It finally happened. Facebook officially announced Libra as the cryptocurrency they have been working on for the last months in an alliance with more than 20 worldwide companies in the sectors of blockchain, telecommunications, payments and many others. The social media supergiant released a whitepaper and a couple of technical papers revealing important details about how the cryptocurrency will work, the development of a new blockchain and how it will all be regulated and scaled to a global scale, or at least how they will try to accomplish such goals.
The Initiative
With the same motivations as the original idea of a cryptocurrency, Libra will make the effort to become a worldwide, online payment option that would grant an opportunity to the 1.7 billion adults that have no access to traditional financial systems.
One could argue that the cryptocurrency environment needed a deeper involvement from big companies like Facebook with its 2.38 million monthly active users, and with partners like PayPal, Mastercard, Visa, eBay, Spotify, Lyft and Uber, this move will help the general public to give an opportunity to the idea of virtual currency.
The value of this currency will be associated with a basket of other assets, including some of the most used fiat currencies in a global scale, which will be thoroughly analyzed to diminish volatility and keep it relevant in different parts of the world where users might have a harder time acquiring it.
In order to cover the potential adoption of their users, they are basing Libra on a new blockchain, one that does not suffer from the current limitations in terms of latency and scalability. The Libra Blockchain will be similar to Ethereum, in the sense that it will be using its own programming language, “Move”, which also allows for the creation of smart contracts.
Another important aspect of the Libra Blockchain is that it will be based on a Proof-of-Stake model (specifically, BFT), with users being able to pay a certain amount of money to become a main node. This announcement comes near the one from Ethereum themselves about their new, PoS blockchain. They said its code can be finished next month and it will probably work as a measurement bar for the expected release of Libra next year.
The Reality
Of course, up until this point we could only speculate on how both the currency and the blockchain would work, but the release of the whitepaper revealed many important details. The first one is that all the data of transactions will be stored in a single data structure instead of blocks, which helps in reducing the time taken to access data but defeats the point of calling itself a “blockchain”, and it’s one of the topics that worries most of the crypto experts.
Another discussion point is the entry restriction for the blockchain management, in which some of the founding companies paid $10 million to become a validator node, and it seems like everyone that wants to take part in the validation method will have to also invest the same amount. Some see this as a positive decision, as less validators can result in less time to reach the consensus, but it certainly means that it will not be as open or decentralized as other alternatives.
On top of that, a representative of each validator node holds a seat in the Libra Association, which is in charge of taking all the decisions on the governance of the network and the reserve of the currency, meaning that they are the only ones that are able to mint and burn currency as the authorized resellers have purchased or sold the coins from or to the Association itself.
Of course, the whitepaper stablishes that certain efforts will be made since launch to orient the project to a more decentralized panorama, but they don’t give many details about it, they only explain that “the association will research the technological challenges on the path to a permissionless ecosystem so that we can meet the objective to begin the transition within five years of the launch.”
Although it is not mentioned in detail in the whitepaper, Facebook also announced the creation of Calibra, their wallet system for managing Libra, which operates as a direct subsidiary of Facebook and its development will be solely in charge of the social media giant. Kevin Weil, Product VP of Calibra, has claimed it will offer integration options for WhatsApp and Messenger, will require KYC verification and will have built-in security measures.
The Verdict
Given how Facebook has been treading on the red line for the past months regarding the management of their users’ data, it’s only logical that analysts and experts were skeptical about them announcing their attempt to enter a market that relies heavily on the idea of decentralized information and trustless data management, but the official announcements only made this concerns even greater.
The argument can be made that, given that this is the largest cryptocurrency project to date in terms of potential users and countries supported, the guidelines for its implementation could be different from what we have seen so far to facilitate adoption all around the world, but their proposal seems way too far from the basic concepts of cryptocurrency and blockchain to be considered as decentralized, censorship-protected or even borderless.
The official launch is targeted to be on the first half of 2020, so there is still some to polish certain details so the skeptics might look at the whole project in a brighter light, or to raise the general public’s attention to a point where the skeptics are outspoken, so it’s important that the big names in crypto keep discussing about it before the launch.