Recently Facebook unveiled plans for the launch of a stable global digital currency, called Libra, that is supported by “established government-backed currencies and securities”. This announcement has caused politicians and regulators, both in the US and abroad, concern around data privacy, money laundering, and terrorism finance. Outside of the traditional banking concerns, implementing such a universal solution introduce a wealth of new challenges never faced on such a scale – questions around economics, control, regulation, and other ramifications.
There is expected to be ongoing dialog on this topic, and US Congresswoman Maxine Walters, chair of the House Financial Services Committee, has called on Facebook to halt the development of the Libra coin until Congress and regulators can have a closer look at the project. In the interim, a meeting with U.S. lawmakers is already on the calendar for July 17.
Libra’s Mission is to enable a simple global currency and financial infrastructure that empowers billions of people. This is to be achieved through a “decentralized blockchain, low-volatility cryptocurrency, and a smart contract platform” that work together to create an opportunity for “responsible financial services innovation”.
With more than 1.7 billion unbanked across the globe (approximately 1 billion of these having access to phones), shifting to a digital economy and providing affordable financial access can drive development and help people escape poverty by facilitating investments in their health, education and businesses. Other benefits include: safety, convenience, and financial prosperity for consumers; better efficiencies for governments; and higher productivity for businesses. Many countries today already see the benefit of shifting to a cashless infrastructure (ex. Sweden, UK, China, India,) and this trend continues. In 2016, there was a shift to more digital transactions than cash transactions.
The Libra Association, a non-profit organization started by Facebook, is headquartered in the neutral territory of Geneva, in Switzerland. They are targeting the first half of next year to launch this cryptocurrency riding on blockchain rails, and its council of high visibility companies can help spur a rapid adoption.
There are currently 28 Founding members on the Libra Association Council, with the vision to grow this number to 100 members. Representation on this council spans a number of related industries: payments, technology and marketplaces, telecommunication, blockchain, venture capitalists, nonprofit, multilateral organizations, and academic organizations. This association oversees the development of the Libra token as well as the governance for the rules of the blockchain rails that the coin rides on.
Requirements to join the council, reflect Facebook’s interest in spurring the adoption of the Libra cryptocoin. For example, a business must meet 2 out of the following criteria:
$1 billion USD market value
$500 million in customer balances
Reach 20 million people a year
Recognized as a top 100 industry leader by a group like S&P or Interbrand Global
Not surprisingly, there are some big names represented on the current council: Visa, Mastercard, PayPal, Stripe, Facebook, Uber, Lyft, eBay, Spotify, Vodafone, Coinbase, Andreessen Horowitz, Kiva to mention just a few
Each founder contributes at least $10 million in investment funds. In exchange, these founders:
Have the option to become a “validator node operator”
Get one vote at the bi-annual Libra Association council meeting (preventing any single participant from monopolizing the agenda
Receive a share of dividends from interest on cash reserve (used to keep value of the Libra stable), paid out in the form of Libra Investment Tokens
Additional incentives if they can get their customer base signed up and active with Libra
Future revenue opportunities come from offering financial tools off of the platform
Blockchain
The blockchain based solution that Libra rides on is a pseudo-anonymous, open-sourced, decentralized platform. At a processing rate of more than 1000 transactions per second it is designed to handle large-scale activity. The developer platform has its own Move programming language, which simplifies development, and allows for the movement of Libra coin from one account to another without worry of duplication.
Security
The Libra platform has been designed from the ground up with scale, security, and efficiency in mind. It uses a distributed governance, so that no single entity will control the network, and leverages cryptography to protect the integrity of funds. While the goal is to achieve a permissionless network, they anticipate that it will take at least 5 years to implement such a solution. Three key design decisions focused on security:
Design and use of Move programming language. They learned from vulnerabilities in smart contracts, and have made it easier for developers to write code and include automatic proofs that transactions have met certain requirements.
Byzantine Fault Tolerant (BFT) consensus protocol to keep network running in the event of interference, as long as 2/3 of validator nodes remain in agreement.
Accepted practices. The use techniques such as Merkle trees using hashes to ensure efficient and secure verification of the transactional data.
A stable currency
The currency itself, Libra, is digital and represented by the symbol ≋. It will be set with a value close to that of the dollar, euro, or pound to make it easily relatable, and it is being designed as a stable currency (unlike other cryptocurrencies like bitcoin), a critical aspect to its adoption by consumers and businesses alike. The value of the Libra is tied to a “basket” of bank deposits and short-term government securities that represent a variety of international currencies. There is a Libra “reserve”, which is an asset-based reflection which will always reflect the amount of Libra in circulation.
Access to Libra
The way it’s supposed to work, is that a customer will enroll and go through a financial KYC (Know Your Customer) process, where they will have to present their ID. They will need to exchange their local fiat into the Libra currency – the intent is for them to be able to do this at places like convenience or grocery stores where people go today to top-up their mobile data plans. You can also cash out at these same locations.
This Libra coin will be held in a wallet of the customer’s choice (one of the options will be Calibra, the wallet that Facebook will be launching). Consumers will then be able to purchase goods online, and send money to people with a negligible fee (they need to charge something to recover operational costs).
Merchant engagement
Businesses can sign up to accept Libra payments and are provided with incentives to do so. The use of Libra for purchasing goods could reduce transaction fees and speed up the checkout process.
Merchants also will receive a percentage of the Libra transactions, and can put these funds back into their own pocket or pass them on to their customers in the form of Libra tokens or discounts on purchases.
Eventually the coin could be used to make purchases in store, with tools like merchant QR codes and/or integration with point of sale systems.
Privacy
Given Facebook’s record on sharing consumer data, Facebook has gone on record to say that social data and financial data will not be comingled. There will be no automatic import of your profile or contacts (unless you choose to link them). Transaction data isn’t to be shared.
“Facebook is launching a subsidiary called Calibra that handles crypto dealings and protects users’ privacy by never mingling Libra payments with Facebook data so it can’t be used for ad targeting. Real identity won’t be tied to your publicly visible transactions” -Facebook VP of Blockchain, David Marcus
To get more information, you can go to this site https://calibra.com/#newsletter and sign up for information and early access.
With advancement of tools and technology, our world is quickly becoming more digital. Blockchain and cryptocurrency are still in early stages and are not widely proven. The vision for the Libra currency, while noble, can have unforeseen consequences. We need our best minds at work to think through the possible impacts of such a currency across our country and across the globe.
#cryptocurrency #financialinclusion #payments #blockchain #bitcoin #innovation #fintech #onecurrency #Libra #facebook
“Welcome to the official ≋Libra White Paper.” ≋Libra, Libra Association. 20 June 2019. https://libra.org/en-US/white-paper/#introduction
“The Global Findex Database 2017.” The World Bank. 20 June 2019. https://globalfindex.worldbank.org/#GF-ReportChapters
Constantine, Josh. “Facebook announces Libra cryptocurrency: All you need to know.” TechCrunch, 18 June 2019, https://techcrunch.com/2019/06/18/facebook-libra/
Schuetz, Molly & Hyde, Caroline. “Facebook’s digital currency is a ‘long way from launch’ but it’s already under government scrutiny.” Fortune, 19 June 2019, http://fortune.com/2019/06/19/facebook-sheryl-sandberg-libra-government-scrutiny/
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