Scroll to the bottom for a TLDR!
This week I have taken the time to read Facebook’s technical whitepaper on Libra, along with feedback from Bitcoin/Blockchain experts around the world, and tried to put my personal feedback in a nutshell below. It’s less techie (sorry techies! I’m still one of you!) and more real world.
Having a FAANG company attempt to enter the cryptocurrency space and create their own platform built on “blockchain” has been a long time coming. From within the industry, we knew this was inevitable and only a matter of time.
So, enter Facebook, quite possibly the worst of the FAANG group when it comes to privacy, but the real question is: will they be able to convince the world that they’ve changed?
What is Facebook’s Libra?
Facebook define Libra as — “The Libra Blockchain is a decentralized, programmable database designed to support low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world.”
In a nutshell, it’s a conceptual copy of Ethereum, but something that will be controlled by Facebook and a group of “Validators” (a term for participating companies like Visa and Mastercard etc who are apparently paying $10 million to be a part of the foundation). This makes it far from decentralised.
It’s clear that they’re also looking to support more than just a cryptocurrency on the platform, with Libra taking the first spot. They explain that this is purely a prototype and the whitepaper has been released to gather feedback, with a hopeful launch coming at some point in 2020.
What are their aims?
Facebook go on to say in the whitepaper that they’re “trying to create a financial infrastructure that can foster innovation”, but of course, it will be guided by themselves and their buddies in what users can and can’t do — for at least the first 5 years their decentralised platform is actually a centralised conglomerate (it may become decentralised in the future). And, I use the word “may” with emphasis, as their current method of becoming decentralised doesn’t actually have a technical solution for how it will be achieved.
Another of their angles is helping to bank the unbanked. I find this rather hard to believe as I remember reading rumours a few months ago that they were going to attempt to target India, a country that actually recently banned cryptocurrencies. I believe this angle is purely for PR and media attention as they’ve had A LOT of bad press over the last few years — surely banking the poor and unbanked will help people change their view of Facebook?!
They believe that introducing a currency that can be used seamlessly between their current retail customer base and their current businesses on Facebook will help to increase marketing revenue and I’m sure it would. But what about all of the other Validator angles? Politics in this project will just be the tip of the iceberg.
Luckily, the overall response to the project so far is that everyone is easily seeing through Facebook’s attempts.
My take on their actual aims?
One side of me believes that they don’t know their aims themselves, particular as a project of this nature could evolve over time into a variety of things.
But another part of me believes that they’re actually more out for world-domination than anything else. Previously, they’ve attempted a number of times to enter into the finance world, but have failed each time. This time around they would effectively be creating their own global currency — one that they currently control, while trying to avoid regulations from all countries around the world.
Is it a competitive attack on banks or governments? It’s certainly no competitor to Bitcoin in my opinion.
They seem to have done their technical research, however, different routes always come with different compromises.
For example, for the security and decentralisation that Bitcoin offers the compromise is the electricity to mine it (PoW - Proof of Work), which I would say is most definitely worth it.
In Facebook’s case they want control of the development and access, meaning a compromise to the decentralisation aspect. Even though they’re calling this a decentralised cryptocurrency, it’s far from it. They’ve also compromised even further on the decentralisation by pinning Libra to the Dollar, meaning that they will always need to be in constant control of that supply in order for it to remain as a stable coin. I see no reference in the whitepaper as to how they plan to resolve this in 5 years time when they hope to be more decentralised.
Are they actually using blockchain either? This one is debatable and depends on how you define a blockchain. It has similarities to let’s say the Bitcoin and Ethereum blockchains, but it honestly may as well be run on a database. They call it “The Libra Blockchain” yet they continue to refer to everything as the “database” rather than the blockchain. It feels almost weird and like they are making a point of it.
Finally, they have the Validators. In the Bitcoin world we would normally refer to these as nodes, so I don’t know why they insist on changing the terms as all it does is confuse things! Validators are the global companies paying $10 million to be part of the foundation to run 1 node each. If you wanted access to the system you would have to go through and trust these guys. All of a sudden this platform is no longer “trustless” one of the amazingly powerful features of Bitcoin.
As soon as the news about Libra was released, governments around the world started clambering to figure out what to do and if it falls under some form of regulation? Does it sit outside? It’s a massive grey area right now, but as the Libra Foundation (Facebook) is in control, the governments have a centralised target to approach.
I’m no legal expert, but I’m intrigued at how this is going to play out, so let’s sit back and watch this one!
Currently, Facebook has 28 companies signed up, each with a vote within their foundation — it all seems great! The real problem arises when they all want different developments and features to suit their business models. Don’t forget that there are quite a range of industries involved here including payments, technology, telecommunications, cryptocurrency, venture capital and non profits.
Consider the scenario that one of these companies is continually outvoted on the features they want. They will quickly realise that their $10 million and time would be better spent elsewhere, and they will likely leave to pursue their own ventures. This has already happened in similar attempts such as R3 (which this entire situation is very reminiscent of), except it involved banks rather than tech and finance companies. As a brief overview, R3’s plan was to create a product that all the banks could use as a settlement product between themselves. The process began with Bitcoin, then moved on to Blockchain, then on to Distributed Ledger and eventually to a database. Meanwhile, the project lost participating banks due to disagreements within the consortium.
I fully expect the same to happen within The Libra Foundation.
Conclusion and TLDR;
Is it a true Blockchain? No
Is it going to compete with Bitcoin? No
Is it Trustless? No
Is it Decentralised? No
Is it Immutable? No
Is it an attempt at world-domination? Yes
Do we trust it? No
There are plenty of areas that I haven’t touched on and maybe I will in future articles, but I think the below covers the general takeaway:
The conclusion I have come to is that this project may not even launch as a live product. A spokesperson for one of the validators has actually already said this himself. It’s very, very early days and from seeing the regulatory pressure already, I see this as a massive hurdle before Facebook even begin to consider the technical aspect and eventually the internal political aspect. They have a lot of hurdles to overcome, alongside their current bad reputation, and I think this one is going to be a tough road to create any form of successful product from.
Edit: After coming away from this article for a few days it occurred to me and now seems clear that Zuckerberg is also using the name Libra as a dig at the Winklevoss twins. Given their volatile history with him over Facebook, it’s likely that he’s entering the same industry as them (cryptocurrency) to continue the rivalry. This theory explains why Facebook’s coin has been called Libra — after all, it’s a stable coin that will be up against the Winklevoss twins Gemini dollar (GUSD). Maybe just a coincidence, but maybe he’s still struggling to let this rivalry go.