Unpacking Libra – Facebook’s new cryptocurrency

In Insights

Facebook sent shockwaves through the crypto community with the release of the whitepaper to its much-anticipated cryptocurrency, Libra. Calibra was unveiled as Facebook's wallet that will enable users to trade Libra across Facebook’s various messaging platforms like Whatsapp and Messenger. For the first time, sending money might be as easy as sending a message.

What is Libra?

Libra is a cryptocurrency that will be built on the open source Libra blockchain. Libra will be fully backed by the Libra Reserve – a basket reserve of “real assets” that will include bank deposits and short-term government securities. In a general sense, Libra is expected to function much like a stablecoin, however, its value will be pegged to low-volatility assets denominated in four fiat currencies: USD, GBP, EUR and JPY.

Libra’s mission is to "enable a simple global currency and financial infrastructure that empowers billions of people".

How it works

Libra aims to simplify money and increase financial inclusion around the world. Users will be able to cash in their local currency via local service providers and get Libra that they can then spend online without hefty transaction fees or the requirement of their personal details.

The Libra whitepaper clearly states that the Libra blockchain "is pseudonymous and allows users to hold one or more addresses that are not linked to their real-world identity."

The Libra Blockchain

A unique technical aspect of the Libra project is that Facebook has created a dedicated computer programming language called “Move” to run the Libra blockchain. The full technical details of the Libra blockchain can be found here.

Libra will be supported by a Proof-of-Stake (PoS) algorithm, where nodes are distributed across the world and tasked with validating transactions on the network. Libra also uses a Byzantine Fault Tolerance (BFT) system, which means only two-thirds of the nodes must come to a consensus that a transaction is legitimate in order for it to be executed and incorporated into the blockchain.

Governance

Facebook does not have full control over Libra. In fact, like all founding members in the Libra Association – the independent Swiss-based non-profit that was formed to oversee the cryptocurrency's ongoing development – Facebook only has a single vote.

Founding members of the Libra Association have reportedly paid at least 10 million USD to become node-validators on the blockchain network. The first 28 founding members include payment providers like Visa and Mastercard; tech companies like eBay, Uber and Spotify; VC firms like Andreeson Horowitz and Union Square Ventures; and NGOs like Kiva and Women’s World Banking.

The Libra Association is aiming for 100 members by 2020. With an initial list boasting some of the biggest firms in the world, we can expect to see more industry giants join the club.

The ambition is for the Libra blockchain to eventually become permissionless. Five years into the launch of the Libra ecosystem, Facebook hopes to start working with the blockchain and finance community to transition into a fully permissionless, open-source blockchain.

A “new Paypal”?

Facebook’s move into cryptocurrencies is daringly bold. The ad-based revenue model has been under threat for some time. Not only did the company face declining public support for its shaky track record regarding data privacy and protection, the proliferation of cryptocurrencies like Bitcoin, Ethereum and Litecoin also signaled a movement towards paid participation and the monetization of transaction data.

In other words, tracking clicks and likes tells you something about human behavior, but following the movement of money tells you a lot more.

Facebook saw an opportunity that needed to be filled. With 2.4 billion monthly active users, a global digital marketplace that allows people to seamlessly transact and send money across borders could allow Facebook to revolutionize the landscape of digital payments.

Some 31% of the world is still unbanked. Libra might obliterate the need for those 2 billion people to ever have a bank account in the first place.

David Marcus, Facebook’s VP of blockchain explained that the global cryptocurrency will become an integral part of the company’s revenue model.

"If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business."

Conclusion

Libra will go live in 2020. With 28 major companies already onboard, no doubt others will follow. The Libra Project might be the most ambitious drive for crypto adoption yet.

This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

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