Key takeaways from Libra's whitepaper

Updated: Feb 19, 2020

This article is the 2nd of a series of articles about Libra. Like Bitcoin’s 9 page whitepaper, Libra’s whitepaper is really concise. The 12 page documents summarizes the mission and vision of the new crypto-asset and DLT project. We decrypted business and technical key takeways.


Libra at a first glance

The first sentence of Libra’s whitepaper says that “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”

A simple sentence to start the whitepaper yet raising at least three big questions centered around the three following terms: (i) simple, (ii) currency and (iii) financial infrastructure.

In our previous article of this series, we already gave an overview of the purpose of Libra, therefore we skip the analysis of the problem statement of the whitepaper to focus on what’s hidden in those three terms.

Simple and global

What does mean simple where DLT are considered a complex topic at the crossroads of cryptography, game theory and computer science? We understand that no big technological breakthrough is expected with Libra. This is to be checked with a further review of the technical architecture document, yet chances are high that it will mainly consist in an assembly of already well-known technologies and protocols.

One can argue that Bitcoin itself was an assembly of such technologies. Yet thinking of putting them together like that in the first place was THE breakthrough.

A Currency

We believe that the use of this word is meaningful. A cryptocurrency, or crypto-assets, often confused with a digital currency, is not a currency. A currency generally refers to a money instrument e.g. USD, EUR, GBP or JPY. A money instrument has at least 3 fundamental properties: medium of exchange, store of value and unit of account.

Marketing Libra as a currency rather than a cryptocurrency sends a signal according to which a kinda global central bank is being created to back it. In this perspective, some official have already started expressing their concerns.

US Senator Sherrod Brown, the leading leading Democrat on the Senate Banking Committee, expressed his opinion in a tweet on une 18th: Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.

France Finance Minister Bruno Lemaire said in an interview on a local radio channel on June 18th that “the sovereignty of states must stay into the hands of states rather than falling into private hands, who serve private interests”. Later during the day, he added that “that currency will enable that company (i.e. Facebook), like it will tomorrow to other digital giants, to accumulate millions of data, ending up in a monopolistic situation”.

German member of the European Parliament Markus Ferber expressed similar concerns, depicting the risk of Facebook becoming a "shadow bank", adding that Facebook "must not be allowed to operate in a regulatory nirvana".

A Financial infrastructure

With this expression, it is made clear that the target is not only the highly speculative crypto-assets segment, which is a visible part of the iceberg of the whole developing DLT industry. Libra Blockchain is seemingly meant to set roots for the tech behemoth in the financial industry and its underlying use cases, leveraging the blue ocean of banking the unbanked and probably the nicest way regarding futuristic perspectives on token economics, crypto-finance and mobile money.

Some analysts have already concluded that Libra will accelerate Facebook’s revenue streams diversification as it will create engagement beyond social and communications and facilitate the skyrocketing e-commerce industry. Even though the blockchain will be open source and accessible to anyone, no doubt that Facebook will be the big winner of this venture, anyhow. Reminds you Google’s Android and PlayStore? An open source ecosystem yet perfectly making up the journey of a major player, despite all the nice words embedded in the mission.

What is being shipped

A clear thing is that Libra is likely to be a stablecoin, or at worst a near-stable coin. It will be backed by a reserve of real assets like bank deposits and short-term government securities, meant to give it an intrinsic value. While the exact coverage ratio is not mentioned, it is argued that the reserve will be managed to preserve the value of Libra over time.

Libra will be instantiated on Libra Blockchain, a new DLT infrastructure using new programming language “Move” for implementing custom transaction logic and “smart contracts”. Libra Blockchain features a Proof-of-Stake Byzantine Fault Tolerant (PoS BFT) consensus algorithm.

From the opportunity paragraph of Libra’s whitepaper, we understand that Libra’s value proposition is to foster low-cost cross-border money flows and financial inclusion in a decentralized ecosystem. If the low-cost advantage of crypto-assets is easy to understand through the prism of disintermediation, the extent to which Libra Blockchain will be decentralized is still unclear.

For instance, it has been revealed that the minimum ticket to be allowed to run a Libra Blockchain node was $10 million, meaning that the power will be held by wealthy physical or moral persons. Recall that Ethereum’s founder Vitalik Buterin formalized three forms of decentralization in a Medium post: architectural decentralization, political decentralization and logical decentralization. Not sure that Libra does not violate political decentralization…

Bottom line

Interestingly, not much is said about regulatory risks. On the contrary, Libra Association members seem quite confident, also considering significant work in progress. It sounds like a green flag sent to the crypto community. With its massive user base of +2 billion users, should Facebook manage to unlock uncertainties, we could soon experience a boom in crypto-assets market cap. Which has, perhaps, already started with Bitcoin trading over $ 9k to date.

Check the previous article of the series on why Facebook dived in crypto-assets here.

Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.

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