Facebook’s Libra — All You Need To Know

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A growing number of social media platforms are springing up, seeking possible ways to leverage on blockchain technology to transform the space. The idea behind the business model is to pay users for good quality content and charge the advertisers. Centralized platforms like Facebook let the public use their services “for free”, and instead the companies get access to their personal data. And since data is the new gold (or oil) it’s no surprise that people want to get paid for sharing their content and choosing a certain platform to do this. According to Novum Insights’s data, 296 blockchain companies have collectively raised $4.1 billion up to now in the social media sector. Below is the figure depicting the growth of the number of social media companies using blockchain technology.

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Some of the industry leaders are Telegram, Steemit, Sapien, and Loom Network. The figure below shows the top cryptocurrencies trading in the social sector trading in the exchanges. There are two reasons for the massive difference between the total investments raised and the market capitalization of the sector. First, many of the cryptocurrencies like Telegram which raised the enormous amounts in their ICOs ($1.7 billion) haven’t listed their tokens on exchanges. Second, a number of companies had been shut down or have lost their market value in the bearish movements followed since January 2018.

Facebook aims to disrupt the global finance and payments network to make digital currencies accessible to the underdeveloped parts of the world. This promise has been seen in numerous whitepapers until now but never by a centralized corporation which already has access to more than 2 billion people across the globe.

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Facebook LIBRA — The Introduction

Facebook released Libra’s whitepaper and its testnet to evaluate the path its blockchain ecosystem is going to follow. The public launch of the platform is in the first half of 2020. Libra coins can be stored in third-party wallet apps or Facebook’s own Calibra wallet that will be built into WhatsApp, Messenger, and its own app. Libra is not like Bitcoin because it is a stable coin. A stable coin is pegged to real assets or fiat currency to curb the volatility of the digital currency. In the case of Libra, Libra has been pegged its own value proportional to the assets kept in reserve by the parent organization, the Libra Association. The introduction of Libra could potentially unlock a new era of commerce and payments for the social network. Facebook is also launching a subsidiary company called Calibra that will act as a wall between your digital currency dealings and your Facebook data. Libra’s transactions will maintain pseudo-anonymity of the users’ publicly visible transactions and their identity will not be attached to their Facebook profiles. By default, Facebook won’t import your contacts or any of your profile information but may ask if you wish to do so. It also won’t share any of your transaction data back to Facebook, so it won’t be used to target you with ads, a news feed, or earn Facebook money directly. Facebook aims to unleash the potential of digital currency markets in the developing parts of the world. It sees Asian countries like India, Indonesia, and China as its biggest market.

The LIBRA Association

Facebook has also released the list of organizations which it has partnered with to bring a new revolution in global finance. 28 Founding Members that currently form the Libra Associations include big organizations such as Visa, Uber, and Andreessen Horowitz and each organization will get a single vote in its governance. Each founding member has invested at least $10 million in the project. These founding members can optionally choose to become a validator node operator and be entitled to share of the dividends or interest earned from Libra’s reserves. Like Ethereum Foundation, Libra Association will promote its open-sourced Libra Blockchain and developer platform with its own Move programming language. Entrepreneurs can set up their businesses on this platform and use Libra as a means of transacting payments and rewarding customers.

To join the association, members must have a half rack of server space, a 100Mbps or above-dedicated internet connection, a full-time site reliability engineer, and enterprise-grade security. Businesses must hit two of three thresholds of a $1 billion USD market value or $500 million in customer balances, reach 20 million people a year, and/or be recognized as a top 100 industry leader by a group like Interbrand Global or the S&P. Crypto-focused investors must have over $1 billion in assets under management, while Blockchain businesses must have been in business for a year, have enterprise-grade security and privacy, and custody or staking greater than $100 million in assets. And only up to one-third of founding members can by crypto-related businesses or individually invited exceptions. Facebook also accepts research organizations like universities, and nonprofits fulfilling three of four qualities including working on financial inclusion for over five years, multi-national reach to lots of users, a top 100 designation by Charity Navigator or something like it, and/or $50 million in the budget.

The 28 soon-to-be founding members of the association and their industries, previously reported by The Block’s Frank Chaparro, include:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa

  • Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.

  • Telecommunications: Iliad, Vodafone Group

  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited

  • Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures

  • Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

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Facebook aims to expand its partnerships to 100 members before the launch of its platform in 2020. The Libra Association is based in Geneva, Switzerland and will meet biannually. The country was chosen for its crypto-friendly environment and tremendous support for financial innovation using blockchain technology. The Libra Association will be responsible for choosing and recruiting more founding members to act as validator nodes for the blockchain, fundraising to jumpstart the ecosystem, designing incentive programs to reward early adopters and doling out social impact grants. A council with a representative from each member will help choose the association’s managing director who will appoint an executive team, elect a board of 5 to 19 top representatives. With 5KB transactions, 1000 verifications per second verifications on commodity CPUs, and up to 4 billion accounts, the Libra blockchain should be able to operate at 1000 transactions per second if nodes us at least 40Mbps connections and 16TB SSD hard drives.

LIBRA — A Stablecoin Or Not

A Libra is a unit of the Libra cryptocurrency which is meant to stay stable because it is pegged to a basket of bank deposits and short-term government securities including international currencies like Dollar, Pound, Swiss Franc, and Yen. Libra has set up three criteria for the assets to be eligible for the long-term inclusion in the Libra reserve. They should be individually correlated, tied to public organizations (like Central banks) or openly accessible (commodities), and universally recognized. It is a digital currency, not an investment vehicle — a myth which still surrounds Satoshi Nakamoto’s motive of Bitcoin’s origination. The Libra Association has complete control over this basket and can change the balance of this composition to offset major price fluctuations. It is safe to call Libra a stable coin but its backed portfolio is different from general stable coins. According to Novum Insights data, there are nearly 228 stablecoin projects underway of which 28 were announced in 2019 alone. Majority of them are pegged to a single currency, a basket of commodities, or maintain their stability algorithmically. The Libra Association is still extracting the exact start value for the Libra but it’s meant to be close to the value of either of the currencies in the basket. Facebook wants to make sure the customers are able to trade their local currencies for Libra and vice versa through certain wallets and exchanges, local resellers, and even grocery stores.

The LIBRA Reserve

All the cash in any currency traded for Libra goes into the Libra Reserve and an equivalent of Libra is minted out for that user. If the user cashes out his Libra, the Libra user gives back is destroyed/burned and he receives the equivalent value back in his local currency. This method of exchange is to make sure there is always 100 % of the value of Libra in circulation equivalently collateralized to the assets in Libra Reserve. When any of the founding members invest their $10 million, they receive Libra Investment Tokens. Their share of the total tokens determines the proportion of the dividend they will earn from the interest on assets in the reserve. This interest will be calculated after the association has paid all its expenses, investments in the ecosystem, R&D expenses, and other non-profit grants. This interest is what attracted the foundation members the most to partner with Libra Association.

The LIBRA Blockchain

Libra blockchain is a permissioned blockchain that acts as a public online ledger for Libra transactions currently developed to handle 1000 transactions per second. The blockchain is constantly verified by the members of the Libra Association. It is clear that the blockchain is not as decentralized as Bitcoin and Ethereum. This is one of the main reasons why Crypto experts have bashed Facebook and Bitcoin analogies. Bitcoin is not backed by any corporation and is completely decentralized, which is not the case with Libra. Some Crypto specialists also called it ‘the Paypal on Blockchain’. The Libra Association has to protect this permissioned ecosystem from malicious attacks and hacks as the crypto industry has already been prone to menacing robberies in the past 5 years. When a transaction is submitted, each of the nodes runs to authenticate it. At least two-thirds of the nodes must come in agreement to list the transaction on the common public ledger. Transactions are not free. They charge a very small fraction of the transaction amount as a transfer fee for the ‘gas’ that covers the cost of processing the transaction. The company aims to move to a permissionless system with Proof-of-Stake protocol keeping 20% of the voting rights with the Libra Association.

The Libra Association wants to encourage more developers and entrepreneurs to set up their businesses on the Libra Blockchain. Any developer can build apps that work with it using the Move coding language. The Libra Association is working with HackerOne to launch a bug bounty system later this year that will pay security researchers for safely identifying flaws and glitches. In the meantime, the Libra Association is implementing the Libra Core using the Rust programming language since it’s designed to prevent security vulnerabilities, and the Move language isn’t fully ready yet. Eventually, Move developers will be able to create smart contracts for programmatic interactions with the Libra blockchain. Until Move is ready, developers can create modules and transaction scripts for Libra using Move IR, which is high-level enough to be human-readable but low-level enough to be translatable into real Move bytecode that’s written to the blockchain.

This is why the association plans to use reward and discount mechanisms to encourage the flow of the Libra coin within the ecosystem. The founding members of the Libra Association can also offer discounts when the Libra tokens are used on their platform. However, none of the existing members have provided details on how they will be using the Libra blockchain and Libra tokens on their platforms. The transaction process is similar to Coinbase. The merchants can send Libra coin simply by scanning the QR code or using the wallet address. The merchant doesn’t have to remember any long alphanumeric public and private wallet addresses as Calibra will help the users manage and secure your keys. In case the merchant is hacked, scammed, or loses access to his account, Calibra will refund the lost coins through 24/7 chat support because it’s a custodial wallet.

LIBRA — The Future

In the UK Libra has hired a bank lobbyist from Standard Chartered Ed Bowles, who will join the company from September. Libra has also reportedly been meeting with regulators in the UK and US to discuss the currency’s opportunities and risks, as well as money transfer firms including Western Union. The Libra Association is working to get the required SEC and other regulatory clearances to maintain its compliance with the local geographies. Getting the regulatory aspects of the currency right will be the key to its success, particularly in markets like India, which is proposing a new law that would make owning and selling cryptocurrency a crime. Given that the Libra Association is already made up of some of the world’s biggest companies, it won’t be a surprise for other big firms to join the partnership. What will remain interesting is whether the idea gets the backing and financial support of tech giants Google, Apple or Amazon. The biggest advantage Libra has is the dependency and trust people have put on Facebook. However, if Libra gets hacked or proved unreliable, it could backfire costing lots of people around the world money while embittering them on cryptocurrencies. Libra must be able to protect the platform from shady developers and hackers who can snatch not just the data, but people’s money from their wallets. Building a well-secured and transparent environment with Libra will definitely be one of the most important passports to paint its desired vision and meet its mission.