Why America Needs Libra
By Zack Chang on ALTCOIN MAGAZINE
Global issues surrounding Libra
Libra, Facebook’s digital currency, is one of the most important yet controversial subjects between major financial and regulatory institutions alike. Libra is addressing the antiquated friction points of the current global financial infrastructure and these points are a derivative of the underlying root cause, cash. Records of cash and units of account are digitized, but not cash itself. Because of this, cross-border payments and settlements are far too inconvenient and expensive to function in modern society.
How is it that we are able to send messages with complex and sensitive data files over the internet instantly but we are unable to send money in real-time, securely at zero to no cost?
This question addresses the need for innovation with respect to money and the financial infrastructure needed to support this new concept of value exchange. This is especially true considering the un-banked.
Financial Inclusion: ‘banking the un-banked’
Despite some on-going efforts, large swaths of the world’s population are left behind — 1.7 billion adults around the globe still remain outside of the financial system with no access to a traditional bank. This is despite one billion of them having a mobile phone with half a billion having internet access.
Facebook’s troubled past with privacy violations and misuse of user data
Like most people, my initial knee jerk reaction to Libra was quite negative. I interpreted it as a power play by Mark Zuckerberg himself — leveraging the intellectual properties of Facebook and technological inferiority of the establishment. Whether the premise was true or not, I was really bothered by the lack of regard for Facebook’s prior abuse of user’s privacy and misuse of user data. If we caught Facebook red-handed before, how can we trust this company to lead the creation, implementation, and governance of a global digital currency and financial infrastructure?
What Libra Solves for
The concept of Libra and its proposed financial infrastructure along with it, promotes frictionless and cross-border finance by solving for accessibility and trustworthiness. The unique properties of blockchain that address the problems at hand are distributed governance — addressing the vulnerabilities to centralization, open access — enabling anyone with access to the internet to participate, and security — protecting the integrity of funds through cryptography.
Additionally, the Libra currency reserve, actively managed by the Libra Association, solves for price volatility thus enabling the stable coin feature of Libra. The team working on Libra could have solved for this more easily be setting Libra as an artificial peg. However, a ‘peg’ would lock in Libra at the mercy of a single currency’s exchange rate, and hinder free market ideals like price discovery.
Libra’s Approach
Libra calls for the creation of a digital stable coin and unit of account backed by a basket of liquid assets — “Libra Currency and Reserve,” powered by a permission blockchain -“Libra Blockchain,” operated and governed by exclusive association of businesses, nonprofit and multilateral organizations as well as academic institutions from around the world — “The Libra Association.”
Libra Currency and Reserve:
Libra is a non-sovereign digital currency that can be accessed and used by anyone who has a smartphone. Libra can be bought, sold, held, and received by anyone anywhere at any time on Facebook and all of Facebook’s associated communication platforms. The ‘value’ of Libra is justified by a reserve of fiat currencies and other liquid assets, actively managed by the Libra Association.
Libra Blockchain:
The Libra Blockchain will serve as the foundation for its proposed global financial infrastructure to be built on top of. This foundation must be secure to ensure the safety and integrity of an individual’s funds and financial data, and also scalable to support billions of accounts requiring high transaction throughput, low latency, and high-capacity efficient storage system.
The main considerations being applied to the design and build of the Libra Blockchain from previous research and existing blockchain projects are the following:
- Designing and using the “Move” programming language.
- Using a Byzantine Fault Tolerant (BFT) consensus approach.
- Adopting and iterating on widely adopted blockchain data structures.
“Move” is a new programming language being designed for implementing custom transaction logic and “smart contracts” on the Libra Blockchain; think of Solidity for Ethereum. The Libra Blockchain adopted the BFT approach in order to facilitate the agreement among all validator nodes on the transactions to be executed and the order in which they are executed. Contrary to previous blockchain projects that view the blockchain as a collection of transactions stored in blocks, the Libra Blockchain is a single data structure that records the history of transactions and states over time. Furthermore, the Libra Blockchain is pseudonymous and will allow users to hold one or more addresses that are not linked to their real-world identity. In other words, no Personally Identifiable Information (PII) data will be required to access and use Libra or the proposed Libra financial infrastructure.
Libra Association
The Libra Association is an independent, not-for-profit membership organization based in Geneva, Switzerland. The association is designated to provide and uphold the governance framework for the Libra network and reserve. It is also tasked with directing social impact grant-making in pursuit of financial inclusion. Ultimately, the Libra Association will be comprised of 100 members that are designated as validator nodes operating the Libra Blockchain. The Libra Association “Founding Members” consists of well-known organizations and institutions from various industries including telecommunications, payments, platforms/marketplaces, blockchain, venture capital, academic institutions, and nonprofits. In order to become a founding member of the association, organizations must meet technical requirements, certain evaluation criteria, and pay an upfront fee of $10M USD.
Note: since Mark Zuckerberg began testifying on behalf of Libra to congress in the second half of 2019, PayPal, eBay, Stripe, MasterCard, Visa, and Mercado Pago have all dropped out of the Libra Association.
Current Solutions
The launch of Bitcoin was revolutionary at the time as it solved the problem of reversible payments, also known as double spend. The solution that Satoshi Nakamoto devised to address this issue was a digital payment structure based on cryptographic proof instead of trust, enabling any two willing parties to transact with each other directly without the need for a trusted third party. Since its launch, Bitcoin has proven its resilience surviving numerous market cycles. Through this process, however, the limitations of Bitcoin had been made evident. Bitcoin’s block size causes slow transaction speeds hindering scalability, the energy intensive Proof-of-Work (PoW) architecture points to environmental issues, and there is a lack of privacy with respect to transaction data. However, despite these limitations, the success of Nakamoto’s introduction and implementation of a trustless decentralized network inspired a new generation of blockchain projects to follow.
Since the launch of Bitcoin, thousands of cryptocurrency projects have emerged around the world. A significant number of these projects are scams, but the leaders generally fall into the following categories: Smart contract platforms with native cryptocurrencies (e.g. Ethereum, EOS, etc.), privacy-focused cryptocurrencies (e.g. Monero, ZCash, Dash, etc.), real-time gross settlement (e.g. Ripple, Stellar, etc.), and stable coins (USDT, USDC, PAX, etc.); among other numerous well-respected blockchain projects.
Traditional Payment Solutions
Solving the electronic payment and settlement process has been a focus among many Silicon Valley heavy-weights like Apple and Google for years. In addition to the tech establishment, startups like Venmo and high-growth publicly traded companies such as Square have also been pursuing the same vertical but from different angles. The goal for mobile payment platforms is to streamline the payment process for users combining cash, debit cards, credit cards, and gift cards all into one mobile application. This is made possible through the combination of Point of Sale (POS) systems that are compatible with Near-Field Communication (NFC) technology, enabling immediate and contactless transactions.
The immediate benefits to consumers are ease of use through a free downloadable mobile wallet, faster checkouts with merchants, and more secure checkouts. Apple Pay, Google Pay, and Samsung Pay currently lead the pack with respect to mobile wallet downloads but are followed closely by providers such as Chase Pay, Mastercard PayPass, Visa Checkout, and PayPal.
While each platform essentially serves the same function, they have slightly different strengths and weaknesses. Overall, the platforms previously referred to leverage the scale of the current tech stack and operational processes. These platforms optimize the exchange of necessary transaction data, but do not exchange value in real-time. Remember, Libra is not only proposing a new financial infrastructure, but also solving for a digital currency that is compatible with the forward-looking digital landscape.
Following the Trends
The bigger our institutions become, the more vulnerable they are to hackers and other cyber threats. While there are many causes for these vulnerabilities, most revolve around centralization. This realization is forcing us to rethink systems of trust and validation and the proposed currency and financial infrastructure that Libra presents — eludes to the concept of borderless-finance. A coalition of global services that utilize smart contracts to empower all people, including the most underserved individuals of the world, to enter the mainstream financial system, regardless of any preexisting bias. The increase in access to capital and practical banking services could serve to be a major step towards addressing poverty. However, in order to bank the unbanked, the contemporary alternative needs to be trusted and easy-to-use. The combination of blockchain and smartphone technology makes this possible.
The public’s initial reaction to the announcement of Libra was quite negative, and frankly for good reasons. However, the negative initial response should be viewed as a net positive for society because from a social perspective, Libra has sparked an engaging debate on the risks, trade-offs, and benefits of the proposed cryptocurrency and financial infrastructure. This debate could be a catalyst that leads to a more transparent and engaged democracy for the world to model after.
The implications of Libra and it’s proposed financial infrastructure should not be taken lightly. Facebook has many questions and proven points of abuse with respect to user-generated data and privacy, that need to be addressed. If not addressed and Libra is given permission to launch in the United States, we are enabling a multinational tech conglomerate to assume even more power and influence than it has currently, without holding Facebook accountable to the standards we the people agree to abide by. If Mark Zuckerberg, Facebook and the other members of the Libra Association are to be stewards of the modern financial infrastructure, they must be held accountable to the highest standards. The implications of holding these parties to the highest standard point to the high potential of institutions of the establishment to adopt and integrate blockchain and other related Distributed Ledger Technologies.
The process of remediation for the wrongdoings of Facebook’s past, and the collaboration between Facebook, members of the Libra Association, and U.S. regulators to define the legal architecture for Libra to abide by, will take significantly more time compared to China, where the CCP plans to launch their own state-backed digital currency ahead of the official launch of Libra. Unfortunately, the dynamic of our Democratic Republic forces us to sacrifice the speed of process for insurance of process. This gives the upper hand to China providing a clear path to the first-mover advantage. This may very well be the case however, the diligence of our democratic process will ensure that Libra and the United States have the last mover advantage.
Our democratic process is intended to uphold and ensure our values, not get in the way of our entrepreneurs. With that said, we should respect and abide by our process, but should not let bureaucracy and partisan politics get in the way of innovation. One of the main factors contributing to the success of the United States over the past few decades is our technological superiority. The legal and technical environment in the United States has so far fostered innovation and growth. If we are not careful and place politics before prosperity, businesses and entrepreneurs alike will seek other arenas to perform development and drive innovation.
