Table Of Contents
- Blockchains and Cryptocurrencies
- How blockchain technology works
- The concept of Libra
- The Libra Organization
- The Libra Association Council and Libra Reserve
- How Libra blockchain works
- Features of Libra as a Cryptocurrency
- Calibra Wallet
- Expected Impacts of Libra
- How to Buy and Use
- Prospects of Success
- Importance of Libra to Facebook
Brief Overview: Blockchains and Cryptocurrencies
The much-awaited Libra cryptocurrency from Facebook was unveiled on June 18, 2019, and it is everything we expected it to be and more. Facebook is one of few mega-companies of this age that are perfectly positioned to change the crypto landscape and usher in the long-awaited age of digital commerce. When the blockchain technology was introduced in the early 90s its full potential was not realized until Satoshi Nakamoto merged onto the scene in 2009 and introduced the first cryptocurrency, Bitcoin.
How Blockchain Technology Works
Blockchain is—by its very concept—a revolutionary technology. It involves the secure transfer of uniquely stamped packets—or blocks of data—between nodes in a peer to peer network. The first block, also called a genesis block, can be initiated by anyone. After that, the other nodes build more blocks on it. This happens when a user requests a transaction. A transaction block is created and sent to all the nodes involved for verification. Once this is achieved the block gets added to the chain. A record of all such transactions—called a ledger—is kept autonomously in the network so that no central figure has the sole authority over the ledger. This decentralized system makes it very appealing as a value transfer system.
This raises the transaction integrity issue. Each block added has to have a unique cryptographic key corresponding to the one just before it. To get this key, it has to execute a set of complex calculations so that the right key is attained. Finally, once a block is created it has to be verified by every node which keeps records of all blocks in the chain. This is the basic structure of blockchain and emergent technologies such as smart contracts—that ensure total integrity of transactions between sender and receiver.
The Concept of Libra
Libra was designed as an ecosystem to foster cheap and secure decentralized financial transfers. Facebook is already a powerhouse in the online advertising markets, controlling hundreds of billions of dollars (over $600 billion in 2019). According to the Libra White Paper, 7 percent or 1.7 billion of the world population are unbanked. This means they are mostly unable to access vital financial services. Even those who have access to these services consider them prohibitively expensive. To put this into perspective, cross-border transfers will typically cost you about 5 to 7 percent of the transaction value.
Again, it is estimated that about 85percent of all transactions in the world are made by cash. This paves the way for a lot of fraudulence and criminal activity. Banks and other financial institutions have been regulating the industry for a long time and have in turn been the target point for massive hack attacks that have resulted in the loss of billions.
It is no doubt that the future of digital commerce lies in cryptocurrencies and the way they interact with current institutions. Young so far, the technology has already taken many impressive steps as testified by Ethereum, Dash, and other major cryptos. However, those have inherent weaknesses that keep them from the global adoption: e.g. scalability issues, inability to work with existing systems, and volatility.
Libra is based on three key pillars that are aimed at countering the above-mentioned issues:
The Libra Organization
Libra will be managed by an entity made up of representatives from 28 founding companies, organizations, and businesses that will all act as validators for the Libra ecosystem. Those all contributed to the initial fund necessary to set up the Libra testnet. Each founding member contributed at least $10 million, whereas the investors are best-in-class companies of various industries: payments (e.g PayPal, MasterCard), venture capitalists (e.g Andressen Horowitz, Ribbit Capital, Thrive Capital), telecom (Vodafone), blockchain (Anchorage, Bison, etc.), NGOs (Mercy Corps, Kiva, Women’s World Banking), and the others. This list was strategically chosen to inspire the confidence of the public who would otherwise not have trusted Facebook alone to oversee such a venture.
Libra is set up essentially as a stablecoin, in that it rests on a foundation of real-world assets. This means that it is not fully decentralized, at least so far. It needs an oversight body to supervise all Libra activities and ensure that all Libra coin—bought or sold—are backed by the corresponding value in fiat money. This backing is supported in the world’s top currencies: USD, JPY, GBP, and RMB.
The Libra Association Council and Libra Reserve
This is what will need a robust governing body. The Libra Organization is strictly non-profit being primarily only meant to guide Libra through the initial stages until it can become fully decentralized. Even then it would need a guiding hand through its roadmap, but right now the Council holds the sole authority and oversight powers over Libra.
It will manage the Libra Reserve, which is the sum of the aforementioned real-world currency backing for the Libra coin.
The Libra Council also holds the sole authority to create and destroy Libra. This function will be further delegated to trusted resellers while still retaining some sense of control. This means that Libra will be less decentralized than some had expected it to be, and in this sense, it differs greatly from some of the other coins. It also introduces a huge regulatory nightmare, but this could be worked out over time.
How Libra Blockchain Works
As stated in the Libra whitepaper, the Libra blockchain network will consist of a “decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world.” The blockchain is designed to be fast, which is essential to support these billions expected to be using it.
The blockchain will—at its core—work in the same way as many others of the kind. Merkle trees will be inherent to the code to detect changes made to the blocks. It will also make use of Byzantine Fault Tolerance system, in which a minimum of two-thirds of the validators will need to consent to a new block for it to be added to the chain.
The blockchain is intended to use an entirely new programming language called Move. For now, the Libra testnet has been launched powered by Rust for security reasons and because Move isn’t ready yet. It has now been open-sourced with an Apache 2.0 license so that developers can work to find and eliminate bugs in the system. This is in anticipation of public release sometime in 2020.
The Libra database will be governed by the Libra protocol, which is what we will now try to condense in the next few paragraphs.
The Libra Protocol
The Libra protocol is designed to work as a permission system: some nodes—which are in this case referred to as validators—hold the authority to transact, verify transactions, and add new blocks to the blockchain. Those validators currently consist of the 28 founding members, and with time more will be vetted and authorized. The Libra council will be vetting more nodes over time and, once vetted, those will also be able to act as validators in the network.
In the meantime, clients will also be allowed to request a replica of the database from a validator to monitor the authentication and block-building processes. This can also be shared with other clients, and so on and so forth so that security is ensured and can be publicly monitored. According to Facebook, if an attack strikes at more than a third of nodes at a time, the entire network will be ‘frozen' until the extent of such an attack is probed.
The Move programming language has been specifically designed for this blockchain to reduce the risk of malicious attack. It carries specific commands in a simple procedure, e.g. LibraAccount.pay_from_sender (recipient, address, amount). This will make it much easier for transactions between accounts to be processed while minimizing the risk of actual contents of the account from being modified. In fact, the Move language is named so because it was built specifically for wallet-to-wallet transferring of Libra.
As mentioned above, transactions will be irreversible. They will also be charged at a tiny fee (a fraction of a cent) to facilitate validation and transfer costs. Those are loosely called ‘gas charges’ and expected to be negligible for the end user. However, when pooled together they also serve a security purpose: they will deter crooks from creating transaction storms, spamming, and performing denial-of-service attacks. Ethereum employs the same model.
Once Move is online, developers will also be able to create smart contracts and effectively build the Libra framework. This will be achieved through Move IR, which will be able to interact with the blockchain and still be high-level enough to be human-readable.
Features of Libra as a Cryptocurrency. Market Competition
The Libra ecosystem is all focused on one goal: creating a cheap, secure digital payments ecosystem that will be available to everyone in the world. In this sense, Libra is both the project and the payment token. Each Libra coin will hold real value in fiat currency because it is backed by real assets. This point is emphasized throughout this article as it is one of the major differences between Libra and other cryptos.
Libra will be able—like other major cryptos—to remain decentralized to an extent that security will be assured. Few nodes present a target for a coordinated attack which is a vulnerability that Facebook has been willing to accept. It wasn't able to come up with a fully distributed model safe enough for mass payments. However, as more nodes are added, this problem will be of less concern as it is only a very high-powered attack that can bypass the security features of the nodes currently in place.
Libra will need to handle many more transactions from users to overcome the scalability conundrum that had limited pioneers like Bitcoin and Ethereum. At a theoretical demand of 1,000 verifications per second, Libra aims at 5kB sized transactions at the rate of 1,000 a second. This could be achieved through commodity CPUs and if nodes have at least 16TB SSD hard drives and network connectivity of at least 40 Mbps. This is a reasonable target and we see no reason why it should not be met, given the pace at which technology is being adopted even in third world countries.
Libra Wallets: Calibra
Calibra is the official wallet from Facebook. The ultimate goal is to have it integrated through chatting apps like Facebook Messenger, WhatsApp, and Instagram. The idea is to make sending, adding and withdrawal of money as simple as doing the same with messages and files. For example, you could be chatting with a friend overseas and send them money in the chat. You could also use it to pay for coffee, rent, books, transport, and other day-to-day responsibilities securely and at almost zero cost.
This is indeed an ambitious target and could be achieved if Facebook could convince the public to adopt the technology en masse. They would have to overcome a lot of suspicion and distrust to achieve this, due to reason we will discuss later. Suffice to say that Facebook is striving to dissociate Libra from these dark clouds as much as possible. For one, it claims that it can only own a maximum stake of 1% in the Libra Association so that no one company can gain enough controlling power to veto decision making—including Facebook itself. Secondly, Calibra will be launched as an add-on for three platforms—a separate but integrated app—and an independent wallet. All these will be available on Android and iOS. For privacy, users can choose between options of sharing contacts, sending usage data to Facebook for security purposes and turning these off entirely.
In private, Calibra’s CEO and Facebook VP of blockchain David Marcus had this to say,
“We realize people don’t want their social data and financial data commingled… The reality is we’ll have plenty of wallets that will compete with us and many of them will not be in social, and if we want to successfully win people’s trust, we have to make sure the data will be separated.”
However, Libra could also be open-sourced to third-party wallets. These will have to fulfill certain conditions and pass stringent vetting. If found credible, they will be granted developer access to the Libra platform and rights to handle transactions on behalf of users. One condition to be met will be Know-Your-Customer protocol. This means all customers will be required to submit sufficient identification information including face-shot photos. Any fraudulent activity performed by the wallets will need to be reported to relevant authorities.
Expected Impacts of Libra
If Libra gets to achieve the global uptake, we can only scratch at the surface of the social, financial and technological impacts that will take place. For one, you can expect a lot of opposition from governments and financial institutions because commerce could experience a total shift from conventional fiat money trading to digital crypto. Crypto trading—decentralized and not under any control—could lead to massive effects on taxation, lending, insurance, real estate, etc.
Again, this will also result in very cheap cross-border transfers even in underdeveloped countries, which will in turn spur more development as companies race to elbow into the new market that will emerge. It could also cause massive friction in countries where blockchain and cryptocurrencies are not wholly embraced, and thus lead to global conflict rather than cooperation.
In relation to financial services, Financial Times reports that—after evaluation from the financial sector players like bankers, investors, payments executives and industry experts—they can conclude that Libra will not shake up the financial sector. One of the main reasons for this conclusion is the lengthy regulation process before allowing a currency into the financial system.
There are a lot of checks the currency must pass before getting permission to operate. Fraud, money laundering, and verification of a fund source are some of the basic checks.
Libra—just like any cryptocurrency—is open to inflation; this will make it hard to get into countries that have capital controls. The operations of the earlier cryptocurrencies like Bitcoin can also be an indication of Libra’s impact on the financial sectors: the earlier cryptos did not disrupt the sector as much. Even though Facebook is much bigger than those cryptos.
The other indication of little impact on the financial sector is based on adoption. Most traders are rigid toward adopting new technologies in their systems. This is due to the likelihood of inflation and discrepancies in values. It might also turn out the same for Libra as chances are it will convince the merchants to take up its use.
Libra is still in its infancy and the way it is steered in the next few years will wholly determine just how much it could change the landscape. It remains to be seen what will be next for Libra, the global currency.
Libra Incentives for Merchants
The overall success of Libra is, without doubt, pegged on how well it is received by the masses and adopted in day-to-day monetary transactions. Libra has come up with several incentives to lure users and merchants. This will take the form of Libra tokens for merchants who successfully promote more users to use Libra, who can then pass them—fully or in part—to other users. This could, as an example, take the form of online shopping discounts.
These incentives will also be available to early users for meeting set targets, who can then be rewarded in Libra.
How to Buy and Use Libra
You will be able to buy products directly online through merchants who adopt Libra. This could be particularly exciting because a transaction will be almost cost-free and could potentially earn you rewards. The price of one Libra in fiat money is yet to be set, but the inclusion of financial institutions in the ecosystem is expected to mean that free interchange from fiat money to Libra and vice versa will be easily accessed online and through the Calibra wallet.
To get in on the movement you can get more information on the Calibra website. Here you will be able to purchase, transact in and sell Libra once it comes fully online next year.
Advantages of Libra
Using Libra as a currency comes with several advantages to the user. Some of these advantages are:
Libra is available for use on mobile handsets and other devices. This makes it easily accessible to clients as most people already own the handsets which they use to access social media.
As the wallet for the currency, Calibra stores the cryptographic keys used to access the currency. This means you can still easily access it from another device even when you lose your current phone or the passwords. It can also easily intervene in case of fraudulent transactions and other disputes.
Most of the already existing crypto is not tied to physical assets. This makes them immune to the control and regulations of national governments. On the other hand, it also makes them highly susceptible to flash crashes and speculative bubbles.
The Libra does not face a similar challenge as it is 100-percent backed by assets. Each unit of Libra currency comes with an equivalent basket of short-term government securities and bank deposits in different world’s major currencies.
The use of different currencies and assets makes it less likely to get affected by changes or inflation in a single country.
Affordability in Transferring Money
The adoption of Libra as a currency among several entities across the world is likely to reduce the cost of transferring money among the different world players. Facebook does not necessarily have to charge a lot of transaction charges as it already has a large audience of around 2.4 billion users.
Using Libra will also come in handy to those who travel a lot. Migrants and travelers tend to pay more when moving money through different countries. The similar rates in Libra transactions across different countries will reduce the extra charges they incur.
The prospects of Libra’s influence already leave cross-border money transfer giant Western Union feeling the pressure.
Safe and Secure
The system has strong protection to ensure the safety of your money. It uses similar anti-fraud and verification processes used by banks and credit cards. The use of automated is important in detecting and preventing fraudulent activities. There is also dedicated customer support to assist in case of loss of passwords or phone. You will also get refunds in cases of Libra losses due to fraudulent access of your account.
All the records of transactions carried out in Libra are stored in the system albeit pseudonymous. This is helpful to track down when issues arise. This feature also makes it less likely to be infiltrated by money launderers or drug dealers.
Your transactions details and history are not shared publicly or with any third-party entities. This makes it private to use.
Sending money encrypted into Libra tokens is easy like sending a message. You just need a few taps on your in Facebook apps like WhatsApp and Messenger, and you are good to send money within seconds.
One of the main concerns with the current currencies is value discrepancies. It generally takes a lot of time to buy and sell if you intend to use them across different borders. This is an issue that will be easily solved by Libra. Just as the same messages and calls can be made through the WhatsApp and Messenger between people in different countries, transactions are as easy. The currency value uniformity makes it easy to send to another person in a different country. Even though Libra will be tied to some major currencies, it will be working on the same value globally. This makes it time-saving, efficient, and protected from losing value.
Prospects of Success
Libra has received considerable backing by the governor of the Central Bank of United Kingdom to be a success stating that it can have considerable uses once it meets all the regulatory requirements.
Other factors that also indicate Libra will be successful are:
When you look at it from the western world, you might be inclined to think that most people are already banked and do not need a payment option, or the larger populace will not warm up to a new currency barely tested. The narrative changes when you view it from the developing world’s point of view.
There are a lot of people who already access Facebook apps yet they are not banked. Other financial tools like Cash App and Venmo are less widespread compared to Facebook Messenger and WhatsApp. The ease that comes with using Libra means they will easily use it up as a payment option.
The fast uptake trend of Facebook and WhatsApp apps in these regions is an indication of how they will adopt Libra.
Ease of Use
One of the challenges for people all around the world is the cost of sending money to friends and family. No matter where you live, you incur considerable transaction costs that make sending money a hard task and generally reduce the value you can send. Libra is looking to become a game-changer.
Sending money through the WhatsApp will be considerably cheaper as compared to the traditional means of money transfer. Using Libra is essential in helping to keep the value of your money.
Libra is set to disrupt the remittance trend in the developing world. A report by World bank observed that remittance to Sub-Saharan Africa reached $37 billion in 2017, with a projection of $40 billion possibilities in 2019. The figures can even be higher as these official data exclude informal channels and the funds remitted to North African countries.
The lower costs combined with fast speed when using Libra will easily make it the most preferred method for remitting money to those developing countries. This gives the currency a likelihood of success.
Existing Usage Structures
Assuring the success of a cryptocurrency requires considering some important factors: widespread acceptance, functionality, and ease of integration to existing structures. The most assured one is the presence of a working network to allow the currency to integrate into existing products in the form of the mass use of WhatsApp and Facebook.
Currently, over 2.5 billion people use Facebook products across the world. 90% of smartphone users in the developing world use it mostly for Facebook, WhatsApp, and Instagram. The fact that Libra comes integrated within these apps makes it easy to use. One doesn’t have to learn any language, operating modes or instructions. There is no learning curve whatsoever. One can easily send money the same way they send a message or make a call. This makes it convenient to the user thus easy to adopt.
Other than using it purely for making vanilla payments, Facebook can decide to go with Libra the traditional banking way by allowing users to open a savings account, providing credit cards and lending services. This might be a good source of income as it does not require building and managing physical banks. Such a banking method Facebook a leading digital economy player and raising the value of Libra in the process.
The technological advancements have seen the rise of mobile banking options with several financial apps available for download. Facebook can look to join some of the already established online banks, and the ease of access gives them an edge as there is still a huge gap in the market.
Facebook can also opt to integrate payment solutions for small businesses, online payment options, and in-app payments for gaming. They can also partner with the established-and-respected financial institutions like MasterCard and Visa to help in global e-commerce payments, facilitating purchasing and selling products across borders.
Finally, even though still at the infancy stage, all indications are towards Libra’s triumph. Facebook already has existing channels and users across the proprietary platforms that make the payments option easy to take.
Concerns in Libra
Libra’s prospects of success hinge on how Facebook can effectively sort out the major concerns. Some of those are:
Privacy and security are one of the major issues Facebook has had to deal with in the wake of launching Libra. There are fears that Facebook will have access to the financial and transactions records of platform users. It is yet to be revealed how Facebook with a history of private data breaches will handle these important data obtained from Libra. This led the US Representative, chair of the House Finance Services Maxine Waters to ask Facebook to halt the developments of the currency until it answers the questions on the privacy and data security.
In relation to security and privacy, some critics already claim Libra is the most “invasive and dangerous” surveillance formed by the company.
Facebook as a Government
By introducing a currency, Facebook will start running as a government on its own, and that calls for regulation. There is also fear that widespread adoption of the Libra currency can cause a disruption in the global economy which will bring it to direct competition with the various national banks across the globe.
Some of the most open backlashes have been from Europe with the French Finance Minister writing to officials of the International Monetary Fund (IMF) and G7 to monitor the operations of Libra and its effects on global financial structure.
Regulations by Other Countries
Libra will most likely not be available in countries that set against cryptocurrencies. This will notably include India, one of the largest markets for Facebook. India has a sore attitude toward cryptocurrencies. There are even plans to introduce regulations that propose 10-year jail terms for those caught in possession of encrypted currencies. Therefore, Facebook is inclined to avoid such countries.
Libra will also not be available in countries that are sanctioned by the US government—like Zimbabwe. In addition, there are countries—e.g. North Korea, China, and Iran—that do not have a Facebook presence. Thus, they will miss out on the currency.
As a digital operator, Facebook will also have to contend with Internet shutdowns that might occur in different countries from time to time due to government regulations.
Officials from different nations have brought to question the probable use of Libra as a tool for money laundering and the fact that it can help in evading global sanctions.
In his letter to the IMF and G7 officials, the French Finance minister also raised questions on the possibility of the platform misuse for money laundering.
Just like Bitcoin, Libra’s safety protocol is made such that anyone can access it pseudonymously, which makes it susceptible to fraudulent transactions. Facebook has moved to confirm that it has funds set aside for uncovering fraud and money laundering activities.
Facebook has also teamed up with 28 other partners including PayPal, Uber, and MasterCard to form the Libra Association.
Changing User Behavior
No matter how easy and fast it is to acquire or transact using Libra there is a concern on the existing operational user behavior and culture. There is already a strong mobile economy with the widespread of finance apps in the App stores, and most traditional banks developing mobile banking apps accessible online. Most people have preferred financial partners that will take the time to ditch for a new currency.
The proliferation of Facebook entities in the form of WhatsApp, Facebook Messenger, and Instagram gives it a lifeline though.
Importance of Libra to Facebook
According to the Los Angeles Times, there are some reasons why Libra is an important investment for Facebook:
Facebook has been rocked with a range of accusations on data and privacy breaches. Launching Libra is a way through which Facebook is looking to assure the users that it can still be trusted with valuable personal data. And that it can handle the data responsibly.
Preserving the Dominance
Facebook has been the most dominant social media site in the world for a long time. There products line of Facebook Messenger, WhatsApp and Instagram are the most used globally. Current trends though indicate a slight dip in the uptake of these sites with users opting for a competition like Twitter and Telegram. Introducing a currency is a way of keeping the current users within the system.
Once a user adopts the use of the currency in their lifestyle and for most their financial transactions, they are unlikely to move to other social media sites that have not high-end payment platforms in place. The possibility of using Libra in transactions outside Facebook apps means that it can easily gain new users who receive payments from the platform.
Facebook earns most of its revenue from advertisements in developed countries. Libra is a way of making the current users spend more time in the Facebook system where they will view more ads creating more revenue in the process.
For the developing world, Facebook targets a big population that is already accessing the internet but lacks banking services. This provides Facebook with an opportunity to gain revenue through the transactions charges and by providing banking services.
In conclusion, Libra is a genuine contender to be one of the most adopted cryptocurrencies in the world. This is due to the widespread use of Facebook, Messenger, and WhatsApp. It comes with a lot of advantages, being easily accessible. Though there are lots of potentially obstructive concerns, prospects overweigh them all. Finally, only time and technological advancements will tell.