Facebook wants to enter fully into the financial field, and will do so with a cryptocurrency of its own called Libra (≋). This cryptocurrency is to some extent an attempt to domesticate bitcoin and control the phenomenon from large mega corporations such as Visa and Facebook.
Libra makes use of many of the best known concepts of cryptocurrencies, but actually faces some of its most important principles – privacy and transparency among them – and does so with a single goal: to become everything that bitcoin never has been.
A ‘stablecoin’ in many ways
Libra behaves more like one of the so-called “stablecoin”, cryptocurrencies that are linked to traditional fiat currencies like the dollar or the euro. Here the objective is to minimize its volatility and thus its value can not suffer those incredible swings that we have seen with Bitcoin, Ethereum, Ripple or others.
In Facebook they explained how Libra is created to be “safe, scalable and reliable”, and the objective that stands out is not so much that we abandon our bank debit card, but that of providing a financial system where people can not access easily, in addition to facilitating global transfers of money easily and with low commissions.
Another important aspect of Libra is that it is a cryptocurrency developed under an Open Source license, specifically under the Apache 2.0 license, something that is a particularly remarkable movement that will allow auditing your code and, as they assure on Facebook, that developers provide your comments and participate in error search programs. The initial network of tests will be launched soon, while the final deployment, which will be seen by users, will not arrive until 2020, without specifying more.
This cryptocurrency will also have that character of stablecoin. There will be an economic reserve that will be based on bank deposits or funds in currencies such as the dollar, the pound sterling, the euro or the yen. The currency will not be entirely linked to these currencies, but will have variable exchange rates, as if it were a fiat currency.
Still, it seems that its creators and the Libra Association want to match its value to that of the main currencies and therefore make a Libra have a value similar to a dollar, a euro or a pound sterling, something that would help conceptualize this cryptocurrency and use it much more naturally.
Let’s talk about Byzantine consensus and decentralization
This cryptocurrency will make use of its own block chain called Libra Blockchain, which makes use of a consensus protocol called Byzantine Fault Tolerant (BFT). This protocol works promoting cooperation, not competition, and at its bases is the famous problem of the two generals.
Instead of a scenario in which the participants (the “miners” on other platforms) work independently competing to create blocks, the BFT algorithms work collaboratively to reach a consensus on what the next block should look like: if the majority (two thirds, in this case) reaches an agreement, the block is added to the chain of blocks.
The fundamental advantage of BFT algorithms over other consensus systems such as the Proof of Work (PoW) or Proof of Stake (PoS) is that there tends to be fewer consensus participants, but all of them have a high degree of confidence in the rest, something that allows its performance to be greater in terms of the number of transactions per unit of time. This is especially important, and was one of the factors that limited the adoption of bitcoin or other cryptocurrency as payment systems.
But that also implies a loss of the decentralization of the presumed bitcoin and other “classic” cryptocurrencies with their respective blockchain. Libra BlockChain will start its activity as a network that will only allow access to certain users (something like a closed / private beta), but the Libra Association indicated how the goal is to operate as “a true public service”, which will open the access to any user.
This loss of decentralization is evident if we take into account that there are a series of “validation nodes” that will make up that network of economic transactions, but unlike what happens with bitcoin or other cryptocurrency, one can mount a node for good. At least, not at the beginning.
A new oligarchy
They talk about all companies, and they will have to make a minimum initial income (minimum, but may be greater) of 10 million dollars in the so-called Libra Investment Tokens, some coins associated with the platform and that will serve to create incentives or pay for all the operation of the platform: they will not be given to anyone, and in a way this reminds us of an ICO, but again, private.
The investment requirement is mandatory for companies, but not for NGOs, or academic institutions, which can join the association without paying those 10 million, but they will have to create a validation node and manage it at the cost that this implies. Some call the Libra Association, initially formed by 28 companies, “the new cryptocurrency oligarchy” and they do not lack reason.
The requirements to enter go beyond that investment, and are not small: they will have to have a dedicated line of 100 mbps or more, an engineer dedicated to guarantee node reliability, business-grade security, or meet milestones on the sheet of results as its market value (more than 1,000 million dollars) its balances in value of users (500 million dollars) or reach 20 million people per year.
According to preliminary estimates of the document published by Facebook, each validation node will have an annual cost of about $280,000, a high price that again differs greatly from the virtually zero cost of creating a node in other cryptocurrency.
Although in that initial version those nodes of validation will have those strong requirements, with time the platform has been designed so that there is a transition of those founding members “to people who have Libra and have a participation in the global ecosystem”. So it seems that they open the door to a future decentralization to a greater extent.
Loss of (a little) privacy and anonymity
The transactions carried out with this cryptocurrency will also be “pseudo-anonymous”. This means that there will be certain visible data such as the amount of “Pounds” -looking for the confusion with sterling pounds, curious choice of name-, the time stamp that indicates when the operation is done and the public addresses of the chain of blocks involved in the transaction.
The Libra Association has indicated that it will not keep personal data on who uses the blockchain. The application-purse for Libra, called Calibra, has been created to (according to Facebook) ensure the separation between social and financial data, and to allow new services to be developed and managed by taking advantage of the Libra network.
The reality is that suspicions will easily appear if one thinks about who is part of the Libra Association. Visa, Mastercard, PayPal, Stripe, eBay, Facebook, Uber, Lyft -curious that bet of both services- Spotify, or Vodafone are some of those companies, and the data -anonymous, hopefully- generated in these transactions will be pure gold for all of them.
These data will also have a strong identification component. The wallet, Calibra, can only be used if the user presents an official identification document that associates it with that wallet created. We say goodbye to the anonymity provided by many cryptocurrencies and that, for example, was the main key argument of some of them, such as Monero.
That, of course, has its pros and cons. On Facebook they say Libra wants to be a legal currency, they want to avoid fraud, but at the same time they indicate that “the activity of each transaction in Calibra will be private and will never be made public”.
As we explained a few hours ago, Calibra will not share account information or financial data with Facebook or any third party without the client’s consent. There will be exceptions, such as the prevention of frauds and crimes and compliance with the law, something that is usual to contemplate in other social networks that can help the security forces in very special cases.
As noted by some, the expectation of privacy could therefore be completely minimized, and although Facebook make promises about the recent scandals of privacy do not help to rely too much on his word. Maybe in the end we will end up doing it, because if something has been demonstrated with Facebook it is that human beings have a very bad memory.