Libra, an ambitious cryptocurrency from companies like Facebook, Shopify and Uber, aims to do to cash what the internet did to mail. The invention of blockchain has made global, instantaneous, and cheap payment possible, and Libra's goal is making it accessible.
By: Jack Spade | Apr 4, 2020 | Modified Jun 22, 2020
There are two main features that Libra is looking to bring to the table for both the cryptocurrency market and the world at large:
In order to serve as a global payment system and reach its goal to “bank the unbanked”, Libra Protocol operates as an entire financial network. Currently this network includes only the Libra coin that is transacted on it, but is designed to have more: coins, currencies, custodians, and channels – basically replicating the current financial infrastructure. In order for it to operate securely and reliably for billions of users, Libra has chosen to be a permissioned blockchain, which means validators need to have permission from Libra Association (and thus be a member of it) to be a node operator. Presently this includes tech, finance, and NGO companies like: Coinbase, Xapo Holdings, Facebook, Spotify, Shopify, Uber, Andreesen Horowitz, Creative Destruction Labs, and Women’s World Banking.
Libra is a digital currency, much like Bitcoin or Ethereum, however it exists on its own blockchain protocol. The blockchain operates the same way as Bitcoin or Ethereum, with node operators that all maintain the same “State” of the blockchain, and come to consensus on approving user transactions in a predetermined manner, thus updating their state. The Libra Protocol, like Ethereum, uses its own coding language called “move”. This is what enables it to be an entire financial network. Much like solidity on Ethereum allows users to easily create smart contracts. “Move” will enable users to create their own “resources”, basically coins/currencies and contracts. This creates the opportunity for a small village in Africa to create their own local currency, or even for a particular vendor to create a currency. Furthermore, this gives seamless access to currency, credit, and all the other resources on Libra.
Nearly two billion people in the world remain un-banked, yet a billion of those people have a mobile phone, and half a billion have internet access.
Libra is intended for these billions of people that suffer from a lack of access to financial resources, low income, and often have to pay high (7%+) fees to send money. Libra aims to make sending money as easy as sending a text, and so whether its micropayments, paying low wage-earners, sending remittances to family overseas, or paying for produce, the Libra Protocol will enable this for the unbanked population. The Libra Protocol is open source and governed by the Libra Association, made up by the node operators, and therefore should be a more reliable, secure and integral financial infrastructure than the banking system.
A better way to think of it is Facebook formed Libra Association and is one of the founding members, along with those listed above. The protocol was developed by an open source group of developers, primarily those within the association and Facebook, through way of its subsidiary Calibra.
None of Libra would be possible if not for the dozens of innovations that took place over the course of the last decade in the blockchain industry. Libra plans to launch a payment network for billions of individuals. This wouldn’t be possible unless there exists technology to accomplish this, and thanks to the open-source community development of various blockchain networks, it is definitely possible to do this today.
The general sentiment of Libra in the crypto space is not positive. Crypto Enthusiasts are inherently distrustful or two fundamental things in society: Governments, and Corporations. Both of which are the backbone of Libra.
The close involvement of Facebook with its launch immediately placed Libra into a red-taped box that was quickly discarded by the majority of the cryptocurrency community over violating some fundamental principles of crypto such as privacy, freedom, and lack of middlemen.
On principle, many crypto enthusiasts support what Libra is trying to do, and have wanted bitcoin, or whatever crypto they are a maximalist on, to serve this purpose as a global digital currency that can bank the unbanked. Not without their sacrifices, many crypto enthusiasts coldly welcomed Libra as a good thing, being a potential onboarding of billions in wealth into the crypto sphere.
Libra hasn’t fully launched yet, and is still in beta (open source on github). Therefore, the Libra Association hasn’t begun selling Libra to the public, but when it does you will be able to purchase it directly from the Association, supposedly through a button on Facebook, and they will hold your money in reserve to back the Libra you receive.
Yes, but not just the USD. Libra is designed to hold a stable value so users will be able to retain purchasing power, that is, they know the value of Libra today will be the same tomorrow and in the future. This is ensured by the Libra Foundation holding reserves to back every Libra.
Basically, every time someone buys Libra for fiat, the Libra Foundation will put that fiat in Reserve, holding it in the form of high-credit rating currencies and government debt (bonds). High-Credit-Rating issuers 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.
If you are a small business in a rural area or a third world country, or regularly face financial service 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 investment to make more money.
A lot of the use of bitcoin in low income countries comes as a “safe” alternative to local currencies, whether to protect wealth from hyperinflation, corrupt governments, or exorbitant fees.
Libra will serve this same purpose while having equivalent or cheaper fees than bitcoin, faster processing times, and also more stable value as described above. Thus, it is likely if Libra reaches mass adoption it will take that market value away from bitcoin, making bitcoin the alternative and Libra the main digital currency in these countries. However, Libra has a lot of regulatory red tape to get past before they can deploy at scale like bitcoin has.
When Libra was first launched it met an impressive backlash from regulators and community members alike. The main arguments were foremost privacy concerns around it being created by Facebook, a big issue at the time as Mark Zuckerberg was appearing before the senate about that very subject.
Companies in the space, particularly R3, ridiculed Zuckerberg and the Libra Association as being irresponsible and naive in their premature launch, citing lack of regulatory preparedness, and Facebook not fully understanding how financial systems work. Original plans were to launch in the first half of 2020, but due to regulatory concerns, specifically the risk of privacy, Libra replacing the dollar, and criminal activity, this may be postponed indefinitely.
In summary, Libra may never go anywhere, it may fall apart or get held up at any number of regulatory hurdles, which will vary country by 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 have forced a discussion at a global level of the implications of the next generation of financial infrastructure, and began the investigation and implementation of regulations that will enable the financial future of tomorrow.