Understanding Facebook’s Libra in layman’s terms

Shohei Kato
Jun 25, 2019 · 8 min read

Disclaimer: New technologies and problems they try to solve excite me. I spent a weekend reading up on Libra whitepaper to get a grasp of what it is. Writing below reflects how I would explain this topic to my parents.

Last Tuesday, Facebook announced its cryptocurrency , Libra. This news gained much traction as this could usher in the involvement of other tech behemoths likes of Amazon and Google into the cryptocurrency space.

What is Libra?

According to Libra whitepaper, Libra is a blockchain based global currency whose value is tied to a basket of real world currencies (e.g. USD, EUR, JPY). Its value equals to a weighted average of real world currencies.

Libra is administered by the Libra Association, a 28-partner consortium of organizations such as Visa, Mastercard, Lyft, and Paypal. The partners have voting rights and structural changes require 2/3 of votes in favour.

  • How are they issued?
    Only authorized resellers can issue and destroy Libra tokens by depositing fiat currency in exchange. The reserve will then be invested into low-yield government bonds for value preservation. For this nature, coins like Libra with relatively stable intrinsic value is known as “stable coin”.

What problem Facebook aims to solve with Libra?

(Officially) Libra aims to resolve inefficiencies in remittance industry

Source: CNBC

All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges. Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100.


Based on 2017 data, the remittance industry is worth $613 billion with much room for growth and innovation. Libra’s target customer extends beyond 1.9 billion people without an access to bank account. Utilizing Facebook’s 2.7 billion MAU (Monthly Active Users), Libra can also serve regular folks as an alternative payment method.

But their real aim could be users’ transaction data. Because it is not hard for Facebook to tie transaction details to your personal info, family, and friends as Calibra requires users to submit ID for verification** in order to use their wallet.

**Technically speaking, you do not need to submit your ID for Libra, much like you don’t attach your ID to every coin and bill you have. However, to use the Libra wallet, a tool required to hold and transfer the coin between WhatsApp account, you need to submit your ID. So essentially, users need to submit ID for verification.

Competitive Landscape

Just within the remittance industry, MoneyGram, and Western Union are obvious competitors.

Bitcoin is also a competitor. Bitcoin was invented so that no monetary policy, but mathematical formula can dictate the supply of Bitcoin. However, high volatility and limited processing capability prohibits Bitcoin to be considered for a viable alternative to existing fiat currencies.

Ripple is another cryptocurrency designed to serve the same goal. Their service scope is not just remittance, but also institutional cross-border transaction where SWIFT currently has the dominant position.

Getting Technical with Libra (a little bit)

The introduction section of whitepaper begins with following:

This document outlines our plans for a new decentralized blockchain, a low-volatility cryptocurrency, and a smart contract platform that together aim to create a new opportunity for responsible financial services innovation.

But strictly speaking, Libra is neither “decentralized” nor”blockchain”… as far as the current state is concerned.

1. Why Libra is not “decentralized”?

Because if it is, anybody should be able to take part in Libra’s distributed ledger network (ie run nodes). But in reality, you need at least $10 million as an entry fee to be admitted by the Libra Association and take part in the network.

On the other hand, Bitcoin and Ethereum are decentralized network because anybody can set up nodes(like running a server) without permission.

Permissionless and decentralization are used as synonym for simplification.

Why does “decentralization” matter?

Because that’s what makes distributed ledger system SECURE. When anonymous number of servers are running, there is no focal point for hackers to attack and disrupt the service.

Why does Libra still claim itself as “decentralized”?

Because Libra plans to “start shifting” towards permissionless within 5 years of public launch.

As discussed above, the association will develop a path toward permissionless governance and consensus on the Libra network. The association’s objective will be to start this transition within five years, and in so doing will gradually reduce the reliance on the Founding Members. — Whitepaper

2. Why is Libra not a blockchain ?

To understand ,we first need to understand what blockchain is.

Blockchain is a series of blocks filled with transaction records and chained together. A new block of transaction records are tied to a chain of previous blocks through a link made of unique identifier called Hash. Hash is like super complicated QR code. In case of Bitcoin, the chance of exactly same Hash being generated is 1 in 2²⁵⁶ and takes 6500 years with a regular PC CPU.

If you were to hack Bitcoin network, forging Hash to create a false block that somehow integrates to previous blocks is one thing, but you also need to possess 51% of all 10412 processing power that anonymously exist across the network. That’s a whole a lot of work for the attacker, and this is what makes Bitcoin secure.

Now back to why Libra is not a blockchain.

To simplify the comparison, I’ll focus on how differently transaction data is recorded between Libra and Bitcoin. Other topics such as Consensus Algorithm (big one), On-Chain vs Off-Chain transaction, governance, and many more should be considered for a complete comparison.

So how are they recorded differently?

There are two major ways to record: Unspent Transaction Output (UTXO) and Account/Balance method. UTXO is used by Bitcoin and designed for peer-to-peer payment while Account/Balance method is used by Libra and designed for smart-contract development for its simplicity of data. I’ll elaborate through an example below.

Transaction to record:
James (wallet A) who originally had $10 in wallet paid Bryant (wallet B) $4.15, and received $5.85 in change and that is James’ new balance.

  • UTXO method records the event as "$1 and two $2 bills have been transferred from wallet A (network doesn’t know if the wallet belongs to James) to wallet B and received two quarters and two dimes and three nickels in change".

UTXO method tracks every single movement of every single bill or coin, where it came from and where it is going in the blockchain. UTXO sounds cumbersome right? But why would Bitcoin use this method?

Two main reasons, Privacy and Scalability.

  • Privacy: Do you know who previously owned the $5 bill you received as change from your last grocery shopping? But you know exactly from whom your last e-transfer deposit came from right?

Account/Balance method has its own advantages. Mainly due to the simplicity of data, the method is optimal for smart-contract development, thus technology like Ethereum uses Account/Balance method.

So what's the verdict?

Libra is not a blockchain because whitepaper states that Libra Blockchain is network of a single data structure, not a series of blocks containing transaction history like Bitcoin.

the Libra Blockchain is a single data structure that records the history of transactions and states over time — Whitepaper

Also, a single data entity run by identifiable organizations (ie Libra Association consortium partners) also raises security concern.

For further detail of difference between UTXO and Account/Balance Method, please refer to Flora Sun’s article.

So is Libra all hype?

No not really.

Libra will be run by a language called “Move”, designed to build scalable, secure, and flexible platform. The network employs Account/Balance model which is suitable for smart contract development. Smart contract is a programmable, self-executing contract which automatically executes money transaction when conditions are met.

Libra’s primary focus is peer-to-peer transaction, but addition of smart contract feature could revolutionize remittance process as well as everyday payment transaction . This is why Libra is known to be an ambitious project, and why makes it interesting.

In addition, Facebook’s 2.7 billion MAU just cannot be ignored. Not only that, its partner organizations Visa (3.3 billion cards issued wolrd wide), eBay(25 million sellers and 168 million active buyers), PayPal (267 million active accounts) each has enormous size of user base. The scale definitely facilitates mass adoption of blockchain technology.

There are some questionable statements made in the whitepaper, but it is nonetheless exciting news and definitely pushes forward development not only on technical level, but also on societal level.

Thank you for your patience for reading the article this far! I’m neither technically bright in the field nor write well so some of the parts could’ve explained better.


I borrowed so much knowledge from so many articles online. I especially borrowed knowledge from following articles.

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