A simple guide to Libra and its possible implications
Facebook recently unveiled its plans to create its own cryptocurrency called Libra. Let’s list the key details about the Libra Association, Libra Blockchain, Libra coin, and Calibra.
- Libra is minted on the Libra Network run by a non-profit called Libra Association based in Geneva.
- The initial release is set for 2020.
- It is backed by a basket of fiat currencies (USD, EUR, JPY, GBP) and short-term government securities known as its reserve, meant to keep its volatility low. Every Libra coin minted is backed in their reserve.
- It is run on its native Libra Blockchain using a new BFT consensus algorithm. The framework will allow for interoperability with other chains powered by BFT consensus.
- Its blockchain is a dual token system; Libra coin is a low volatility coin that is meant to be used as a medium of exchange for anyone around the world. Libra Investment Token is a security token that is meant to raise capital for its reserve, earn interest from transaction fees that accumulate in the reserve, and be used for governance rights in their proof of work blockchain system.
- Their proof-of-stake system will give a maximum of 1% governing rights to any one node operator.
- Currently, the founding members include (image from The Block):
- There will be a total of 100 members before its launch in 2020. It cost $10 million + other requirements to become a member. Over time their plan is to transition into a more proof-of-stake system with many Libra Investment Token holders all over the world but that will likely take many years.
- This means it is a permissioned blockchain since it only gives a small number of node operators governing rights. This means it is not truly decentralized like Bitcoin or Ethereum.
- For developers, it is not a network they can build censorship-resistant applications due to its programming language and pre-defined functions.
- The digital wallet that will be used for transactions is called Calibra. Anyone of the 2.6 billion users on Facebook, WhatsApp, or Instagram will be granted their very own wallet and can transact with Libra.
Short-Term & Medium-Term
This immediately adds huge credibility to the crypto and blockchain industry. There have been many developments, especially the past few years, but none as big as one of the biggest companies in the world like Facebook getting in at this level of capacity.
Facebook is taking a huge leap of faith into crypto. Regardless of their motives, we have to commend their courage in developing the Libra Association. They will likely be met with massive government pressure from regulators. They are creating a global currency that could allow anyone in the world to buy, sell, transact without using a fiat currency. This can directly affect the control governments have over our monetary system, international business, and global transactions. If many countries begin attacking Facebook together this could be a huge problem for the company and Libras projected launch.
It is important to note that Facebook stated they will not launch Calibra in any US sanctioned countries or ones that have banned crypto.
Facebook has always stated they want to connect the world. They did that on a massive scale through the social media platform where users could meet, talk, like, share, and learn about people on the other side of the world. Now, they have an opportunity to continue their open source model and build newer and better tools for their apps, websites, e-commerce, person to person transactions and give more opportunities for anyone around the world.
Currently Libra is backed by fiat, meaning government backed currencies. However, there is a strong possibility that Bitcoin could be added to this basket in the years to come. If this happens, it means anyone of the 2.6 billion people with a Calibra wallet can now purchase Bitcoin with Libra.
Bitcoin is the first and truly decentralized cryptocurrency. Libra adds great credibility to crypto but it also falls short too many of Bitcoins features. Bitcoin is not controlled by any large corporations or governments. There are node operators all over the world. It is completely censorship-resistant and open source for anyone to use. Know one can stop it, request it to appear in front of a counsel, or use their power and money to control it. It is deflationary and non-correlated to inflationary assets. Meaning when the government prints more money that isn’t actually backed by anything and causing the value of everyones fiat to decrease, Bitcoin is doing the opposite. It is halving and releasing less and less supply causing the price to rise. Bitcoins store of value role is uncontested and is likely the most sound money humanity has ever known.
Libra has given us a new glimpse into what cryptos long-term vision has been all along. We could be at the beginning stages of a world with no government control over currency. Government backed currencies could be the past and we could be moving into a world of global currencies. If this is true, banks will lose control over capital flight and restrictions and governments and the elite won’t be able to control the economy through inflation. The people of the world will be free to transact, store their wealth without it losing value, send currency across borders, travel and not have to convert money.
Businesses will be able to grow across borders without cross border fees and hold up times. Foreign Exchange could disappear as businesses won’t have to worry about currency exchange and quoting prices in other currencies to their own. Business taxes could be completely automated systems on the chain where we only pay tax for government services we use. Businesses could pay employees by the minute on a completely automated system.
All in all, my view is that Libra is good for crypto. It gives a third of the world immediate access to crypto and where Libra may fall short of what crypto enthusiasts want, Bitcoin will showcase those qualities and flourish.
A simpler and better world is upon us.