Intro of Libra:
You might have been hearing a lot about this buzzword ‘Libra’. And wondering what is the reality of that? Is that some new established financial institution backed by Facebook, a cryptocurrency? Or mere an astrology sign? So let’s burst the bubble of curiosity in this article.
Before explaining ‘Libra’ let me give you a brief overview of how most of the popular cryptocurrencies like ‘bitcoin’ or ‘ ethereum’ works?
Any transactions happening in cryptocurrencies are verified by decentralized autonomous group of miners. Every miner owns a copy of distributed ledger and on mutual consensus of network, a new transaction is verified and added to the distributed ledger. This is what you will call a “permissionless network”.
Now Facebook aims to propose a Digital currency named ‘Libra’ that is relatively more stable and cost effective than other cryptocurrencies of today’s age. As suggested by Libra’s whitepaper, using Libra you can transfer money everywhere around the globe with trust. Unlike other cryptocurrencies, Libra runs a “permissioned network” i.e. transactions will only be verified by a selected group of third-parties. It typically uses a concept of “consortium blockchain” where network is semi-private and has a controlled user group runs across several organizations. Moreover, Libra uses relatively fine data structure that make Libra’s transactions to be verified with less computational power than other cryptocurrencies of today.
However, Libra claims itself to be “permissionless” in a way that it’s an open source blockchain. Everyone can use it and build their decentralized applications on the top. But does that not mean open-source?
Moreover, considering this point of Libra’s permissioned consortium network, Richard Dennis explains:
In addition to that, how Libra will provide assurance of data protection. As Facebook, already doesn’t have a good repute when it comes to consumers’ data. So how these big companies including Facebook cannot use consumers’ data for their business analysis?
Is Libra a Stable coin?
So is Libra a Stable Coin? To answer that, let me first give you an overview of stable coin concept.
Stable coin as the name suggest is the currency i.e. backed by any stable asset for example USD. One of the con of bitcoin is its volatility, I mean imagine paying $4 for a cup of coffee today and $10 for the same cup after a week.
Libra tries to solve this problem by backing Libra with stable assets. But hence, the aim of Facebook is to make Libra a global cryptocurrency, it’s crucial to peg it to any single currency like USD. The following snippet about Libra’s currency and reserve is taken from Libra’s white paper:
“It is important to highlight that this means one Libra will not always be able to convert into the same amount of a given local currency (i.e., Libra is not a “peg” to a single currency). Rather, as the value of the underlying assets moves, the value of one Libra in any local currency may fluctuate. However, the reserve assets are being chosen to minimize volatility, so holders of Libra can trust the currency’s ability to preserve value over time”
So I think, we can call Libra relatively stable than other cryptocurrencies that are not pegged to a stable asset.
How libra is backed by organizations?
As I mentioned about the consortium above, Libra is controlled by Facebook and other Founding Member Companies (https://libra.org/en-US/association/) including big names like Ebay, Uber, Visa, Mastercard. Miner nodes will belong to these group of organizations and new block will be mined after the consensus between these nodes. So you can say, that Libra is not truly decentralized at its core.
The untapped market
Cryptocurrency market is yet to be an untapped market for many big organization and has a great room for innovation. Blockchain because of its truly immutable and security properties has the power to be the next horizontal innovation. Because it is applicable to variety of businesses whether it’s ecommerce, self-sovereign identity or any other use case where privacy and security is crucial.
It would be naive to say that Libra is going to be any of the threat to fiat currencies. I mean you can’t expect a scenario where people will be paying taxes in Libra rather their local currency. It will just be another name in cryptocurrency, but relatively more stable and fast. However, Libra can be of good use in exchanging currencies for dollars and make it relatively faster and cheap.