Facebook today published a 29-page white paper with details about the Libra Project.
Mark Zuckerberg’s company has worked with other companies and organizations to create a stable and secure cryptocurrency that allows international payments without generating a high cost to its users. This cryptocurrency was referred to in several media as “GlobalCoin” before its official name was revealed on June 18: Libra.
In a report, Facebook details what Libra is and how it will work. In this document, the white paper compares the current banking system with the communications system of a few decades ago, where sending an international message was slow and costly. Now, communication is instantaneous and free.
Why use a cryptocurrency?
Libra’s white paper points out how, for the population with fewer resources, financial costs tend to be more expensive. Many people without financial services say that fees are often expensive, do not have enough funds or lack the necessary documentation to open a bank’s account.
The document published by Facebook recognizes how blockchain and cryptocurrency create new possibilities to solve accessibility and trust problems. “These include distributed governance (which ensures that no single entity controls the network), open access (so that anyone with an internet connection can participate) and security through cryptography (to protect the integrity of the funds),” notes in the report.
Why create a new cryptocurrency?
For those who promote the Libra Project, despite the advantages offered by popular cryptocurrencies, these digital currencies still have several drawbacks to be adopted among more people due to “volatility and lack of scalability.”
Libra aims to solve the problems that popular cryptocurrencies have for their massive adoption. The report states that “The world needs a reliable digital currency and infrastructure that, together, can deliver on the promise of ‘the internet of money.'”
Three key points on how Libra will work
- Use a blockchain. Like other cryptocurrencies, Libra will use the blockchain technology to function, called Blockchain Libra. However, this will be a private blockchain that requires permission to participate in the validation nodes. The report points out that this situation would be temporary and that over time, the agencies want Libra to become a public blockchain where anyone who meets the technical requirements can participate.
- An asset reserve will back Libra. This feature has been one of the most controversial parts for the cryptocurrency community and one of the points that bitcoin critics have applauded. The value of Libra will be associated with a “basket of currencies” to avoid its volatility. For Jon Martindale of Digital Trends, this means that Libra can be affected by the same political problems that affect fiat currencies, unlike cryptocurrencies that tend to strengthen when fiat currencies depreciate.
- The Libra Association will control the currency. The cryptocurrency community also view this point with skepticism. “This goes completely against the idea of cryptocurrency, says Jon Martindale. The skeptics of the public blockchain applaud that it is centralized and even affirm that “blockchain only has the name,” like Nouriel Roubini, a famous economist.
Analysts like Jemima Kelly of the Financial Times point out that the blockchain Libra “is not a blockchain” because it is centralized, based on foreign exchange and has some variations in its structure.
An easy-to-program blockchain
The Libra blockchain was created from scratch to ensure its security and scalability. Likewise, it has been programmed with open code to allow the participation of everyone in the project.
The programming language that Libra will use is called Move. Move aims to be a flexible and safe language that can be used for transactions and smart contracts. Move uses a semantics inspired by linear logic. Although it is a language that has special protections, Move resources are ordinary programming values that can be stored as structured data or move from arguments to procedures.
The Libra core is available for those who want to become familiar with this programming language.
The assets of the reserve
The Libran currency will have a reserve of assets to support its value to maintain stability, low inflation, and global acceptance. These assets will consist of “bank deposits and short-term government securities in stable and reputable central bank currencies,” according to the report.
These assets do not eliminate currency fluctuations, but they help reduce volatility so that Libra users can rely on the value of the currency over time.
The profits generated by these assets will be used to cover the cost of infrastructure and pay dividends to the project’s investors. The report ensures that users of the currency will not receive any bonuses.
The members of the Libra Association
The Libra Association will be made up of a government like many non-profit associations, where each representative of a validation node will have one vote, and the decisions require two-thirds of the Association Council to be approved. This association will also administer the Libra reservation.
Among the founding members of the association are several organizations and companies of worldwide prestige in the area of payments, blockchain, economy, and financial inclusion. This is the list presented in the white paper:
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Technology and markets: Booking Holdings, eBay, Facebook / Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Non-profit organizations, multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking.
Among the founders, the payment system used by Mercado Libre, Mercadopago, stands out as a representative of Latin America. Also striking is the presence of two of the largest transport services companies: Lyft and Uber, as well as the inclusion of MasterCard, PayPal, and Visa in the founding council.
Facebook hopes to lead this association until its maturity and will look for more organizations to join the Libra association.
Reactions to the initiative
Doug Morgan, an analyst at JP Morgan, described the initiative as Facebook’s best idea so far and an opportunity for the company to diversify its business and its sources of revenue.
SunTrust analysts were more cautious and assured that the idea would take years for their adoption and to show their results.
In the cryptocurrency media, they were less optimistic and called Libra’s initiative “Disney Dollars for new world order.”