Facebook recently revealed its plan to launch a new digital payment system, Libra, which falls into the cryptocurrency ring. This new “global currency”, as Facebook describes it, will be based on blockchain, the same technology that powers bitcoin. According to the white paper published on its website, the proposed virtual currency is designed to be a stable digital cryptocurrency that will be backed by a reserve of real assets – known as the Libra Reserve – and will be supported by stable government securities.
Today, more than 1,500 cryptocurrencies are available on the internet, which can be transferred “peer-to-peer” without the intervention of financial institutions, with transactions moderated by miners who record them in a blockchain. However, let’s not forget that cryptocurrencies are yet to attain mainstream adoption despite their popularity among businesses and crypto-geeks.
Bitcoin, for instance, is the most popular cryptocurrency today but is rarely used to do any real economic work. In fact, it is not a recognized mode of transaction in most parts of the world.
Libra, theoretically, will have a greater role to play in economic transactions like a real fiat currency, managed by big brands like Visa, Mastercard, Spotify, PayPal, Uber, Lyft, Vodafone, and Facebook itself, backed by real assets, and regulated to avoid both volatility and the possibility of money laundering. Libra’s 29-page white paper states:
The Libra Blockchain is 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.
Far from trying to disrupt central control, Libra plans to embrace it. It also aims, as its white paper states, to fulfill the economic promise of cryptocurrencies that aims to eliminate the high charges levied to move currencies around or translate them from one currency to another.
Libra, being a “permissioned” blockchain, will have a centralized governing body, the Libra Association, which will oversee and verify transactions. The transaction history of this digital currency system will be stored in one place, and only some members within the association will be responsible for maintaining and verifying the digital ledger. The members of the Association will hold separate tokens which will allow them on-chain voting rights to govern decisions about Libra.
Although it is very early to say, the proposed Libra cryptocurrency has the prospect to become a high-throughput, global blockchain, built with programmable money in mind.
An updated and refined blockchain system: Libra
According to the initial reports, it looks like Libra is building upon some well-known blockchain technologies. Some key features that Libra has adopted from other cryptocurrencies are as follows:
- Like bitcoin, Libra has no real identity on the blockchain
- Like Hyperledger, it’s permissioned (initially, at least)
- Like tezos, it comes with on-chain governance
- Like ethereum, it makes currency programmable
- Like Binance’s coin, it does a lot of burning
- Like coda, users don’t need to hold onto the whole transaction history
Libra: is it really a cryptocurrency?
If we consider the features of the classic cryptocurrencies such as, bitcoin, cryptocurrencies are mostly permission-less and allow anyone to participate through proof of work by competing to solve a puzzle that lets you add a block to its chain. Libra, on the other hand, has restricted access. Only a few trusted entities can keep a track of its ledger.
But we should keep in mind that Libra is a work-in-progress project. Its white paper describes aspirations, not technical design. A lot of modifications and updates are about to happen along the way to resolve conflicts, satisfy regulators, attract users, please investors, and deal with unanticipated issues.
Libra isn’t pegged to one specific currency but to a group of low-volatility assets, including bank deposits and government securities in multiple currencies. While there is a Libra Reserve, Libra doesn’t seem like it’s necessarily pegged to its value. Rather, the reserve functions as a kind of lower bound on Libra’s value. Libra can offer a common platform for easy monetary transactions without the usage of different currencies for buying and selling through the digital medium. It is a cryptocurrency with the prospect to advance beyond the functions that the term signifies.
Libra’s limitations
Libra has certain drawbacks. Controlled by Facebook, currently battling charges of user privacy violations, there is an underlying question of security of this currency system. Digital currencies are often dogged by cybercrimes and, Libra does not offer any plan that ensures secured transaction as of now.
Libra is yet to find strong backing. Although currently backed by 28 corporations, including Visa, Mastercard, Uber, and Facebook itself, both populist and progressive politicians have been negative and neither major technology companies nor banks have joined the consortium.
Libra, slated for release in 2020, will only be a trial-size sample of the grand vision. The mature Libra of 2025, if it survives, could be quite different. Even if it fails, it has encouraged the introduction of a new monetary system that’s both inexpensive and easy to access.
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