On Tuesday, June 18th 2019, Facebook controlled by Mark Zuckerberg released many new details about their cryptocurrency dubbed Libra, and we are here to explain everything that’s known about Facebook’s coin.
What is Libra?
First of all, if somebody hoped that he will be able to speculate with the price of the coin, sadly for you, Libra is a stablecoin, meaning that its value is pegged to the value of the fiat currency. On the recently launched Libra official website, Facebook states that the stability of their cryptocurrency named after the ancient Roman unit for mass will be ensured by the reserves held by the Libra Association.
Still, fiat currency is not going to be backing Libra. Instead, the association will invest those funds in “low-volatility assets like bank deposits and government securities in currencies from stable and reputable central banks.”
The source of those reserves will come from investors in private placement, and, later on, from users who exchanged their fiat for Libra. It is noteworthy to say that Facebook’s cryptocurrency is backed by some important financial industry players such as PayPal, Mastercard, and Visa. On the other hand, eBay, Uber, and Spotify are giving it strong marketplaces perfect for growing adoption. From the venture capital side, Libra is funded by some of the most notable venture capital companies such as Andreessen Horowitz and Ribbit Capital.
Regarding the technology hidden under the hood, we can say that the association states that it is a decentralized and programmable open-source blockchain, developed in a new programming language called “Move”.
However, Libra will use what we usually refer to as Proof-of-Authority (PoA). At least according to their official website, with founding institutions running Authority nodes which validate transactions and secure the network. This system is going to be what Libra will start with, but, according to the association, after some undefined time span, the consensus reaching mechanism will transition to a fully open transaction validation system.
To conclude, we may describe Libra as purely payment oriented cryptocurrency project which still leans on the traditional financial systems. Its sole purpose is to enable quick and efficient online payments, especially cross-border. Also, it doesn’t worry much about the level of decentralization which other crypto projects strive towards, making it somewhat lean towards the financial establishment.
How can I buy Libra?
Libra’s blockchain is still in the testnet state of development. That means that, at the moment, individual investors cannot buy it, since it is not yet in the market. However, Libra’s official website informs institutions that they can apply for joining the association whose founding members will be able to “participate in key decisions about the development of the Libra Blockchain, the management of the Libra Reserve, and the approach to social impact grant-making.”
From what can be understood from the white paper, once the Libra mainnet goes live, users will be able to acquire the stablecoin on Apps developed for the network. Moreover, considering the fact that one of Libra’s partners is Coinbase, there is a high possibility that it will be present on Coinbase’s trading platform in some way with the possibility of the coin being listed by other exchanges.
How can I spend Libra?
All users will, supposedly, be able to spend Libra at partnering marketplaces such as eBay, Mercado Pago, and Spotify. Moreover, it will be spendable on Facebook itself, but the way it will be done remains to be seen.
Of course, if Libra will be listed on cryptocurrency exchanges, traders will be able to use it just like they now use other stablecoins in the market, trading them against other, more volatile crypto assets.
Will it be a real cryptocurrency?
From the pure technical point of view, Libra’s network is similar to some other cryptocurrency projects. It has blockchain as an underlying technology with nodes validating transactions.
However, from a philosophical point of view, it is more centralized than some of the most notable cryptocurrency market leaders, differentiating it from the rest of the pack. Still, some level of centralization isn’t uncommon among crypto-related projects. For example, EOS has delegated transaction verifiers which may be considered as the network’s elite. Even more similar to Libra is VeChain with its Proof-of-Authority where institutions secure the network in a similar way to Libra’s.
Where Libra drastically fails to fulfill crypto community’s expectations (at least that part of the community that values innovative approach to the financial industry) is the fact that it is going to be backed by traditional and government-backed assets.
A great point was raised by Brian Kelly on CNBC show, Fast Money, where he described Bitcoin as digital gold while comparing Libra to digital US dollar because of its tight connection to the traditional financial system.
Kelly stated, “This is about that trusted third party and, to me, the revolution of crypto is that it is peer-to-peer. You disintermediate financial services.” He went further to explain the difference between Libra and Bitcoin by saying, “So, when you talk about the differences between this and something like Bitcoin; bitcoin is trustless. You don’t need to believe that anybody’s going to check that ledger; you can do it yourself.”
To answer the main question – is Libra a real cryptocurrency?
It depends on the way you are looking at what cryptocurrency is.
If you are a tech-oriented individual and the only thing a cryptocurrency needs for you to call it that is (simplified) blockchain and cryptography, then, yes; it can be called a cryptocurrency. On the other hand, if you are a part of the pack which looks at things in a more philosophical and political way, it is definitely much different from pioneering projects that brought us the first decentralized payments systems.
At the end of the day, Libra will not be the only stablecoin in the market, and you are the one who will choose which, if any, you will use.