Everything You Need to Know About Facebooks Cryptocurrency (Project Libra)
I read the Project Libra Whitepaper so you wouldn’t have to.
In 2020 Libra ($LIB) will be live. Allowing Facebook users to buy and store Libra in a wallet called Calibra.
This will allow users (2.4 billion of them to be exact) across any of Facebooks many apps (Instagram, Whatsapp, Messenger, etc) to instantly send cryptocurrency to each other.
Whether that be to pay for goods and services or merely help out a friend in need.
Today, Facebook published the Libra white paper, as well as launched the official website for the wallet that will accompany the new cryptocurrency, Calibra. Calibra also serves as a separate entity that will own the financial data generated by Libra.
“The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world. We present a proposal for the Libra protocol, which implements the Libra Blockchain and aims to create a financial infrastructure that can foster innovation, lower barriers to entry, and improve access to financial services.” — Libra, Technical White paper
This article is focused on new information in the Libra white paper, and technical white paper. If you’re more interested in an analysis/opinion on what Libra will do for cryptocurrency as a whole, check out my last article.
Before we get into what we’ve learned with the Project Libra whitepaper, my absolute first impression as I go over all the materials Facebook just published is: holy **** this is going to be user-friendly.
From a UI/UX standpoint, the websites and documents they’ve put out in the past 12 hours are stunning. I bring this up because I believe a lack of user-friendliness in decentralized applications (dApps) is the largest barrier to the mass adoption of crypto assets.
It seems Facebook agrees that cryptos fatal flaw is in its lack of simplicity, and is making sure to focus on how “easy” their cryptocurrency will be to use.
Regardless of whether or not I agree with their tokenomics, the way they handle governance, or even their hashing algorithm- I believe that Project Libra and Calibra (the official wallet/separate entity that owns the financial data) will be good for Bitcoin on a long-term, scratch that, short-to-medium term timeframe.
Now that we’ve handled that, and I’ve proclaimed my allegiance to the Bitcoin gods (so the Crypto-Twitter trolls don’t berate me) let’s begin. First, we’ll go over some key terms and identify the stones Facebook is using in its’ data Infinity Gauntlet.
What you need to know
(noun) /ˈfāsbo͝ok /
1. a really big tech company that owns several of the most popular social media and messaging apps currently on the market. Invented the ability to digitally “Poke” someone. May or may not have been involved in a serious political scandal revolving around a candidate whose name rhymes with “Grump”. Has all the data (except for financial data).
Project Libra / Libra
(noun) /ˈpräˌjekt ˈlēbrə /
1. an open-source cryptocurrency project and supposed stable coin, created by Facebook, minted on the Libra Network, backed up by a basket of fiat currencies that is monitored by the Libra Reserve.
2. (currency) units are called “Libra”, as in “I’ll give you 5 Libra for my socks back Craig”.
(noun) / lēbrə eˌsōsēˈāSH(ə)n,əˌsōSHēˈāSH(ə)n/
1. a not-for-profit association consisting of companies that invested $10 million into the Libra Reserve. The Libra Association serves two main functions: providing governance for the Libra network and managing the Libra Reserve. According to the white paper, the Association is tasked with evolving the Libra ecosystem, which could mean all the companies involved will be expected to not only integrate Libra into their products/services, but also to create new apps and integrations that leverage the currency.
2. “The association is governed by the Libra Association Council, which is comprised of one representative per validator node. All decisions are brought to the council, and major policy or technical decisions require the consent of two-thirds of the votes, the same supermajority of the network required in the BFT consensus protocol.”
(noun) /lēbrə rəˈzərv/
1. a basket of fiat currencies and low volatility assets that is set for Libra to be pegged too. The reserve will serve as Libra’s very own Federal Reserve, but, on a blockchain, and they can’t print money whenever they feel like. The goal of the Libra Reserve is to keep the value of Libra stable, as it’s planned to be a Stablecoin.
Let's tie it all together…
So, Facebook started Project Libra, and invited other companies to join the Libra Association by investing $10 million USD into the Libra Reserve.
(noun) / lēbrə, B-F-T/
1. BFT stands for Byzantine-Fault-Tolerant and describes the consensus algorithm that Libra will be using. You can learn more about it in the Libra technical white paper.
(noun) / kahl-ē-brah
1. digital wallet to hold the Libra cryptocurrency. Created by the Libra Association and backed by the Libra Reserve.
2. an attempt to try and make people less scared about a company that has shown an inability to be trusted with social data asking to be trusted with financial data.
1. a programming language built for the Libra blockchain. Move will be the language used to create any and all decentralized apps on their blockchain.
(noun) / valley-date-her-know-duhs
1. a validator node will be set up by every company or individual that joins the Libra Association. Each node will help validate transactions on the Libra blockchain, and also represent 1% voting power. Each node will give 1 vote to its owner, with a maximum of 1 node owned per person or company.
Now that we’ve gotten some of the terminologies out of the way, let’s dive into the key takeaways from the white paper.
“Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee,” — Project Libra, white paper
Key Takeaways from the Project Libra White Paper
The Libra Association is going to be the digital Illuminati
The list of companies investing in Facebook's cryptocurrency is insane. Stripe, PayPal, Uber, Lyft, Spotify, eBay- the Libra Association ”walled-garden” will be massive and all-encompassing. It’s like the Council of Ricks, but more sinister and less intelligent.
Here are the companies investing in the Libra Reserve, each of these companies will be a validator node in the Libra Network:
- Payments: Mastercard, PayPal, PayU (Napsters’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
Libra will be decentralized to an extent
Facebook won’t maintain complete control over the blockchain. Upon its launch in 2020 governance will be handled by giving each investing member of the Libra Association 1 vote to use when making decisions about Libra. Facebook wants to have 100 members in the Libra Association, meaning each member will get control over 1% of the voting power.
This was a pleasant surprise for me. I assumed Facebook would maintain control and not want to create something that follows traditional crypto values this closely. I’m not saying that Libra is the same as the cryptos we know and love, but it’s closer than I anticipated. It’s decentralized to an extent. It’s not controlled by one party, but there are only 100 parties, and they’re all extremely wealthy, and all corporations.
Edit: my father messaged me after reading this article. He’s calling me out for being too generous in saying Libra is “decentralized to an extent”. I stand by my description but want to add: it is a permissioned system (not truly decentralized), they claim to want to transition to a permissionless system in the future, but only time will tell if they’re true to their claimed intent.
The white paper focuses heavily on helping the unbanked obtain access to digital financial services
The first paragraph of the white papers “Problem Statement” discusses how digital financial services have rapidly evolved, yet a large portion of the world's population has been left behind.
1.7 billion adults globally remain outside of the financial system with no access to a traditional bank, even though one billion have a mobile phone and nearly half a billion have internet access.
The white paper claims that although blockchain systems have the ability to solve this problem, they haven’t- and it’s due to a lack of “mass-market usage”. According to them, the lack of usage, in turn, is a result of existing projects having an inability to scale or remain stable. Libra hopes to take advantage of the opportunity present by becoming everything that “existing projects” have failed to be.
Honestly, I’m still trying to wrap my head around how Libra is going to help “bank the unbanked”. I get the core concept of it, but I don’t understand how it will be executed.
Here’s my thinking:
(This is going to sound a bit repetitive because I repeat phrases a lot in my head when I’m trying to figure something out)
Libra wants to be a pseudo-bank to the 31% of the global population who don’t have access to banks now.
I understand that if I don’t have access to a bank, and want to buy some Bitcoin, get a Spotify account, or order something from Uber Eats- that’s nearly impossible. I’d need a PayPal account at the very least, and I need a bank account to connect a PayPal account too.
So then it makes sense that I’d look to Libra as a way to start paying for digital media services, and maybe even store my money in Calibra so if I ever get robbed they can’t access my savings.
That makes sense, but how do I get Libra? If I am part of the 1.7 trillion people that don't have access to financial services, how am I supposed to transfer money from my pocket to my phone to purchase Libra?
The Calibra website says that all you need to set up your Calibra wallet is a government-issued ID, but I’ve yet to find anything on what the minimum requirements for purchasing Libra are.
If I’m missing something obvious or you know the answer to this please leave a note!
They plan on being on a “network of exchanges”
It’s unclear if Libra has already established relationships with cryptocurrency exchanges, but they make it seem as if they’ll be on several. This section of the white paper goes on to explain that it needs to be on a network of exchanges to ensure liquidity. I’m curious if Libra will also be available on traditional stock exchanges.
As far as the value of the coin, Facebook believes its secret sauce is the basket of currencies and assets that Libra is pegged to and the “intrinsic value” that will generate.
We’ll see how they answer the question I’m sure is on everyone's tongues:
Sidenote: The CEO of Binance and the Binance official Twitter account have both shown positive interest and excitement around Libra.
It’s sorta clear how profits will be used
There’s some clarity.
You know how each company that we mentioned before is investing $10 million USD into the Libra Reserve? That investment is going to earn quite a lot of interest depending on where it’s stored. That interest and the coins minted through Proof of Stake will serve as profits for the initial investors and the Libra Association.
Interest generated will, “be used to cover the costs of the system, ensure low transaction fees, pay dividends to investors who provided capital to jumpstart the ecosystem, and support further growth and adoption”.
However, the white paper also states that interest generated will have rules associated with how it can be spent and that rules have yet to be determined. It will be telling to learn what limitations they’ll put on the use of profits, and even more so to see how the profits are used in actuality.
They’re hyper-focused on making cryptocurrency easy, fast, and trustable
Simplicity and user-friendliness are core themes throughout the white paper. Even when they discuss helping people in third-world countries gain access to financial services, the underlying theme of simplicity is still prevalent. In their problem statement, much of what the company outlines can be categorized as either lack of ease-of-use or lack of ease-of-access
They’ve created a separate entity to keep financial data separate from their social data
One of the reasons Facebook created a separate entity, Calibra, is to separate the ownership of financial data from the ownership of social data. The financial data gathered will be owned by Calibra, while all the other data you’ve given to Facebook will be owned by Facebook. I’m not sure how much separation will truly come into play, I imagine these companies will share everything from office space to resources, nevertheless I like that they’re making efforts to gain trust before launching.
Despite wanting to collaborate with regulators, they’ve already been asked to stop
Facebook is quite clear in their white paper that one of the issues plaguing existing cryptocurrencies is a lack of regulation, and attempts from crypto companies to circumvent existing regulation. They even go on to state they will do whatever they can to work with governments and regulators to ensure everything remains kosher.
Meanwhile, in the United States House Financial Services Committee…
It seems as if U.S. representatives don’t care as much about what Facebook wants to do in the future as what it’s done in the past. An understandable reaction from a government that has already seen the power of Facebook surface in unfortunate ways over the past years.
“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action,” — Maxine Waters
I hope that the U.S. and Project Libra can mend their relationship and get along. Regardless, I have a feeling that this has become too big for the U.S. to simply request them to stop. If Libra doesn’t obtain the support of the U.S. government, I’m sure there are other countries out there that will pounce on the opportunity.