The Diem Association (formerly Libra Association) whitepaper released by Facebook is a rather comprehensive piece of document, but it’s fairly difficult to truly discern the technical jargon surrounding the hero of the topic i.e Libra cryptocurrency.
Cryptocurrencies are not exactly the easiest concept for many to understand but since Libra coin is being launched in January next year as a simple global payment system, one must at least have a basic idea of what this cryptocurrency is, how it’s going to be used, and a some of the nitty-gritty parts that one must stay informed about.
What is Libra by Facebook?
Libra is a cryptocurrency that has been developed by the Diem Association to be used as a form of currency for digital transactions. The Libra coin is not expected to replace fiat currency (yet), rather, it aims to work in tandem with them while reducing the service charges one must pay when using remittances, ATM charges as well as services like PayPal and Western Union.
It takes certain elements of the cryptocurrency premise like using Blockchain technology, however, it’s not entirely decentralized the way Satoshi Nakamoto’s implementation demands.
So it’s more appropriate to call Libra a form of digital currency. One will be able to recognize this currency by the three horizontal waves symbol that has been chosen to represent the coin.
When will Facebook launch Libra?
After many hits and misses, the Libra cryptocurrency is expected to launch in January 2021. It will be available in the United States and some Latin American countries as well. As of now, it is expected that the coin will be backed by the US dollar when it is launched.
How does Libra Work?
Libra’s intent is to provide a way to transact money in the digital economy for people who do not have a bank account or are a part of the banking system. Unlike cryptocurrencies like Bitcoin, Libra is being offered as a Stablecoin which means that there will be backed by a Reserve that will hold stable assets of short-term maturity, low-credit risk, and high liquidity to maintain its value and keep it stable. This means that the Libra coin is meant to be used purely transactionally and you cannot invest in Libra and expect to earn any profits.
Depending on the currency of the country that it is being used, the Libra Coin will be available as Librausd (USD), Libraeur (EUR), Libragbp (GBP), and Librasgd (SGD). These Stablecoins constitute the Libra Network (LBR) and set the value of the Libra Coin itself. Libra currency in the form of multiple Stablecoins will allow people to perform local digital transactions effortlessly. All they will need is a digital wallet and government id to be able to use Libra.
How will Libra coin be regulated?
Besides collaborating with regulators and financial authorities of the countries in which it plans to launch Libra Coin, the Diem Association has hired within its organization, ex-politicians, and former government employees like Christy Clark and Steve Bunnell to ensure the integrity of the cryptocurrency.
These moves are meant to establish the good intentions of Facebook with the Libra coin as well as to ensure that the coin will not be used to commit financial crimes or aid corporate profit. The Diem Association has also assured that the Libra coin will not be launched without approval from the Swiss Financial Regulator, FINMA as well as key approvals from some US states like New York.
The Libra Blockchain
Unlike Bitcoin which works in a permissionless Blockchain system in which anyone can maintain the ledger and act as a validator, only those who have been let in by the Diem Association are authorized to validate a Libra coin transaction.
Currently, there are 27 validators if one takes into consideration the existing members of the Association, but this number will increase when more members join. The Diem Association has provided more technical information on the development of Libra’s Blockchain system here.
We cannot be certain if the Libra Blockchain will transition to a permissionless system in the future and considering the immense scrutiny it is under, it’s going to be very difficult if not unlikely for this possibility.
What is Novi (formerly Calibra)?
Novi is Facebook’s rebranded cryptocurrency wallet as well as its subsidiary and will be used to transact Libra coins. The wallet promises things like no hidden fees for cross-border transactions while also ensuring complete transparency.
It can also be used to convert fiat money into cryptocurrencies like Libra and vice versa. According to Facebook, Novi will be available as a separate app as well as through WhatsApp and Messenger. Some form of government verification will be required to use this wallet for transactions.
This level of autocracy that Facebook has over Libra cryptocurrency comes with its own set of problems, some of which we have mentioned in the next section. To offset these concerns, Facebook decided to democratize the process by creating a body of representative companies/organizations which is right now being called the Diem (formerly Libra) Association to head the Libra project. Facebook is doing everything it can to assert the Association’s autonomy from itself.
Currently, the Association is headquartered in Geneva, Switzerland, and has 27 members (since many members quit last year) and Facebook is hoping to hit the 100-member mark soon. These members are responsible for making crucial decisions regarding the Libra coin, it’s regulation as well as management. Each member gets a vote regarding the cryptocurrency and no action can be taken without the consensus of the Association.
The controversial history of Libra
The journey of this cryptocurrency has not been easy. Regulators had major concerns regarding how Libra cryptocurrency could interfere with their own countries’ national currencies’ value as well as the financial policies of their countries and with good reason too.
Under the assumption that the Libra coin would gain millions of users (which is plausible when one considers the 2.5 billion audiences of Facebook alone), this cryptocurrency has the potential of disrupting exchange rates of fiat currencies, destabilizing stock markets, and even causing economic disruption across the world.
Besides all of the reasons above, another major concern surrounding Libra is its exploitation for various forms of financial crimes which is something that cryptocurrencies have developed a notorious reputation for.
Another major reason as to why this cryptocurrency is so terribly controversial is Facebook itself. There is no denying the benefits that a cryptocurrency like the Libra coin would bring to the company when used in transactions for its various products and services.
Unfortunately, Facebook’s deep involvement also created a problem of privacy despite its many reassurances not to misuse data. In fact, the privacy concerns were so bad that members including PayPal, Visa, eBay, Mercado Pago, Mastercard, Stripe, and Vodafone pulled out of the Diem Association last year.
After much renaming, controversy, and relentless corporate ambition, the amount of uncertainly and speculation that still surrounds it, one cannot ignore the magnanimous effect of the Libra project on the world. At the end of the day whether this currency will change the way we look at money or not, it will certainly bring a new perspective to the narrative of money.