An Overview of Libra

Blockchain technology continues to make progress towards mainstream adoption with Facebook’s announcement of Libra, a stable cryptocurrency.

Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.

While this mission is one that we’ve all seen tossed around numerous times in the past, Libra is best poised to make this vision a reality. Considering Libra is likely a pivotal moment for the blockchain industry as a whole, we decided to take a deep dive on the information that’s available to date and what you can expect in the coming year.

Libra Ecosystem

The major pieces of the ecosystem can be broken down into the following sections:

• Libra Stablecoin
• Calibra Wallet
• Libra Blockchain
• Libra Alliance
• Libra Reserve
• Libra Investment Tokens

Libra Coin

Libra is a stablecoin pegged to a basket of “low-volatility assets” such as bank deposits and treasury bills. Unlike existing stablecoins such as USDC or Tether, Libra is not pegged to a single currency and therefore able to maintain active pricing mechanisms and trading pairs with currencies outside of the US Dollar.

“As the value of the underlying assets moves, the value of one Libra in any local currency may fluctuate. However, the reserve assets are being chosen to minimize volatility, so holders of Libra can trust the currency’s ability to preserve value over time.”

Libra tokens aim to provide fast, secure, private, borderless transactions at low costs.

Calibra

The primary mechanism for storing and transferring Libra tokens will be through the Calibra app. Calibra will generate unique wallets for each user. For those unfamiliar with how cryptographic wallets work, you can think of this as a next-generation version of Venmo or Cash App.

“Facebook created Calibra, a regulated subsidiary, to ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network.”

Calibra wallets can be directly integrated into popular digital messaging medium such as Messenger and WhatsApp to allow for direct value transfers within the applications.

In order to use a Calibra wallet, users will be required to complete a standard Know Your Customer (KYC) process with a government-issued ID. In doing so, Libra comes equipped with built-in fraud protection, in-app reporting, and dedicated customer service. In the rare event of fraud, Calibra claims to offer full refunds.

Libra Blockchain

In order for Libra to deliver on their promises, the core team theorized that creating their own native blockchain and programming language was the best way to issue Libra coin. Some of the core features of the Libra blockchain include:

• Scalability — Access to billions of accounts with high transaction throughput, low latency, and an efficient, high-capacity storage system.
• Security — To ensure the safety of funds and financial data.
• Flexibility — To power ecosystem governance as well as future innovation for financial services.

Perhaps the most novel part of the Libra Blockchain is the new programming language, Move, which will be used to create custom transaction logic and execute smart contracts on the Libra Blockchain.

“Move is designed to prevent assets from being cloned. It enables “resource types” that constrain digital assets to the same properties as physical assets: a resource has a single owner, it can only be spent once, and the creation of new resources is restricted”

Additionally, Move facilitates automatic proofs to allow for transactions to be verified only between the two users transacting rather than requiring the entire network to verify the transaction as is the case in Proof of Work.

The Libra Blockchain will begin as a permissioned network with hopes to transition to a permissionless system in the future. For those unfamiliar, permissioned systems require users to be granted access in order to read data or perform services on the network. In the case of the Libra Blockchain, access is granted by the Libra Association.

The Libra Blockchain reaches consensus through a version of Byzantine Fault Tolerance (BFT) called Libra Byzantine Fault Tolerance. Without going too deep, this consensus mechanism emphasizes security by requiring 67% consensus as opposed to systems such as Proof of Work which only need 51% consensus. Secondly, Libra Byzantine Fault Tolerance focuses on fast finality and is inherently unforkable (i.e. there will never be Libra Cash like Bitcoin with Bitcoin Cash).

Some other unique subsets of the Libra Blockchain include:

• Merkle Trees — a data structure used by other blockchains to detect changes to existing data. The Libra Blockchain utilizes a version of Merkle Trees to issue a single data structure that records the history of transactions and states over time.
• Pseudonymity — The Libra Blockchain is pseudonymous and allows users to hold one or more addresses that are not linked to their real-world identity.

Libra Alliance

The Libra Association is an independent, not-for-profit membership organization. As with any blockchain, validation is performed by numerous parties to ensure security and limit centralization. The Founding Members or the Libra Alliance will run the first nodes and act as the first set of validators on the Libra Blockchain. The Libra Alliance is targeting 100 members by the target launch in the first half of 2020.

While final decision making ultimately rests in the hands of the alliance, Facebook is expected to maintain a leadership role through 2019 due to their key role in the creation of the Libra Association and the Libra Blockchain.

“Once the Libra network launches, Facebook, and its affiliates, will have the same commitments, privileges, and financial obligations as any other Founding Member. As one member among many, Facebook’s role in governance of the association will be equal to that of its peers.”

It’s important to note that each of the founding members was required to put up a minimum investment of $10M in order to act as one of the first validators on the network. Additionally, it’s estimated that validator nodes will incur costs of approximately $280,000 per year. However, NGOs, Multilateral Organizations, social impact partners (SIPs), and universities do not need to make an investment to join the association, but they do have to support the running of their node.

In return, the association will pay out incentives in Libra coin to Founding Members to encourage adoption by users, merchants, and developers. As more validator slots open in the future, the alliance will limit eligible participants through the following requirements.

Founding member requirements (Traditional)

• Market Value — More than $1B USD in market value
• Scale — Reach greater than 20 million multinational users per year
• Brand — Recognized as a top-100 industry leader by a third party sector (Fortune 500, S&P 500, etc.)

Founding member requirements (Blockchain)

• Crypto Funds — $1B assets under management (AUM)
• Blockchain Infrastructure Companies — Employs enterprise-grade security, privacy, and infrastructure operations
• Custodying or staking greater than or equal to $100M in assets

Libra Reserve

The Libra Reserve is used to support stability and value preservation. The Reserve will act as the main liquidity provider for Libra coin and are responsible for the creation (minting) and destroying (burning) of any tokens that enter or exit the circulating supply.

New Libra can only be created by purchasing more Libra for fiat and growing the reserve.

“By fully backing each coin with a set of stable and liquid assets and by working with a competitive group of exchanges and other liquidity providers, users can have confidence that they will be able to sell any Libra coin at or close to the value of the reserve at any time.”

The money in the reserve will come from two sources: investors in the Libra Investment Token (described below), and users of Libra. The funds for the coins distributed as incentives will come from a private placement to investors. Part of the funding from the Libra Investment Token offering will be used to purchase low-volatility assets such as bank deposits and treasury bills. Interest earned from these assets will be used to cover system costs, ensure low transaction fees and support further growth and adoption.

The reserve will be held by a geographically distributed network of custodians with investment-grade credit rating to limit counterparty risk. Interestingly enough, the makeup of the reserve is designed to mitigate the likelihood and severity of these fluctuations, particularly in the negative direction (i.e., even in economic crisis).

Libra Investment Token

Operations are initially being funded through a Security Token Offering (STO) of Libra Investment Tokens. Ownership of these tokens grant governance and dividend rights. Payouts are denominated in Libra coin with access being limited to accredited investors. Some known participants include Andressen Horowitz, Paypal and Uber.

As anyone might have guessed, the STO is only being offered to the cream of the crop. Fitzner Blockchain will be posting further updates surrounding Libra Investment Token rights, preferences and payouts as they become available.

Future Implications

Libra aims to introduce digital assets to billions of people. Facebook’s leadership role will likely provide a seamless and intuitive user experience to an entirely new demographic of users across many nationstates.

However, Libra’s public announcement and ambitious roadmap didn’t come as positive news to many — including several banks and regulators. Within hours of launch, Facebook was called out by global regulators to pause the project until further review amid concerns for data privacy and security.

With this in mind, Libra’s aggressive launch is paving the path for decentralized, leaderless networks such as Bitcoin and Ethereum to realize their full value proposition — a permissionless network where no single entity has control over the system. Moreover, we are interested to see how Libra will leverage it’s smart contracting potential to compete with Ethereum and DeFi applications in the future.

Regardless, with Coinbase and other crypto companies on board, we can hope that Libra will eventually act as an on-ramp to other digital assets in the future and create a seamless fabric for the world to embrace this new and exciting technology.

Conclusion

While many blockchain enthusiasts choose to enlist the notion that decentralization should be mandatory for all cryptocurrencies, we here at Fitzner Blockchain believe that Libra is a tremendous step forward towards mass adoption.

While it’s obviously that Libra is far from decentralized to begin, the infrastructure and talent being aggregated by Calibra is sure to set a high precedent for consumer-facing UX and UI expectations leading into 2020.

With the Libra Blockchain currently estimating a mainnet launch by the second half of 2020, we’re very curious to see how this will play into Ethereum’s transition to Serenity. It’s evident that the use-cases for these two ecosystems are quite different and we’re very curious to watch how the intersection of the most well-known currencies such as Bitcoin and Ether respond in the wake of this new giant.

For more information on the most pressing updates in blockchain and how they can be applied to your business, feel free to schedule a free consultation on our website or stay up to date with our social channels below.

Writers: Cooper Turley — https://twitter.com/Cooopahtroopa
Lucas Campbell — https://twitter.com/0x_Lucas

Official Fitzner Social Accounts: Twitter, LinkedIn, Facebook, Instagram

Website: http://fitznerblockchain.consulting/