What Is Libra? – Facebook Cryptocurrency Explained8 min read02/09/2019
Libra is a new cryptocurrency built on the open-source blockchain technology called Libra Blockchain. Announced in June 18, 2019, by Facebook, Libra is supposed to become a global financial infrastructure and the next PayPal. Connection to the Facebook platform expands the analytics capabilities of the cryptocurrency creators since the largest social network will gain access to customer shopping preferences.
According to the official Whitepaper, Libra is supported by a non-profit organization called Libra Association created for managing the Libra network and supervising the reserve that controls the value of Libra coin.
Libra Association used to involve 27 organizations that include:
- Booking Holdings
However, PayPal announced its plans to quit Libra Association as well as Visa and Mastercard that reconsidered their further participation in the project to avoid regulatory scrutiny.
Unlike other cryptocurrencies, the Libra price will be stable. The cryptocurrency will have its own reserve system called Libra Reserve consisting of a number of low-volatility assets structured in the way to keep their value on the same level. In other words, Libra Reserve will rely on government securities and bank deposits in trusted financial institutions.
The main paradox of Libra is that it’s not a stablecoin according to the current stablecoin definition because its value doesn’t depend on a single a single fiat currency. Instead, Libra will rely on assets denominated in four fiat currencies: USD, GBP, EUR, and JPY.
“In each of these apps, we have opportunities to help people get more value from the networks that they’ve created,” Mark Zuckerberg.
The whole project consists of the following components: its own blockchain, a platform for smart contracts, and cryptocurrency. It’s expected to unite Facebook Messenger, Instagram, and WhatsApp in one ecosystem where users will be able to send money and make payments without using their credit cards. Libra will probably become the global WeChat service based on blockchain technologies.
How Libra Works
Once a user purchases a Libra coin using preferred fiat currency, the system generates a coin. And vice versa, in the moment of the reverse exchange, the generated coin disappears. The Libra Association will invest the funds stored in this reserve to develop and maintain the network as well as pay dividends to investors.
Unlike Bitcoin running on the Proof-of-Work protocol based on mining, Libra Blockchain uses the Proof-of-Stake (PoS) consensus mechanism where a node with the highest balance has the highest chances to generate a data block. The main advantage of this model is in that it makes no sense for hackers to attack the blockchain since they first need to gain more than 50% of the total cryptocurrency amount to make the attack possible.
Libra blockchain is open-source and written in Rust that’s why third-party developers can create compatible applications in the Move programming language. At the same time, Libra blockchain will provide access to a limited number of nodes that form the Libra Association while the consortium will include 100 investors. This organization is planning to release the cryptocurrency in 2020.
How to buy Libra
To purchase Libra, you will need to register an account in Calibra. This is a cryptocurrency wallet for storing and using Libra cryptocurrency. Calibra is also the name of the Facebook subsidiary company that has developed this crypto wallet. Calibra wallet will be available for users as a means of a mobile app for both iOS and Android. This app will also be integrated into WhatsApp and Facebook Messenger.
To test the wallet before the official release, you can sign up now on the company’s website. You can now leave your email address on Calibra to receive an invitation for early test access. To register an account in a digital wallet, you will need an official identity card issued by a government agency. Facebook now offers $10,000 for those who will find vulnerabilities in the Libra security system.
Transferring money within Libra blockchain looks a bit different to usual bank payments. To send Libra coins to another account, you will need to select the amount to send in the currency of your country. Then you will see the amount that the other person will receive in the currency of his or her country. However, the transactions will happen in Libra coins. To send money faster and easier to their friends, users can import their Facebook friends list into Calibra.
Besides Libra coins, Libra Investment Tokens (LIT) will go on sale. These security tokens are not tied to any currency and they have an unstable price that’s why they are a kind of stocks. To purchase LIT, investors have to meet a number criteria: public companies must have at least $1 billion revenue while private investors must have assets worth $1 billion or more.
According to David Marcus, the head of the Calibra project, the Libra network will be decentralized. Thus, neither Facebook nor Libra Association members will be able to control it. As of now, the Libra price is unknown. In addition, there’s no information about available Libra mining methods, for example, GPU and HDD mining. Users from the U.S., Great Britain, and the European Union will be first who will get access to Libra. In the future, the cryptocurrency is supposed to spread to all countries where Facebook services are available.
Compared to other cryptocurrencies like Ethereum and Bitcoin, Libra has a list of important benefits that lay in the speed of transactions, low fees, and Facebook ecosystem. Facebook now has 2.4 billion active users every month. They will become the first Libra users who will have a brand new online shopping experience.
Advantages of Libra:
- Calibra Wallet will be integrated into WhatsApp, Instagram, and Facebook Messenger
- Low transaction fees
- You will be able to send money as easily as a text message.
- You can send money and do shopping using Messenger
- Unlike Bitcoin, users need to provide their documents to sign up for Calibra.
- Transactions within the Libra network will take seconds. The network will process up to 1000 operations per second while this value for Bitcoin is only 7 and 16 transactions for Ethereum
The stability hypothetically can make Libra a new global payment system especially in those countries where such services as PayPal are not available except India and China where the cryptocurrency has been banned by regulators. This scenario is possible only if state regulators will at least give Facebook the green light. However, they may not do that because of the disadvantages of Libra.
The personal data disclosure scandal involving Cambridge Analytica revealed in March 2018 has significantly affected Facebook’s reputation. That’s why regulators all over the world express their concern regarding Libra security even though Calibra claims that it won’t share such sensitive data as account information and financial data with Facebook or any third-parties without user consent.
However, unclear user consent may untie Calibra’s hands and Facebook will get access to user personal to make target ads more precisely. At the same time, the vice president of the Calibra project Kevin Weil promises that users should not worry about that.
“Your financial data will never be used to target ads on Facebook,” Kevin Weil, vice president of Calibra.
Although, the Calibra customer commitment document contains the line about limited cases where they can share personal data. These cases refer to the situations where sharing is required to comply with the law, ensure functionality, and keep people safe.
Fraud and terrorism
When it comes to regular person-to-person payments with credit or debit cards, we need to know at least the card number that refers to a specific cardholder. The information about the sender and recipient is always available for the banks involved in the transaction as well as for both a sender and recipient. But cryptocurrencies provide anonymity which means you may not even know whom you send your money by entering a number of the crypto wallet.
This is why cybercriminals using social engineering, for example, blackmail, try to make victims send them money on their crypto wallets. G7 finance ministers claimed that cryptocurrencies like Libra Facebook could destabilize the global economy and could be used for money laundering or even financial terrorism. In their report, the working group led by a member of the board of the European Central Bank Benoît Cœuré called on a more effective control over cryptocurrencies.
“Projects having a global and potentially systemic footprint like Libra, raise serious regulatory and systemic concerns, as well as public policy issues, all of which must be addressed before these projects can be implemented”, the report said.
Another important drawback of Libra is the absence of decentralization. Proof-of-Stake is a controversial algorithm because it empowers those with the highest balance to control the network while Bitcoin is decentralized. It means that no one can control the blockchain or censor transactions. So what is the difference between an ordinary bank and Libra Association that will gain control over transactions within the Libra network?
The board member of the European Central Bank (ECB) Yves Mersch supposes that the Libra model is “extremely concerning” because the digital currency will not be backed by the lender of the last resort and will serve the interests of the members of the Libra Association. He also added that Libra could affect the ECB’s control over the euro and expressed his hope for people to avoid putting their personal data at risk despite Facebook’s promises.