Recently, Facebook has launched a digital currency name Libra which it plans to roll it out in 2020.
What is Libra?
Facebook says Libra is a “global currency and financial infrastructure”. It intends for the new cryptocurrency to be a substitute for paper money and even credit cards. It wants people to use it to transfer money to friends or family, pay merchants for services, and the cryptocurrency to be used as a replacement for cash in under-banked areas. Through Libra, Facebook wants to enable smoother transactions and payments online, particularly among those who do not own credit cards or bank accounts.
Facebook has even built a blockchain to support Libra. It is based on a new programming language called Move. Facebook has developed it exclusively for Libra, in order to make it more secure. The billion Dollar company plans to eventually use it for smart contracts.
Not your conventional cryptocurrency.
Libra is quite different from your conventional concept of blockchains. It is because of its fundamental differences from the traditional blockchains, some experts argue that Libra isn’t quite a blockchain.
Centralization
Central to this difference is the issue of centralization which weighs heavy on many of the new coin’s critics. To begin with, the concept of blockchain evolved because of the developer’s trust issues with the central authorities. Blockchain’s goal is to remove the need for central control and provide a more transparent transaction process.
On the other hand, Libra will be regulated by a central authority. It will even be backed by several traditional financial companies, including PayPal, Visa and Mastercard and will be pegged to multiple existing assets like the Dollar or Euro. People will be able to buy and sell Libras on exchanges for traditional currencies. Facebook has even recruited business partners like Lyft, Uber, and Spotify, they are likely to accept libras when the system launches in the second half of 2020.
All this is done so that it is not a subject to the kind of volatility that many other cryptocurrencies experience. Remember the nosedive in the value of Bitcoins back in 2017-18? It is resurging again after the announcement of the launch of Libra! According to the project’s leadership, the idea for Libra is to operate more as digital cash than the traditional speculative function most cryptocurrencies serve.
In this sense, Libra shares more similarities with stablecoins, as compared to other cryptocurrencies.
Anonymity
Also, traditional cryptocurrencies like Bitcoins have a mask of anonymity. It is almost impossible to trace who is mining or using digital currency. But the users of Libra can be easily traced, especially when they will be using it while being logged in to their Facebook account. The authorities will even have the power to verify transactions and to prevent anyone from spending the same digital coin twice. This will make Libra secure and less venerable to be used in anti-social activities by non-state actors. The same fact does not stand true in case of other crypto currencies. But this is a huge let down to blockchain fundamentalists who like to wear their anonymity on their sleeves.
There are some other intriguing technical specifications that Libra boasts of. The blockchain for Libra will use a Byzantine Fault Tolerance (BFT) consensus method. This method will help in shortening the time taken in a transaction due to lower verification thresholds and lesser time taken for validation. It also makes it much more resistant to bad-faith actors (the people with bad intentions like hackers).
The Libra Association
Libra will be serviced by a collective group of companies called the “Libra Association” which will be based in Switzerland. Facebook has created it and will be involved in a leadership role with the Libra Association, but it has claimed that it will withdraw from the leadership role and all members of the association will have equal voting rights in the governance of Libra once the currency is launched in 2020; even though it was the one to create the Libra Association and the Libra Blockchain.
Facebook has described the Libra Association as an independent, not-for-profit organisation. Libra has one big advantage. Because it is being launched when the Libra Association is under the leadership of Facebook, it will benefit from the massive user base of the latter. This mass user base will make Libra easily acceptable amongst the user base of Facebook.
But Facebook says the Libra will be independent and won’t require a Facebook account to use, so it can be inferred that Libra could be a way for Facebook to drive spending when people interact with Facebook ads.
The Libra Association will serve two main functions
1. Will be to validate transactions on the Libra blockchain
2. Manage the reserves that Libra has accumulated or is associated with and to allocate funds for social causes.
We will have to wait till Facebook publically launches its digital currency in the 2nd half of 2020 to know how well it fares in the market.
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