Libra, an ambitious cryptocurrency from companies like Facebook, Shopify and Uber, aims to do to cash in on what the internet has done by mail. The invention of blockchain has made global, instant and cheap payment possible, and Libra’s goal is to make it accessible.
Table of Contents:
What Is Libra?
There are two main features that Libra is trying to bring to the table both for the cryptocurrency market and for the world in general:
Financial network
In order to serve as a global payment system and achieve its goal of “non-bank banking”, Libra Protocol operates as an entire financial network. Currently this network includes only the Libra coin that is traded on it, but it is designed to have more: coins, currencies, custodians and channels – basically replicating the current financial infrastructure. In order for it to work securely and reliably for billions of users, Libra has chosen to be an authorized blockchain, meaning validators must have the permission of the Libra Association (and therefore be members of it) to be a node operator. Currently this includes technology, financial and NGO companies such as: Coinbase, Xapo Holdings, Facebook, Spotify, Shopify, Uber, Andreesen Horowitz, Creative Destruction Labs and Women’s World Banking.
Libra Protocol
Libra is a digital currency, very similar to Bitcoin or Ethereum, however it exists on its own blockchain protocol. The blockchain works in the same way as Bitcoin or Ethereum, with node operators all maintaining the same “state” as the blockchain and reaching consensus on approving users’ transactions in a predetermined manner, thus updating their status. The Libra protocol, like Ethereum, uses its own coding language called “move”. This is what allows it to be an entire financial network. Just like the solidity on Ethereum allows users to easily create smart contracts. “Move” will allow users to create their own “assets”, basically coins/currencies and contracts. This creates the opportunity for a small village in Africa to create its own local currency, or even for a particular seller to create a currency. In addition, this gives seamless access to currency, credit, and all other assets on Libra.
What is the point of Libra?
Nearly two billion people in the world remain unbanked, yet one billion of these people have a mobile phone and half a billion have access to the internet.
Libra is intended for these billions of people who suffer from lack of access to financial resources, low income and often have to pay high fees (7%+) to send money. Libra aims to make sending money as easy as sending a text, and so if its micropayments, paying low wages, sending remittances to family abroad or paying for products, the Libra protocol will allow it for the non-bank population. The Libra protocol is open source and governed by the Libra Association, made up of node operators, and therefore should be a more reliable, secure and integral financial infrastructure than the banking system.
Did Facebook invent Libra?
A better way to think about it is Facebook Libra Association format and is one of the founding members, along with those listed above. The protocol was developed by an open source group of developers, mainly those within the association and Facebook, through its subsidiary Calibra.
Nothing about Libra would be possible if it weren’t for the dozens of innovations that have taken place over the last decade in the blockchain industry. Libra plans to launch a payment network for billions of individuals. This would not be possible unless there is a technology to achieve this, and thanks to the development of the open source community of various blockchain networks, it is certainly possible to do so today.
What do cryptocurrency enthusiasts think of Libra?
The general sentiment of Libra in the crypto space is not positive. Cryptocurrency enthusiasts are inherently wary or two fundamental things in society: governments and society. Both are the backbone of Libra.
Facebook’s close involvement with its launch immediately put Libra in a red box that was quickly discarded by most of the cryptocurrency community for violating some core principles of cryptography such as privacy, freedom, and lack of intermediaries.
In principle, many cryptocurrency enthusiasts support what Libra is trying to do and wanted bitcoin, or any other cryptocurrency they are maximalist about, to serve this purpose as a bank-capable global digital currency for the unbanked. Not without their sacrifices, many cryptocurrency enthusiasts have coldly welcomed Libra as a good thing, being a potential onboarding of billions of wealth in the crypto sphere.
Where can I buy Libra?
Libra has not yet been fully launched and is still in beta (open source on github). Therefore, the Libra Association has not started selling Libra to the public, but when it does you will be able to buy it directly from the Association, presumably via a button on Facebook, and they will keep your money in reserve to support the Libra you receive.
Will Libra be backed by the US dollar?
Yes, but not just the USD. Libra is designed to maintain a stable value so that users are able to maintain purchasing power, that is, they know that the value of Libra today will be the same tomorrow and in the future. This is guaranteed by the Libra Foundation which holds reserves to support each Libra.
Basically, whenever someone buys Libra for fiat, the Libra Foundation will put that fiat in reserve, holding it in the form of high-credit rated currencies and government debt (bonds). Issuers with high credit ratings would include the European Central Bank, the US Federal Reserve and others. The combined value of these reserves is the value of Libra, so think of it as a soft peg, where it is pegged to the combination of these holdings. Over time these reserves will earn interest, which the Libra Foundation will reinvest in research and development.
Is Libra a good investment?
If you are a small business in a rural area or third world country, or regularly face financial services insecurity or high fees, then Libra would be a good investment. Think of it as an investment in your ability to use money, not necessarily and the investment to make more money.
How will Libra impact Bitcoin?
Is Libra dead?
When Libra was first launched, it met with an impressive reaction from regulators and community members. The main topics were mainly privacy concerns related to Facebook’s creation, a big issue at the time as Mark Zuckerberg appeared before the Senate on that very topic.
Companies in the space, particularly R3, ridiculed Zuckerberg and the Libra Association as irresponsible and naïve in their premature launch, citing a lack of regulatory preparation and Facebook not fully understanding how financial systems work. The original plans were supposed to launch in the first half of 2020, but due to regulatory concerns, particularly privacy risk, Libra replacing the dollar, and criminal activity, this could be postponed indefinitely.
Conclusion
In summary, Libra may never go anywhere, it may fall apart or get stuck by any number of regulatory hurdles, which will vary from country to country.
What Libra has achieved, and will continue to achieve, is legitimacy for the revolutionary value that digital currencies and blockchain can give to emerging countries and the world. They forced a global discussion about the implications of the next generation of financial infrastructure and initiated the investigation and implementation of regulations that will enable tomorrow’s financial future.
