Facebook’s Libra Copy

Facebook's Libra

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By Block Society

Today on June 18th, Facebook announced the details of its long-awaited cryptocurrency project, Libra, a non-profit foundation headquartered in Switzerland. Libra is slated to launch sometime in the first half of 2020 alongside Calibra, an infrastructure of digital wallets across all Facebook’s current and future platforms (Messenger, WhatsApp, iOS, and Android) in order to keep Facebook’s social and cryptocurrency entities separate. The primary initial objectives of Libra is to “bank the unbanked” especially those in developing countries and to facilitate low-fee money transfers across borders.

 

An array of technical documents has been released to describe the various aspects of Libra. The main ones are as follow in which the links are enclosed at the end of this webpage in the sources section:

  • High-level introduction to Libra1
  • Technical whitepaper on Libra2
  • Overview of Libra’s reserve economics3
  • Technical document of Libra’s Move programming language4
  • Technical document on the LibraBFT Consensus Method5
  • Libra’s testnet6
  • Libra’s roadmap to effective governance and a permissionless state7

 

The popular assumption that Libra will be pegged to a national currency, especially the US dollar, ended up being incorrect. Libra will actually be a standalone basket of assets representing bank deposits and short-term government securities of multiple reputable central banks. The market capitalization of Libra would expand and contract depending on the buyside and sellside pressures.

 

An association of 100 Founding Members, consisting the Libra Association, will govern Libra at least on its launch. This diverse consortium includes the likes of Mastercard, PayPal, Visa, eBay, Coinbase and Andreessen Horowitz to name few. Final decision-making authority rests with the association’s majority rule. Interestingly, this means that Facebook possesses the same privileges as any of the other Founding Member. Those members also run the 100 validator nodes that consist the LibraBFT consensus which is a variant of the HotStuff consensus protocol – and to a lesser extent, of Delegated-Proof-of-Stake (DPOS) and Proof-of-Stake (POS). However, Facebook’s ambition is to convert LibraBFT into a permissionless state in which the maximum 100 validator figure will increase to incorporate anyone who has staked a certain Libra amount and thereby shifting to a form of Proof-of-Stake down the road.

 

To the surprise of many, Libra will be pseudo-anonymous on the same level as Bitcoin and Ethereum and there will be no KYC requirement, although some people point out that Facebook have the tools to circumvent and find valuable data from users.

 

Facebook has done its homework with respect to blockchain research & development. As a subtle but an impressive achievement, a validator of the Libra blockchain does not need to store the entire history to secure the blockchain. The whitepaper explains how a user could simply check that the ledger state is correct by recycling each transaction in a specified history and comparing the computed ledger to the current ledger state for audit purpose. Only a few less-known projects like Coda Protocol and PascalCoin have tackled the blockchain size issue. In addition, Libra is already thinking ahead with respect to rent-based mechanism for storage – especially for the number of accounts in the blockchain.

 

Libra already has an open-sourced a testnet for public testing and feedback. Intriguingly, Libra would become the first “stablecoin” to host a comprehensive, standalone smart contract platform built on a new programming language, Move. This programming language will be designed to implement logic for a smart contract ecosystem following – but not coinciding – Libra’s launch.

 

The initial launch of Libra aims to have at least 1,000 tx/sec for 100 validator nodes. As Libra’s goal is to transition to a higher number of validator nodes, performance deterioration may be a given – especially with high usage – unless the consortium and the foundation better understand how to rectify such a situation. This scalability tradeoff concern is compounded by how Libra validators are designed to prioritize executing transactions with higher gas prices and removing transactions with low prices in the midst of a blockchain backlog. Although this issue is not unique to Libra, it remains to be seen how Libra will handle this conundrum.

 

Unfortunately, the documents did not provide adequate information on the incentive economics which are closely intertwined with Libra’s reserve economics as well as the secondary token, Libra Investment Token (LIT). Libra’s reserves come from initial private investments and users of Libra (the reserve will grow as users’ demand for Libra increases). Interest on Libra’s reserve assets, according to the documents, will be used for operating expenses, reduce transaction fees, and pay dividends to investors. However, this raises the question of the precise breakdown of the relationship between transaction fees, validators’ incentives, reserves’ returns, investors’ dividends, and operating expenses. This relationship is critical to heed considering that the reserves’ interest will be low commensurate with their risk level.

 

Many unanswered questions still remain about Libra, especially its economics and roadmap for a permissionless network, but Libra’s future is promising on many fronts. Facebook has about 2 billion accounts; as a result, it has the potential to build the largest financial institution in the world by the number of users, towering above payment processors like Visa and PayPal but with the benefits of blockchain.

 

The launch and success of Libra is truly within reach if access to global finance were as trivial as accessing to a Facebook account.  

Sources:

 

 

  1. (2019, June 18). Welcome to the official libra White Paper. Retrieved from https://libra.org/en-US/white-paper/.

 

  1. (2019, June 18). Zachary Amsden, Ramnik Arora, Shehar Bano, Mathieu Baudet, Sam Blackshear, Abhay Bothra, George Cabrera, Christian Catalini, Konstantinos Chalkias, Evan Cheng, Avery Ching, Andrey Chursin, George Danezis, Gerardo Di Giacomo, David L. Dill, Hui Ding, Nick Doudchenko, Victor Gao, Zhenhuan Gao, François Garillot, Michael Gorven, Philip Hayes, J. Mark Hou, Yuxuan Hu, Kevin Hurley, Kevin Lewi, Chunqi Li, Zekun Li, Dahlia Malkhi, Sonia Margulis, Ben Maurer, Payman Mohassel, Ladi de Naurois, Valeria Nikolaenko, Todd Nowacki, Oleksandr Orlov, Dmitri Perelman, Alistair Pott, Brett Proctor, Shaz Qadeer, Rain, Dario Russi, Bryan Schwab, Stephane Sezer, Alberto Sonnino, Herman Venter, Lei Wei, Nils Wernerfelt, Brandon Williams, Qinfan Wu, Xifan Yan, Tim Zakian, Runtian Zhou. (2019, June 18). The Libra Blockchain. Retrieved from https://developers.libra.org/docs/assets/papers/the-libra-blockchain.pdf.

 

  1. (2019, June 18). The Libra Reserve. Retrieved from https://libra.org/en-US/about-currency-reserve/#the_reserve.

 

  1. (2019, June 18). Sam Blackshear, Evan Cheng, David L. Dill, Victor Gao, Ben Maurer, Todd Nowacki, Alistair Pott, Shaz Qadeer, Rain, Dario Russi, Stephane Sezer, Tim Zakian, Runtian Zhou. Move: A Language With Programmable Resources. Retrieved from https://developers.libra.org/docs/assets/papers/libra-move-a-language-with-programmable-resources.pdf.

 

  1. (2019, June 18). Mathieu Baudet, Avery Ching, Andrey Chursin, George Danezis, François Garillot, Zekun Li, Dahlia Malkhi, Oded Naor, Dmitri Perelman, Alberto Sonnino. State Machine Replication in the Libra Blockchain. Retrieved from https://developers.libra.org/docs/assets/papers/libra-consensus-state-machine-replication-in-the-libra-blockchain.pdf.

 

  1. (2019, June 18). Try Libra. Retrieved from https://developers.libra.org/.

 

  1. (2019, June 18) Moving Towards Permissionless Consensus. Retrieved from https://libra.org/en-US/permissionless-blockchain/#overview.

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