Libra: A Hope For People, And Facebook
What is Libra?
Libra is a global cryptocurrency and financial infrastructure that is expected to empower billions of people around the world.
“Libra Blockchain” is built in a way so that it is able to scale to billions of accounts while being efficient, providing security to financial data and funds, flexible enough so that it can support governance responsible for making decisions regarding its future. It also intends to develop and promote a portable digital identity.
Libra blockchain’s architecture is similar to bitcoin and ethereum but somewhat different so that it can achieve scalability and adapt governance easily.
- Like ethereum, libra supports smart contracts but using a new programming language called “Move” which is designed by taking security incidents (that have happened with smart contracts till today) into account so that it is fundamentally hard for such attacks to occur in itself.
- Unlike bitcoin and ethereum which groups the transactions into blocks and then form a chain of blocks, libra blockchain has just a single data structure(block) which records the history of transactions and states over time.
The underlying currency of libra blockchain is called “Libra Currency” or just “Libra”. It is a stable digital cryptocurrency that will be fully backed by a reserve of real assets, called “Libra Reserve”.
Libra will not be backed by a single asset but multiple assets instead(contrary to other pegged systems like MakerDAO’s DAI is pegged to USD only) some of them would be dollar, euro, pound, yen. The Libra Blockchain and Libra Reserve will be governed by an entity that will be comprised of diverse and independent members. This governing entity called “Libra Association”. This association will establish guidance as to which protocols and specs to develop and adopt. The association will be running the validator nodes and hence the only ones participating in governance.
Decentralized Or Not?
Decentralization just means that how distributed a system is. There is always a degree of decentralization which means to what extent the system is decentralized.
In the case of Libra, it will start in the middle of complete centralization and complete decentralization and then as time progresses, will try to move towards complete decentralization.
In the beginning, only the members of the Libra association will validate transactions and control governance. However, the members are from different industries like payments, telecommunications, blockchain exchanges, etc. along with non-profit organizations and academic institutions like Women’s World Banking.
So the association is neither completely centralized but again compare to almost full decentralized systems like ethereum it is far behind.
Also, Libra is pegged to multiple assets present in the Libra reserve, held by a geographically distributed network of custodians with investment-grade credit rating providing security and decentralization of assets.
So centralized or decentralized? Depends upon perspective, it is definitely not even close to decentralization if you compare it with ethereum or any other cryptocurrency but still better then centralized financial systems.
Triangle of Dilemma
Current blockchain systems have tradeoffs between these three values and it is impossible to achieve all three together
To develop a global financial system, Libra is ignoring full decentralization and hence getting better security and scalability. But Libra promises to move towards complete decentralization, we’ll see about that.
Government’s Take on Libra
Libra is facing a huge backlash from governments around the world similar to what cryptocurrencies faced. Government can’t do anything to stop other cryptocurrencies which are fully decentralized but it can potentially destroy Libra even before it is launched.
No government wants to allow tech giants to act as banks in this ageand given the reputation of Facebook with multiple data privacy scandals, there is no chance that any govt will gonna allow them to enter into their country’s financial system.
Countries like China and India, both are highly skeptical about cryptocurrencies and thinking about even banning them. Russia will definitely not allow a US-based company like facebook to enter their financial system. But the biggest issue is facebook’s own country and world’s biggest economy the United States is also not planning to go easy on libra.
A month ago, Democratic Rep. Maxine Waters requested that Facebook pause its development of Libra. She and others in Congress believe that they don’t have the regulatory framework to deal with the kind of digital bank that the libra blockchain is proposing.
However it poses a bigger challenge, it could replace the dollar as the currency of choice for legitimate international transactions.
U.S. allies are becoming disenchanted with Washington for the overuse of economic sanctions — for example, excluding Iran from access to the payment systems of U.S. banks — and are seeking workarounds. Libra might be the ticket for those.
Threat to the US Dollar?
Considering libra a threat to US dollar is really far fetched and most likely won’t happen. US Financial Regulatory System (one of the best regulatory system) won’t allow anything which can potentially weaken the dollar. Similar steps are expected from almost all countries around the world.
From a government’s perspective, cryptocurrencies are a nightmare for them. Money laundering across countries happens in seconds with some clicks. Cryptocurrencies are used by criminals, drug cartels. Rogue regimes like North Korea uses bitcoin to circumvent economic sanctions. These things create a huge problem for governments as they can’t track money of its own citizens anymore. People can even get away without paying taxes.
However, the future of digital money looks very bright, the government sees the potential of the underlying technology(blockchain) of cryptocurrencies and now plan to uses this tech to create regulated digital money.
This idea is very popular in India and China. India has shown that they don’t want crypto in the country as they already have enough issues with black money and political corruption. But Indian govt is very keen to launch Digital Rupee in the upcoming years.
Future of Digital Money?
The future of digital money is very bright. Many countries have shown interest in issuing state authorized and regulated currencies which they will be able to track. They will be nonvolatile and backed by a country’s fiat. China, Singapore, Ecuador have already launched their own national cryptocurrency and Russia, Japan, Sweden are on the way. China is even going one step ahead by planning to even remove paper currency out of the picture.
Ethereum and Libra are running a race towards user acceptance. Ethereum has issues regarding scalability but provides a high degree of decentralization, Libra, on the other hand, provides a very low degree of decentralization but with scalability.
Libra plans to move towards complete decentralization within 5 years after launch. Ethereum is fixing its architecture with ETH 1.x and ETH 2.0 expected to come within the next 2 years which will help them solve scalability. Many layer 2 scaling solutions have come into picture and ethereum is showing steadily that it might soon become the world’s biggest financial network.
If Libra has to overtake Ethereum, then they will first have to come to the market until it’s too late for that to happen, Facebook will have to face the governments, starting from the United States.
Libra really has a tough road ahead ….
Disclaimer: The views expressed by the author above do not necessarily represent the views of the Ethereum Foundation.