hype, support and potential users. It has a chance of becoming the first “everyday” implementation of a digital asset in our lives that might have some of the benefits of crypto and blockchain. Libra also could become a powerful business consortium of partners in how the future blockchain architecture actually works for institutions, payment systems, smart city services and how individuals access goods, digital banking and in-app economies.
The Libra blockchain is expected to launch in full sometime in 2020 with a myriad of node partners and could gain massive adoption in the 2020–2025 period. It could allow Facebook itself to become a bank for the unbanked and millions of climate change migrants of the future. Libra could herald a global order where even the U.S. dollar’s dominance is one day challenged. A world where the future of money is altered by digital transformation underpinned by blockchain technology.
That world is exciting, frightening and fraught with uncertainties. While as crypto enthusiasts we look forward to a more decentralized world of open source software and a world computer that benefits all, it’s not entirely clear in 2019 if Libra’s Blockchain could or will manifest that.
Libra will run on its native blockchain, Libra Blockchain.
To read the white paper go here.
- The chain is supported by a Proof of Stake (PoS) algorithm, where nodes run by consortium participants are widely dispersed geographically with high technical requirements.
- These nodes will rely on a new consensus algorithm that is Byzantine-Fault-Tolerant (BFT).
- As a permissioned blockchain, meaning only a few trusted entities can keep track of the ledger, it’s decentralized nature is debatable. That makes it actually more like a digital currency, rather than a cryptocurrency.
- This consensus algorithm, named LibraBFT, is a variant of the HotStuff framework2 that was released in 2018 by Maofan Yin and Dahlia Malkhi of VMware Research.
- This framework may allow for future interoperability with other chains powered by BFT consensus.
- Libra is assigned to pseudonymous “wallets,” and transfers are done through public key operations, a valid element of cryptocurrency tech. So it has aspects of being a crypto, even if it’s not one in its pure form.
- Libra’s smart contracts will be written in Move, a programming language built for the Libra blockchain.
- Devs are encouraged to and can access the Libra Developer portal to experiment with the testnet while reading further documentation.
- As a two token system (like MakerDao or DAI), there will be a governance token called the Libra Investment Token (LIT), which will allow for participation in the governance of the network. The value of the governance token relies on the longevity and utility value of the payments token offered by the consortium.
- While Financial institutions like banks are currently testing out blockchain networks with XRP/Ripple services and JPM Coin/Quorum, they would one day transition to Libra, that already boasts most major payment nodes.
- The Calibra (Calibra dot com) wallet interface is the likely interaction with Facebook-owned apps such as WhatsApp, Instagram, Messenger and the private walled encrypted global chat they will become in Facebook’s pivot to privacy. We have to assume here that Facebook itself is the “Super node” with root access to Libra.
Libra as a First Mover FinServ Crypto
To conclude, it’s important to note that Facebook’s monopoly in advertising exists because there’s no valid competition for targeted mobile ads (other than Google). The same goes for Libra’s blockchain.
There’s essentially no alternative competitor to Libra. Nobody is expected to emerge as a serious competitor on the same scale as Libra’s initial pool of participants, which includes most of the largest companies in FinTech (like PayPal) and the in-app Silicon Valley (like Uber) industry.
There’s no Chinese equivalent to Libra on the horizon yet. Telegram or EOS aren’t in the same league. Bitcoin’s use case in the Lightning Network has potential, just as Ethereum’s use case if it solves its scalability issues, but Libra can move much faster with serious B2B partners and fast-track regulatory processes.
This means Libra is the first mover of the next stage of blockchain and FinServ crypto that is like a new form of digital banking architecture that is almost paradigm shifting.
As a FinServ platform, Libra could be the hybrid token that elevates blockchain to the next level. Libra’s white paper shows how Facebook borrowed from Ethereum and even Bitcoin, while attempting to improve upon them.
Libra isn’t a Bitcoin killer, but it’s a good candidate to become the future of PoS blockchain.
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