What is Bitcoin? Some think it’s only a fad, a bubble waiting to burst, while others think of it as the future of payments – one without the government’s control and oversight, one without any central authority, one that’s completely decentralized, distributed, open-source, and untraceable. Enthusiasts and proponents have depicted the future of Bitcoin as being bright – some even went as far as predicting that it will reach an exchange rate of $150,000 for one piece of the elusive cryptocurrency. Others expect it to disappear and be replaced by blockchain-based coins that will be a combination of traditional currency and crypto coins. And one of the first such hybrids seems to be Libra, the blockchain-based payment solution backed by Facebook.
What is Libra?
The official definition of Libra is “a permissioned blockchain digital currency”. But what does this mean?
The “digital currency” part is pretty self-explanatory: it is a form of currency that can be used for payments over the internet. Unlike other similar services, Libra will not only provide the means of paying online but the money as well.
The more complicated part of its definition is the “permissioned blockchain”. In the case of Bitcoin, anyone can run a full node to validate transactions – it is a permissionless blockchain. In the case of Libra, only the entities that are approved by the network owner can run full nodes and validate transactions on the network. The project, the currency, and the transactions will all be managed by the Libra Association, a membership organization founded by the Libra wallet “Calibra” – a Facebook subsidiary.
Assets and control
The Libra Association has 27 founding members, each of them running a full node. Facebook plans to attract many more, at least 100 in total, to the association. Each of them contributes $10 million to the total pool of assets backing the currency. This means that the total pool of Libra coins will be worth $1 billion at the time of its launch, both in currency and in financial assets like US Treasury securities, thus reducing the potential volatility of the coin.
Due to the permissioned nature of the blockchain behind Libra, it is expected to be more secure than its counterparts. Only the members of the Libra Association will run full nodes and perform the reconciliation of the transactions, so nobody outside the organization will be able to analyze its data.
All transactions with Libra will be done in Calibra, the digital wallet subsidiary of Facebook. This will be made available in Messenger, WhatsApp, and as a standalone app in 2020.
Backers and partners
The Libra Association was founded with the participation of 28 companies this year. These include payment processors like PayPal, MasterCard, and Visa, technology firms like eBay, Mercado Pago, Spotify, and Uber, telecom companies like Vodafone, blockchain businesses like Coinbase, and venture capitalists like Thrive Capital, and Union Square Ventures.
Libra has been heavily criticized already by banks and regulators around the world, both because of its incursion in the world’s financial status quo and privacy concerns related to Facebook’s recent scandals. The currency is in its very early stage right now, though – it is little more than a whitepaper at this point – so there is still enough room for improvement and progress. The way things stand, it may even become extinct – but it can also become a template for the future of payments. Which direction will it take? Well… only time will tell.