The Capital
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The Capital

Libra Is A Red Herring; Facebook’s Real Play Is Calibra

By Ronald Mulder on ALTCOIN MAGAZINE

Much ado about the launch, yesterday, of Libra, Facebook’s brand new cryptocoin. Understandably so, because at first glance this looks like “Silicon Valley Disrupts the Global Banking System” and that’s exciting. There are some things to be said about Libra, and I will, but in the end, it doesn’t really matter. Libra is just another altcoin that may or may not succeed. The actual interesting news yesterday was not Libra, but Calibra.

Image: Shawn Perez via Flickr

First, Libra. Libra is not owned or controlled by Facebook. It is governed by the Libra Association, a non-profit under Swiss law. The 28 founding members include Facebook and other tech companies, but also Visa and Mastercard and a couple of non-profits. Libra aims at a total of 100 members in the short run. All members act as validators in a blockchain-like distributed system.

Libra is backed by a reserve of real assets — this can be bank deposits or government bonds “in currencies from stable and reputable central banks”, as the white paper states. It will be “supported by a competitive network of exchanges buying and selling Libra”. Therefore, Libra will be both relatively stable and liquid: “That means anyone with Libra has a high degree of assurance they can convert their digital currency into local fiat currency based on an exchange rate.”

Maybe the most interesting thing about Libra is that, although it starts highly centralized, it explicitly states that it wants to move, in time, towards “permissionless governance and consensus”. That means anyone who meets a set of predetermined criteria can act as a validator.

The two main challenges for Libra follow directly from this short description.

First, there is a monetary challenge. Maintaining a “stable” exchange rate relative to a basket of currencies is not an easy task. Central banks have struggled with it in the past, and central banks have more policy instruments than the Libra Association. Users from countries with strong currencies have no incentive to hold Libra. Compared to their home currency, Libra is riskier. For users from countries with weak currencies it is the other way around. So the Libra Reserve will face a constant influx of, say, Indonesian rupiah and Turkish lira, and an outflux of euro, dollar, and yen. Good luck with your stable exchange rate.

Second, there is a technical challenge. Thus far, no other cryptocurrency succeeded in making the transition from permissioned to permissionless. Apart from legal and psychological reasons, there is a technical reason for that: permissionless systems have to make totally different trade-offs between security, anonymity, and speed.

My assessment: Libra is not the worst project in crypto, but without the Silicon Valley brands behind it, it would hardly have been noticed. I personally think that many of the founding partners will lose interest in the next couple of years. Uber, eBay, Visa, and Vodafone must be on board out of curiosity, but Libra is miles away from their core business (and their bottom line).

The thing is: for Facebook, this doesn’t really matter. Facebook’s trump card is Calibra, not Libra. Calibra is the online wallet that will be integrated with Facebook’s platforms (Messenger, WhatsApp). Other than Libra, Calibra is fully owned by Facebook. It is safe to say that 99% of early Libra users will have a Calibra account. 99% of transactions will, therefore, be internal Calibra transactions. These transactions will never touch the Libra ‘blockchain’. Calibra (and no one else) will see all transaction data. Will Calibra share this data with Facebook? In short: yes.

Source: Calibra Terms & Conditions

Of course, they will.

Now Libra is (kind of) open source, so in time there may be other wallets and other exchanges one can use to do Libra transactions. But none of them will integrate with the rest of the Facebook ecosystem. And apart from that ecosystem, Libra has no use cases that are not covered by Bitcoin, Ether, Ripple, Tether and/or one of the other 2253 cryptocurrencies in the market.

So from Facebook’s point of view, Libra is just smoke and mirrors. Facebook’s real play is Calibra. And as I predicted, your Calibra wallet will effectively be a current account with FaceBank, designed to harvest your data.

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