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All there is to know about Libra
All there is to know about Libra
Crypto

All there is to know about Libra

By Andrea DeVitis - 26 Oct 2019

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The hybrid structure of Libra, the new digital project of Facebook, has some characteristics of cryptocurrencies, indeed there will be an ad hoc blockchain, and it will be a public ledger, thus the transactions will be open to the public. These are just a few of the characteristics in relation to everything there is to know about Libra.

The consensus algorithm is PoS (Proof of Stake), widely known in the blockchain environment and currently used by altcoins such as NEO, LSK, NXT and soon also ETH.

However, the right to hold a Libra node is reserved to the members of the Libra Association, a non-profit association founded in Switzerland, promoted but not led by Facebook, and which includes 21 multinationals (including Iliad, Uber, Spotify and eBay) in the fields of digital services, telecommunications, payment management, venture capital and non-profit: in short, a list that also includes competitors, in some sectors, of The Social Network.

The entry ticket for hosting a network node costs 10 million dollars, a real entry barrier for small and medium-sized enterprises, at least for the moment.

This centralisation, together with the promise to keep its value stable, makes Libra much more like a stablecoin.

Libra, in fact, will be backed by collateral, thus covered by a reserve, a basket of assets that give it intrinsic value, unlike BTC, whose value is instead determined by free trade on the market.

Libra is also intended to be spent on a daily basis. A less forced comparison would be to compare it to Ripple (XRP), given the high level of centralisation of both.

In light of the differences with what we canonically define as cryptocurrencies, Libra could be better defined as a one-of-a-kind digital currency.

All the criticism against Libra

Naturally, criticism quickly appeared on the web: as it is highly centralised, almost a monopoly, it negates the fundamental crypto philosophy, that of decentralisation.

The biggest problem for blockchain lovers is that those who have control of the network, have the ability to act arbitrarily and can, in fact, deny a transaction. This eliminates the concept of decentralisation, a basic requirement for a crypto, as it arose in response to the need to transfer money in a permissionless way, without asking for the approval of external bodies.

Other criticisms include the lack of innovation: the project is in fact seen as yet another bifurcation of an already existing and functioning technology.

All that remains is to hope that the governance remains distributed among the companies that are part of the consortium and that no single entity actually controls the network.

In fact, each company has equal decision-making power, including Facebook, but under the guise of Calibra, a specifically created branch.

In the sphere of privacy, the main concerns are the management of user data, such as KYC data and transaction history. 

So is Facebook becoming a bank?

Not yet, but it will certainly compete with some of the services offered by the banks.

The regulator’s position on the nature of the project, whether it can be considered a security or a derivative, is not yet clear.

The next natural question is whether it will ever become a financial apparatus with a value dependent on the underlying and how constant that value can remain if the underlying becomes the object of speculation.

The political implications of Libra

Among the political implications, there is the risk for Libra to reach such a critical mass as to become a threat to the sovereignty of the States or to the very function of the central banks.

The value should be anchored to that of the major national currencies such as the EUR, USD, GBP and Yen, probably because the success and approval of the project should not depend on a single regulator.

It is not known whether the value will be more like the dollar rather than the yen or the euro, or whether it will be an average like a stock index.

In addition to the aforementioned national currencies, i.e. with stable value and covered by central banks, Libra is secured by a basket of low volatility assets such as bank deposits and short-term government securities and it is for this reason that the coin will not be mined: each new emission depends on the actual deposit of new assets.

Looking at the macro-economy, it will be curious to see how Libra will react over time to the inflation present on the national currencies to which Libra’s value is pegged.

Technicalities for the interested readers

The Libra blockchain (based on Apache 2.0, therefore open-source) is capable of 1000 transactions per second and is already available for download on GitHub.

Developed in the new programming language Move, (also the name is ad hoc) has a structure similar to the existing Rust. The choice to use a purpose-made new language is actually a clever marketing manoeuvre: Move seems to arouse the curiosity of programmers and easily proposes itself as an implementation of the payment system in the services offered by the developers themselves.

So, where can Libra be bought? Currently it is impossible, as it is in the testnet phase, but in theory, it should be available from the beginning of 2020, although rumours indicate the date as unrealistic, given the enormous amount of work remaining. 

Investing in Libra?

Being a stablecoin, hence with a stable value, it does not lend itself to speculation and cannot be considered an investment, as it does not create an added value.

The owner earns money from the network by collecting the fees of transactions validated in the node held.

The potential of the project

There are many opportunities for the project, defined as the new “Internet of Money”.

The project was created to solve a very specific problem: not everyone has access to a system of monetary exchange since it is linked to an interbank scheme. With Libra, however, it will be enough to have an Internet connection (so, in reality, the objectives of bitcoin do not differ much).

The goal of the association is to allow anyone to freely exchange amounts of value on a daily basis, exploiting the characteristics of the blockchain such as mobility, stability, speed, scalability and security.

The latest news is that 30 members of the Congress of the United States of America have asked in an official letter for a moratorium on the Libra project, the reason being that this new currency could create a new financial system based outside the borders of the United States and in competition with the American monetary system.

In light of the crash these last days, and if we were to do some conspiracy work, we could almost hypothesise an attack aimed at undermining confidence in the company of reference, at a very delicate moment, coincidentally the same moment in which TON, the blockchain of Telegram accompanied by the Gram token, a competing Russian project, coincidentally, is about to be revealed.

What is certain is that the Libra project represents a great challenge for Facebook.

 

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