Facebook has lastly disclosed the information of its cryptocurrency, Libra, which will allow you to purchase stuff or send cash to individuals with almost zero charges. You will pseudonymously purchase or cash out your Libra online or at local exchange points such as grocery stores and spend it using interoperable third-party wallet applications or Facebook’s own Calibra wallet that will be integrated into WhatsApp, Messenger, and its app. Today, before a government release in the first half of 2020, Facebook published its white paper explaining Libra and its testnet to work out the kinks of its blockchain scheme.
Facebook will not fully control Libra, but get only one vote in its governance like other founding members of the Libra Association, including Visa, Uber, and Andreessen Horowitz, who have invested at least $10 million each in the activities of the project. The partnership will encourage the open-sourced Libra blockchain and developer platform with its language of programming Move, plus sign up companies to accept Libra for payment and even offer discounts or benefits to clients.
Facebook launches a subsidiary called Calibra that handles its crypto transactions and protects the privacy of users by never mixing your Libra payments with your Facebook data so that it can not be used for ad targeting. Your true identity will not be linked to your openly visible operations. But Facebook / Calibra and other founding members of the Libra Association will receive interest in the cash customers kept in reserve to maintain Libra’s value stable.
Facebook’s audacious offer to produce a worldwide digital currency that encourages financial inclusion for the unbanked effectively incorporates more privacy and decentralization than many anticipated. Instead of attempting to dominate the future of Libra or instantly squeeze loads of money out of it, Facebook is instead playing the long game by pulling payments into its internet domain. During a briefing at the historic Mint building in San Francisco, Facebook’s blockchain vice president, David Marcus, described the company’s motivation and the tie-in with its key income source. “If more companies occur, then more tiny companies will sell more on and off the platform, and they’ll want to purchase more advertisements on the platform so it’s going to be great for our ads company.”
The risk and reward of creating the new PayPal
Facebook saw both a threat and an opportunity in cryptocurrencies. They kept the commitment to disrupt how items are bought and sold by eliminating transaction fees prevalent in credit cards. That comes dangerously close to Facebook’s advertising company which affects what’s being bought and sold. If a competitor like Google or an upstart constructed a famous coin and could monitor the transactions, they would discover what individuals purchase and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion individuals who lack a bank account may also choose whoever provides them an alternative financial service as their online identity provider. That’s another thing that Facebook wants to be.
Yet current cryptocurrencies such as Bitcoin and Ethereum were not correctly designed to scale to be a medium of return. Their unanchored price was prone to enormous and unpredictable swings, making it difficult for merchants to accept it as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places to take them rather than dollars, and the experience of buying them and spending them is easy enough for the mainstream audience. But with Facebook’s partnership with 7 million advertisers and 90 million tiny companies plus its user experience skills, it was well-equipped to tackle this issue juggernaut.
Facebook now intends to create Libra the evolution of PayPal. It is hoped that Libra will become easier to set up, more commonplace as a payment technique, more effective with fewer charges, more accessible to the unbanked, more flexible thanks to developers, and more long-lasting through decentralization.
“Success will mean that an individual working overseas can send cash back home quickly and easily, and a college student can pay their rent as quickly as they can purchase a coffee,” Facebook writes in its Libra paperwork. That would be a large improvement on today when you’re stuck paying rent in insecure controls while exploitative remittance services charge an average of 7 percent to send cash overseas, taking $50 billion from customers every year. Libra could also power small microtransactions worth just a few cents that are unfeasible with credit card charges attached or replace your prepaid transit pass.
Or it could be ignored worldwide by customers who see it as too much trouble for too little reward, or too unknown and restricted in use to draw them into the contemporary economic landscape. Facebook has constructed a reputation for over-engineered, unused goods. It will need all the assistance it can get if it wishes to substitute what’s already in our pockets.
How does Libra work?
You understand Libra’s basics by now. Cash in a local currency, get Libra, spend them like dollars with no large transaction fees or your true name attached, and money them out whenever you want. If that’s all you care about, feel free to stop reading and share this post. But the underlying technology, the association that governs it, the wallets you’ll use, and the way payments function all have an enormous quantity of intriguing detail. More than 100 pages of documentation on Libra and Calibra have been published by Facebook, and we have pulled out the most significant facts. Let’s dive into it.
The Libra Association
Facebook knew people wouldn’t trust it to fully guide the cryptocurrency they’re using, and it also wanted assistance to spur adoption. So the social network recruited the founding members of the Libra Association, a non-profit that oversees the development of the token, the reserve of real-world assets that give it value, and the blockchain’s governance rules. “If we were to control it, very few individuals would want to jump on it and make it theirs,” Marcus suggests.
Each founding participant paid at least $10 million to join and optionally become a validator node operator (more on that later), earn one vote in the Libra Association Council, and be entitled to a share (proportionate to their investment) of interest dividends earned on the Libra reserve in which customers pay fiat currency to receive Libra.
The 28 soon-to-be founding members of the association and their industries include:
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Tech Marketplaces: Booking Holdings, eBay, Facebook Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
- Telecommunications services: Iliad, Vodafone Group
- Blockchain technology: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capitalists: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
Facebook claims it hopes to achieve 100 founding members before the official launch of Libra and is accessible to anyone who meets the demands, including direct competitors like Google or Twitter. The Libra Association is based in Geneva, Switzerland, and will meet on a biannual basis. The nation was selected for its neutral status and powerful financial innovation support including blockchain technology.
Libra governance
Members must have a half-rack of a server room, 100Mbps or more dedicated internet connection, a full-time site reliability engineer, and enterprise-grade safety to join the association. Businesses must hit two out of three thresholds of a market value of $1 billion or $500 million in client balance, reach 20 million individuals a year, and/or be acknowledged as a top 100 sector leader by a group such as Interbrand Global or S&P.
Crypto technology-focused investors must have more than $1 billion in assets under management, while Blockchain companies must have been in the company for a year, have corporate security and privacy and custody, or have more than $100 million in assets. And only up to one-third of founding members can use crypto-related companies or separately invited exceptions. Facebook also recognizes study organizations such as universities and non-profits that fulfill three out of four characteristics, including working on financial inclusion for more than five years, multi-national reach for many customers, a top 100 Charity Navigator designation, or something like it, and/or $50 million in budget.
The Libra Association will be accountable for hiring more founding members to act as validator nodes for the blockchain, fundraising to jump-start the ecosystem, developing incentive programs to reward early adopters, and granting social impact grants. A committee with a representative from each member will assist select the managing director of the association, who will appoint an executive team and elect a board of five to 19 top members.
Each member, including Facebook / Calibra, will receive only one vote or 1 percent of the complete vote (whichever is greater) in the Libra Association Council. This offers a level of decentralization that protects against Facebook or any other player hijacking Libra for their benefit. By avoiding sole ownership and dominion over Libra, Facebook could prevent additional scrutiny from regulators who are already researching it for an ocean of privacy abuses as well as possibly anti-competitive behavior. To prevent criticism from lawmakers, the Libra Association writes, “We welcome public inquiry and accountability. We are committed to dialog with regulators and policymakers. We share the interest of policymakers in the continuing stabilization of national currencies.”
The Libra currency
A Libra is a unit of the Libra cryptocurrency that is represented by a Unicode character ≋ of three wavy horizontal lines like the dollar is represented by $. A Libra’s value is meant to remain largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s worth less tomorrow. The value of the Libra is linked to a basket of bank deposits and short-term government securities for a slew of historically stable global currencies, including the dollar, pound, euro, Swiss franc, and yen. The Libra Association maintains this asset basket and can change the balance of its composition if necessary to offset major price fluctuations in any foreign currency so that the value of a Libra remains consistent.
The name Libra comes from the term for a weight measurement Roman unit. By playing on the French stem “Lib,” meaning free, it is attempting to invoke a feeling of financial freedom.
The Libra Association is still hammering out the exact start value for the Libra, but it’s meant to be close to the value of a dollar, euro or pound so it’s easy to conceptualize. Thus, a gallon of milk in the U.S. might cost 3 to 4 libra, similar but not the same as dollars.
The concept is to cash in some money and maintain a Libra balance that you can spend on accepting merchants and internet services. You will be able to trade Libra in your local currency and vice versa through certain wallet applications, including Facebook’s Calibra, third-party wallet applications, and local resellers such as convenience stores or grocery stores where individuals are already updating their mobile information plan.
The Libra, one for one
Each time someone invests in a dollar or their respective local currency, that money goes to the Libra Reserve and Libra’s equivalent value is minted and donated to that person. If someone cashes out from the Libra Association, the Libra they give back is destroyed/burned and they get back the corresponding value in their local currency. That means that there is always 100 percent of the Libra’s value in circulation, collateralized with real-world assets in the Libra Reserve. It never operates fractionally. And unlike “pegged” stable coins linked to a single currency like the USD, Libra retains its value— though over time it should cash out to approximately the same quantity of a specified currency.
When members of the Libra Association join and pay a minimum of $10 million, they receive Libra Investment Tokens. Their share of complete tokens translates into the percentage of the dividend they receive from interest on real property. These dividends are only paid out after the Libra Association utilizes interest to pay for operating expenses, ecosystem investments, engineering research, and grants to nonprofit and other organizations. This interest is a component of what attracted members of the Libra Association. If Libra becomes popular and many individuals carry a big currency equilibrium, the reserve will expand enormously and receive important interest.
The Libra Blockchain made for speed
Each Libra payment is continuously written into the Libra Blockchain— a cryptographically authenticated database that operates as a government internet directory intended to manage 1,000 transactions per second. That would be much faster than the 7 transactions per second of Bitcoin or the 15 of Ethereum. The blockchain is operated and constantly verified by founding members of the Libra Association who each invested $10 million or more for a say in the governance of the cryptocurrency and the ability to operate a validator node.
When a transaction is filed, each node will perform a calculation based on the current list of all transactions. Thanks to a Byzantine Fault Tolerance system, only two-thirds of the nodes must come to a consensus that the transaction is legitimate for it to be executed and written to the blockchain. A Merkle Trees structure in the software makes it easy to acknowledge modifications made to the Libra Blockchain. 1’000 verifications, with 5 KB transactions, every second on commodity CPUs and up to 4 billion accounts, the Libra Blockchain should be able to work at 1’000 transactions every second when nodes use at least 40Mbps connections and 16 TB SSD drives.
It is not possible to reverse transactions on Libra. If an attack takes more than one-third of the validator nodes that cause a fork in the blockchain, the Libra Association will temporarily halt transactions, determine the extent of the damage, and recommend software updates to solve the fork.
Transactions are not completely free. They incur a small fraction of a hundred fee to pay for “gas” that includes the price of handling the transfer of funds comparable to Ethereum. This fee will be negligible for most customers, but when they add up, the gas fees will prevent poor actors from generating millions of transactions to energy spam and denial-of-service attacks. “We have deliberately tried not to innovate massively on the blockchain itself because we want it to be scalable and safe,” tells Marcus of piggybacking on the finest components of current cryptocurrencies.
Currently, the Libra Blockchain is what is known as “permitted,” where only entities that meet certain criteria are admitted to a unique in-group that defines consensus and regulates blockchain governance. The issue is that this structure is more susceptible to assaults and censorship because it is not decentralized. But it couldn’t discover a credible permissionless framework during Facebook’s studies that could safely scale up to the number of transactions that Libra will need to manage. Adding more nodes slows stuff down, and no one has demonstrated a way to prevent this without compromising safety.
That’s why the objective of the Libra Association is to switch to a proof-of-stake-based, unauthorized scheme that will safeguard against assaults by distributing control, encouraging competition, and lowering the entry barrier. It intends to have at least 20 percent of the votes in the Libra Association Council coming from node providers based on their complete Libra holdings rather than their status as a founding member. That scheme should assist appease blockchain purists who will not be satisfied until Libra is fully decentralized.
Move coding language for moving Libra
The Libra Blockchain is open source with an Apache 2.0 license, and any developer can use the Move coding language to create applications that work with it. The prototype of the blockchain launches its testnet today, so it is effective in the beta mode of the developer until it officially launches in the first half of 2020. The Libra Association is working with HackerOne to launch a bug bounty system later this year that will reward safety scientists for securely identifying faults and failures. Meanwhile, the Libra Association is implementing the Libra Core using the Rust programming language because it is intended to avoid security vulnerabilities, and the Move language is not yet fully prepared.
The move was developed to make it simpler to write blockchain code that follows the purpose of an author without adding bugs. It is called Move because its main role is to move Libra coins from one account to another and never allow those assets to be accidentally duplicated. It looks like the key transaction code: LibraAccount.pay from sender(recipient address, amount) procedure.
Move developers will eventually be able to build smart contracts for programmatic interactions with the Libra Blockchain. Until Move is ready, designers can use Move IR to generate modules and transaction scripts for Libra, which is high enough to be human-readable but low enough to be translatable into true Move bytecode written to the blockchain.
The Libra ecosystem and the Move language will be fully available to use and construct, which poses a significant danger. Crooked developers have been able to prey on crypto novices, claiming that their app operates just as well as lawful ones and that it is secure because it utilizes Libra. But if customers are ripped off by these scammers, the anger will surely bubble up to Facebook. Still, Calibra’s product head informs me, “There are no plans for the Libra Association to play a part in actively vetting[ designers],” Calibra’s product head Kevin Weil informs me.
Although it has attempted to distance itself adequately through its subsidiary Libra and the association, many individuals will likely always believe of Libra as the cryptocurrency of Facebook and blame it for their woes.
Libra rewarding early businesses
The Libra Association intends to encourage more developers and merchants to work with their cryptocurrency. That’s why it intends to issue incentives, potentially Libra coins, to validator node operators who can get individuals to sign up for and use Libra. Wallets that pull customers through the anti-fraud and money laundering process of Know Your Customer or that maintain users adequately active for over a year will be rewarded. Merchants will also earn a proportion of the transaction back for each transaction they process.
Businesses that receive these incentives can either hold them or pass on some or all of them to customers in the form of free Libra tokens or discounts on their purchases. This could generate competition between wallets to see which can pass on the most benefits to their clients and thus attract the most users. You could imagine eBay or Spotify giving you a discount for charging in Libra, while wallet designers could give you free tokens if you finish 100 transactions within a year.
“One challenge for Spotify and its customers around the globe has been the absence of readily available payment schemes–particularly for those in financially underserved markets,” writes Alex Norström, Chief Premium Business Officer of Spotify. “In entering the Libra Association, there is a chance to better reach the complete adjustable market of Spotify, eliminate friction and allow mass-scale payments.”
This clever incentive scheme should massively assist ratchet the user count of Libra without dictating how companies balance their margins versus development. Facebook also has another plan to expand its developer ecosystem. By providing a part of the reserve interest to venture capital companies like Andreessen Horowitz and Union Square Ventures, they are motivated to finance startups building Libra infrastructure.
How to Use Libra
So how are you owning and spending Libra? Through Libra wallets such as Facebook’s own Calibra and others that will be constructed by third parties, possibly including members of the Libra Association such as PayPal. The concept is to create it as simple as sending a Facebook message to a friend or paying for something. However, you won’t be able to create or obtain any actual payments until next year’s official launch, but you can sign up for early access when it’s prepared here.
None of the members of the Libra Association decided to provide information on what precisely they will build on the blockchain, but we can take Facebook’s Calibra wallet as an instance of the fundamental experience. Calibra will launch in Facebook Messenger, WhatsApp, and as a standalone app alongside the Libra currency on iOS and Android. When users sign up for the first time, they will be taken through a Know Your Customer anti-fraud process where they will have to provide a government-issued photo ID and other verification information. They will need to carry out due diligence on clients and report suspicious activity to officials.
From there, you can cash into Libra, select a friend or merchant, set the quantity to send them, add a description, and give them Libra. You will also be able to request Libra, and by scanning your QR code, Calibra will give an expedited way to pay merchants. Eventually, it intends to deliver in-store payments and integrations with point-of-sale systems such as Square.
The e-commerce members of the Libra Association seem particularly excited about how the token could eliminate transaction fees and speed up the checkout. “We think that blockchain will benefit the luxury sector by enhancing IP security, transparency in the product life cycle, and, as in the situation of Libra, enabling worldwide frictionless e-commerce,” says Jose Neves, CEO of FarFetch.
Privacy from Facebook
In a post today, Facebook CEO Mark Zuckerberg explained some of the philosophies behind Libra and Calibra. “It’s decentralized — meaning it’s run by a lot of distinct organizations instead of just one, making the system fairer overall. It is accessible to anyone with an internet connection and has small charges and expenses. And it’s guaranteed by cryptography that helps maintain your cash secure. This is a significant component of our vision for a privacy-focused social platform— where you can communicate in all the ways you want privately, from messaging to safe payments.
By default, Facebook will not import your contacts or any of your profile data but may ask if you wish to do so. It will also not share any of your transaction data back to Facebook, so it won’t be used to directly target you with advertisements, rank your News Feed, or otherwise earn Facebook cash. Data will only be communicated in particular cases in anonymous ways for studies or measurement of acceptance, for hunting down fraudsters, or as a result of a law enforcement request. And you don’t even need a Facebook or WhatsApp account to sign up for Calibra or use Libra.
“We realize people don’t want to merge their personal information and monetary information,” tells Marcus, who is now Calibra’s head. “The reality is we’re going to have plenty of wallets that are going to compete with us, and many of them aren’t going to be social, and if we want to win the confidence of people effectively, we have to make sure that the information is separated.”
If you are hacked, scammed, or lose access to your account, Calibra will reimburse you for lost money if possible through 24/7 chat assistance because it is a custodial wallet. Also, you won’t have to remember any lengthy, complicated crypto passwords you could forget and get locked out of your cash as Calibra manages all your keys for you. Given that Calibra is likely to become the default wallet for many Libra customers, this additional protection and smoother user experience are crucial.
Calibra will not create cash for now. But Calibra’s product head Kevin Weil informs me that if it reaches scale, Facebook could launch other economic instruments through Calibra that it could monetize, such as investing or lending. “In time, we hope to deliver extra services to individuals and companies, such as paying bills with a push of a button, purchasing a cup of coffee with a code scan, or riding your local public transit without having to carry money or a metro pass,” the Calibra team writes. That makes it begin to sound a lot like all of China’s WeChat apps.
A global leading coin
For sure, Facebook has one thing right: today’s money doesn’t work for everyone. Those of us residing comfortably in developed nations are unlikely to see the hardships facing migrant workers or the unbanked overseas. Preyed by greedy payday lenders and high-fee remittance services, targeted by muggers, and left out of traditional financial services, the poor get poorer. Libra can get more cash from working parents back to their families and assist individuals to maintain credit even if they are robbed of their physical belongings. That would do more to fulfill Facebook’s task of making the world feel lower than all the News Feed Likes combined.
If Facebook succeeds and legions of individuals cash in money for Libra, it and the other founding members of the Libra Association could receive large interest dividends. And if buying stuff via Facebook using Libra suddenly becomes super fast, companies will increase their ad spending there. But if Libra gets hacked or proves unreliable, it could cost lots of individuals around the world money while buying them on cryptocurrencies. And by providing an open Libra platform, shady developers could create applications that steal not just private data from people like Cambridge Analytica, but their hard-earned digital cash.
Facebook was just trying to reinvent cash. Next year we’ll see if it can be pulled off by the Libra Association. It took me 4,000 phrases to explain Libra, but at least now you can make up your mind as to whether to be afraid of Facebook crypto.
