Facebook’s Libra: Understanding a New Cryptocurrency
Bitcoin, the first cryptocurrency, was launched in 2009, and it was the beginning of hype around the blockchain and cryptocurrencies. The new technology promised to change our perception of money and solve a number of problems. From that moment, dozens of companies are launched and sold their own currency based on the blockchain including Facebook and its currency — Libra. What is this? And how people can use Libra?
How did Libra Come About?
The work on creating a new cryptocurrency at Facebook has begun in 2017. Interesting fact, there was only one person implementing Libra — Morgan Beller. The first reports of the corporation planning a cryptocurrency started to appear a few days later, after David A.Marcus, Facebook’s vice-president, moved from Facebook Messenger developing to a new blockchain direction in May 2018. By February 2019, more than 50 blockchain engineers were working on the new promised project. After 3 months, Facebook released the first confirmation that they want to issue their own currency. Initially, it was named as “ClobalCoin” or “Facebook Coin”. And only in June 2018, the corporation announced Libra.
As of August 2019, the network and currency do not exist. It is planned for the project to be released in 2020. For now, there are only pieces of experimental code and White Paper.
What are Libra Association and Calibra?
If you have ever read about Libra cryptocurrency, you probably hear about Libra Association and Calibra. What are these entities and what is the difference between them? First, let's deal with Calibra.
Calibra is the Facebook subsidiary. The goal of the company is to create products that will use Libra. Its first project is the Calibra Wallet. It is supposed, that this product will:
Store the digital currency;
Give the opportunity to send and receive Libra;
Be a standalone application.
Calibra is the independent company from Facebook meaning that it will not share the users’ private information with the corporation.
And what about Libra Association? It is a nonprofit organization that will manage Libra coin and all transactions. The headquarter locates in Geneva, Switzerland. And for now, there are 28 members that are divided into different categories according to their functions such as payments companies, venture capital, telecommunications, blockchain, and so on. The member’s list includes PayPal, Anchorage, Lyft, and other famous companies. It is planned that the Association will grow to 100 members, and each member will have an equal vote. But during the 2019 year, Facebook’s Calibra will keep the leadership.
What will Libra Do?
At this moment, we have already understood who will oversee Libra, how coins had appeared, and what is the difference between Calibra and Libra Association. But what will actually Libra do? On the official site, its mission is declared as “A simple global currency and financial infrastructure that empowers billions of people”. Let’s take a close look.
The level of economic development of countries and regions is very different. For example, more than 30% of the population is still unbanked, and the costs of transactions are too high (on average, 7% to send money). These payments are slow and unsafe. As a result, Libra aims to solve these problems by using modern blockchain technology. People will be able to send and receive money easy like sending the message to their friends.
What Technologies Does Libra Use?
In the beginning, you need to understand that Libra is “a solid foundation for financial services” that includes the cryptocurrency. It will be built upon a blockchain platform — the Libra Network. This platform is going to be scalable (keep billions of accounts), secure, flexible, provides high and fast transaction throughput and low latency. To built such a network, the developers decided to use a new language — Move, that was designed especially for implementing smart contracts (programmatically declared custom transaction logic). If you want, you can know more details on the technical paper.
Why is it Facebook?
As you know, Facebook’s profit comes from advertising. Therefore, their main asset is the base of users. The company expects that this new pool of transactions between businesses and users will get them more essential information about people, and generates more profit from advertising. The important thing, Facebook says that they will not use Calibra’s users' data to target ads on Facebook without their permission. In the future, Calibra will offer more financial services and, as a result, form a new stream of revenue for Facebook.
What About Libra’s Volatility?
One of the main problems of any cryptocurrency is that it is not stable. So, what about Libra? Facebook said that it is a stable currency that will have very small volatility. For now, the corporation announced all its partners have to invest an initial $10 million. Such actions guarantee that Libra will have full asset backing by financial assets. In our case, it will be dollars, euros, Japanese yen, and government securities. Moreover, Libra will be issued only after all regulatory concerns have been met.
Libra as any cryptocurrency is very controversial. On the one hand, it aims to solve the number of financial problems but on the other hand, it has a lot of regulatory uncertainties. And what about you? Do you want to buy this cryptocurrency? Why yes, and why not? Share your thoughts in the comments below.