Facebook has finally unveiled its long-awaited answer to Bitcoin. The Facebook cryptocurrency, named Libra, will undergo a public launch sometime in the first half of 2020. And Mark Zuckerberg isn’t messing about. Facebook is planning Libra as a global currency, as easy to use on social media as to buy groceries or even pay your taxes.
Libra is a ground-breaking moment in cryptocurrency. Here’s everything we know about Libra, the Calibra wallet, and Facebook’s proposed blockchain.
Facebook Libra Coming in 2020
There are several things we know for certain about Libra.
Facebook intends its cryptocurrency to function as a stablecoin, rather a speculative asset. That means the price will remain consistent across all apps, services, exchanges, or otherwise. Furthermore, Facebook (and other investors—more on these in a moment) will provide Libra a reserve of assets to ensure the price of the cryptocurrency cannot collapse. It also gives users and investors confidence that their Libra will hold its value when any eventual market ripples take place.
Libra will act as a payment method between friends and family initially. The billions of people using Facebook, Facebook Messenger, WhatsApp, and other Facebook apps and services will have the chance to use Libra in their transactions in place of fiat currency.
Over time, however, Libra is envisioned as a direct replacement for fiat currency. Facebook wants Libra to become ubiquitous, as simple to use as a debit card while removing as much of the negatives surrounding Bitcoin and other cryptocurrencies as possible.
Facebook also wants Libra to help the billions of people without access to regular banking. According to their Libra release statement, “almost half the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women.”
Libra Has Big Investors; Investors Will Run a Node
Although Facebook is currently developing Libra, it won’t continue to do so once it launches. Libra’s ongoing development will pass to the Libra Association, a Geneva-based non-profit organization Facebook has set up.
In preparation, Facebook has quietly built the cryptocurrency for over a year, attracting significant investment from an impressive pool of global companies.
Those investors are heading up the Libra Association, making key decisions regarding the ongoing development of Libra. Investors contributed a minimum of $10 million to Libra. With the number of investors in the dozens, Facebook has over $1 billion backing for Libra. Facebook Libra investors include Mastercard, VISA, Stripe, PayPal, Uber, Lyft, eBay, Coinbase, Spotify, and more:
Facebook, then, is attempting to distance itself from direct ownership of Libra. There are currently just under 30 investors. By the time Libra goes live, Facebook wants 100 investors in place. Each investor has the option of operating a network validating node. To ensure fairness, Facebook will only control one validating node (though its new crypto subsidiary, Calibra), and will hold just 1% of the Libra voting power. (But as the owner of Calibra and with a seat on the Libra Association, Facebook will become the only organization with two votes to influence direction.)
The subsidiary, Calibra, will also take responsibility for rolling out the Facebook Libra wallet, also known as Calibra. You can check out what the Calibra wallet will look like below.
The Facebook Libra Blockchain
One of blockchains biggest positives is that anyone can download the distributed ledger and contribute toward network maintenance and transaction processing. However, initially, Libra’s blockchain will be closed to the public. Only the node operators (the paid investors) will have access to the network and the software that powers it.
For many, that simply isn’t a blockchain. It is just a glorified closed database.
However, Libra won’t stay closed forever. The permissioned blockchain (closed) will transition to a permissionless blockchain (open) over time. (What’s the difference between a permissioned and permissionless blockchain, anyway?)
Libra’s code is open source, too. The move to make Libra open source took some, including myself, by surprise. But to ensure the project is secure, has no vulnerabilities, and is heading in the right direction, open source Libra is the correct decision.
Notably, the Libra blockchain will also use a new programming language, called “Move.” Facebook sees the creation of an entirely new programming language as a way to separate the Libra blockchain from other competitors, addressing issues and shortcomings in the programming languages used elsewhere.
We use Move to define the core mechanisms of the blockchain, such as the currency and validator membership. These core mechanisms enable the creation of a unique governance mechanism that builds on the stability and reputation of existing institutions in the early days but transitions to a fully open system over time.
Specifications-wise, the Libra blockchain should handle around 1,000 transactions per second at launch. That’s already exponentially faster than Bitcoin and Ethereum. The Libra blockchain will also use a Byzantine Fault Tolerance system to ensure network transactions can process effectively.
Libra transactions will use network gas to cover transaction costs. The Libra gas fee will be a fraction of cent, so not of any real concern.
How Will Facebook Monetize Libra?
As a company with a less-than-stellar privacy track record, the questions regarding Facebook’s motives for a cryptocurrency—no, a global digital currency—are coming thick and fast. There are two major sticking points: will Libra protect your privacy in the same way as other cryptocurrencies, and how will Facebook monetize Libra?
At the current time, there is no clear path of monetization. The very fact Facebook is moving into global financial services means there is a long-term plan. Facebook has already confirmed that the transaction fees will remain very low, that peer-to-peer transaction will remain free, and that there is no fee for holding Libra in a wallet.
The plan revolves around bringing financial services to the billions of unbanked people around the globe, turning Libra into a form of currency easier to use than any local currency. Libra, and Calibra, will offer loans, credit arrangements, money transfers, and create a bustling e-commerce platform.
And interlaced throughout all of that is Facebook, despite their distancing themselves and the creation of the Libra Association. Even without financial service projections, Barclays is predicting a $19 billion surge in Facebook revenue by 2021. Compelling users to spend yet more time within the Facebook ecosystem will undoubtedly bring boosts to advertising revenue, especially as Libra will only be available in Facebook apps and services, to begin with.
Privacy for Libra Users; Privacy from Facebook?
But, what about privacy? Mark Zuckerberg talks a good talk; encryption, upcoming decentralization, and distancing Facebook from Libra are all good signs.
The Libra protocol does not link accounts to a real-world identity. A user is free to create multiple accounts by generating multiple key-pairs. Accounts controlled by the same user have no inherent link to each other.
Facebook won’t import your contacts into the Calibra wallet app. It also won’t import your profile information or share your transaction data back to Facebook. Therefore, using Libra shouldn’t result in targeted advertising. “Shouldn’t” being the keyword. The Libra white paper confirms that “Transactions do not contain links to a user’s real-world identity . . . This approach follows the norm of pseudo-anonymous transactions adopted by other major blockchains.”
If you decide to use a third-party wallet, and the Libra Association devolves the Libra blockchain as proposed (though nothing is compelling them to continue to decentralize and devolve), your transactions will be secure. That’s why Libra being open source is so important to the project.
Even so, Facebook and the Libra Association will face a struggle to convince privacy advocates and financial regulators that the two are truly separate, and that Libra isn’t another tool to enshrine Facebook’s data domination.
Will Libra Replace Bitcoin?
There are two ways of looking at Libra. One is that Facebook’s cryptocurrency is permissioned, centralized, pre-mined, and regulated. Some will say that it isn’t a cryptocurrency; I’d half agree. The other way of looking at it is one of the largest tech companies on the planet is launching a digital currency that resembles a cryptocurrency way more than any other previous iteration. It is also not pegged to the US dollar, which is impressive and gives it a stronger chance of achieving its primary stated goal (helping the unbanked).
Ultimately, Libra will expose nearly 2 billion people to a form of cryptocurrency. Some of those users will realize that Libra isn’t a true cryptocurrency, that it isn’t truly private, and that the real alternatives like Bitcoin are better than Facebook’s offering.
Just hours after Facebook announced Libra, the French Finance Minister, Bruno Le Maire, said “It is out of the question [that Libra] become a sovereign currency. It can’t, and it must not happen.”
Libra isn’t a threat to Bitcoin. But something has the financial establishment worried. That something is the sound of Facebook trying to reinvent money.
Facebook isn’t the only major tech company working with blockchain technology. Here’s how IBM, Microsoft, Amazon, and other tech companies are influencing blockchain development.