Updated: Jun 19, 2019
This article is the 1st of a series of articles about Libra. 10 years after Bitcoin’s creation, and after banning all crypto-assets ads on its platforms in 2018, Facebook is finally entering the cryptocurrency market with Libra. All the crypto community is experiencing it as an earthquake. Why this move, and how? Mostly, what will be the impact?
Libra, Facebook-led Global Coin
June 18th, 2019. Libra, a global crypto-asset and financial infrastructure reportedly designed to empower billions of unbanked people, has just been unveiled to the public in a whitepaper release. From semester 1 of 2020, users will be able to transact on Messenger, WhatsApp and Facebook.com.
What type of coin is Libra
Libra will be fully backed by so-called “Libra Reserve”, a collection of assets reputed for low volatility and denominated in USD, GBP, EUR and JPY. To manage this reserve, a brand new not-for-profit association based in Geneva, Switzerland, has been created: Libra Association. It is also meant to oversee future developments of the infrastructure in coordination with stakeholders, including but not limited to founding members Uber, eBay, Visa, Mastercard, Paypal, and Spotify.
The purpose of Libra
31% of the World’s population is totally unbanked as of today. With no access to bank accounts or mobile money, they lack basic financial services products such as insurance, credit or savings account to better manage their money and thus their lives.
It is estimated that roughly $3.7 trillion could be added to developing economies by 2025 through increased financial inclusion. Furthermore, $16 billion a year could be saved by slashing remittance fees by just 5% from actual 7% worldwide average. For instance, a typical cross border bank transfer would take up to 5 business days to be cleared and settled. With crypto-assets running on DLT, such process can be executed instantly!
What a high impact project for the Libra Association. If all chances for huge success are being perceived, things might turn out less obvious. Recall Facebook's first attempt to push a digital currency with Facebook Credits? A failure couple of years ago, when it was already super big. Well hopefully they learned enough from this. Anyways, of course Libra is not Facebook, and a new company, Calibra, is meant to be in charge of developing Libra's eponymous wallet. Yet it's quite obvious who is steering this even though they are not alone and have major stakeholders in the boat this time, unlike with Facebook Credits.
However, several risks are around, starting with regulatory uncertainties and that we briefly discuss in the next article of this series. Also, Facebook's reputation is in quite a bad shape today with repeated data scandals and political controversies. Where Libra is meant to be free, it's time to stick to the old adage: "if it's free, you are being the product".
Multiple analysts and officials have started arguing that the ultimate goal of the project is to gather far more additional user data than now. Luckily as we discuss in the next article analyzing Libra's whitepaper, the Libra Association made it clear that data from Libra's blockchain would not be shared with Facebook and will be managed independently, except in the event of criminal cases. Looks like the same story we heard when we were told that WhatsApp, Facebook and Instagram data would never be unified...
What does Libra’s DLT look like?
Libra’s DLT is an open source blockchain leveraging a brand-new consensus algorithm belonging to PoS family and called LibraBFT. From its name, it can be understood that the consensus is Byzantine Fault Tolerant. This simply means that the system can resist the class of failures derived from the Byzantine Generals’ Problem. In layman’s terms, it can continue operating even if some of the nodes fail or act maliciously.
The choice of a PoS consensus algorithm is highly strategic provided the ambitions of Libra to bank a third of the World: scalability is a must. Bitcoin could never achieve that in its current protocol settings. Able to scale thanks PoS, Libra will have the speed and hopefully the security to give Visa and Mastercard a robust infrastructure to run their money flows worldwide.
Check our insights from Libra’s whitepaper in the 2nd article of the series here.
Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.