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The world truly needs a reliable digital currency and infrastructure that together can deliver on the promise of “the internet of money.
Facebook unveiled its new cryptocurrency Libra and calls it a global currency and financial infrastructure that can empower billions of people. The social networking giant-backed digital currency hit the news on 18 June 2019 and it kickstarted a whirlwind of debates on everything that Libra is, is not, could be and more!
Libra will officially launch mid-2020. Here’s what you need to know about Libra and how it is a solution that can transform money exchange.
The Libra currency will be a type of stable coin. It will have its own value and will be backed by a basket of low-volatility assets to ensure its stability.
“The money in the reserve will come from two sources: investors in the separate Investment Token, and users of Libra. The association will pay out incentives in Libra coin to Founding Members to encourage adoption by users, merchants, and developers.”
Bitcoin is egalitarian in nature. It is not governed by any single authority and just about anyone on the blockchain network can verify transactions between parties. This is based on a blockchain model known as the permissionless blockchain. What it literally means is anyone can become part of and verify a transaction in a permissionless blockchain network.
Permissioned blockchain is more like a private blockchain, which means that transactions are verified and authenticated by some players. For Libra cryptocurrency, this would be the Libra Blockchain governed by the Libra Association.
“The Libra Association is an independent, Swiss not-for-profit organization with the mission to empower billions of people through the creation of a simple global currency and financial infrastructure. The association membership is made up of the validator nodes of the Libra network. Initially, these are global companies, social impact partners (SIPs), and academic institutions — the Libra Association's Founding Members. Eventually, the association will include any entity that operates a validator node and holds sufficient stake in Libra.”
What this means is that Facebook wouldn’t fully control Libra. Instead, it’d just get a vote among the 28 other members – which Facebook aims to raise to 100 members when Libra officially launches. While this model makes Libra easy to scale, it won’t make it fully decentralized initially.
However, Facebook eventually aims to move Libra to a permissionless network.
“ … permissionless systems have low barriers to entry and innovation, are resistant to censorship attacks, and encourage healthy competition among infrastructure providers (e.g., who can participate in consensus) as well as the developers of applications on top of the network . Since nobody can exclude others from the market or censor their transactions, permissionless systems provide stronger guarantees to participants that no single party will be able to unilaterally change the rules of the network to their advantage at a future date. At their core, permissionless systems make irreversible commitments to operating as open networks where changes can only be implemented if they are democratically supported by a majority of constituents.
For all these reasons, and to ensure that Libra is truly open and always operates in the best interest of its users, our ambition is for the Libra network to become permissionless.”
However, it looks like the transition wouldn’t be happening soon. The Libra Association has said that it’ll take about 5 years to move Libra to a permissionless model.
All Libra payments will be permanently written into the Libra Blockchain. The cryptographically authenticated database will act as a public online ledger designed to handle 1,000 transactions per second. That would be much faster than Bitcoin’s 7 transactions per second. One of the validators operating the validator node will authenticate the transaction.
When a transaction is submitted, each of the nodes runs a calculation based on the existing ledger of all transactions. With the Byzantine Fault Tolerance system, when two-thirds of the nodes come to a consensus that the transaction is legitimate, it will be executed and written to the blockchain. A structure of Merkle Trees in the code makes it simple to recognize changes made to the Libra Blockchain. With 5KB transactions, 1,000 verifications per second on commodity CPUs and up to 4 billion accounts, the Libra Blockchain should be able to operate at 1,000 transactions per second if nodes use 40Mbps connections and 16TB SSD hard drives.
Being an open-source project, developers will be able to read, build applications on top of its blockchain and provide feedback. The applications will be decentralized and built atop a smart contract platform. For this, developers will have to adapt to a new programming language environment called Move.
Calibra is the wallet designed for Libra. You’ll be able to convert your local currency into Libra and store them in Calibra. On Calibra, you’ll be able to send money to anyone anywhere in the world. And because the value of Libra will be stable, you can even safely save money on Calibra.
Calibra would work as an independent app as well as on Whatsapp and Messenger apps. To use Calibra, you’ll first need to verify your identity with an ID so as to comply with the law and prevent fraudulent activities.
People with limited to no access financial services rely on payday lenders and high-fee remittance services for money transfers which leave them grappling to survive with the limited means.
“All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges. Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100.”
In this context, Libra can be a less expensive alternative and has the potential to get these people more money and even retain the credit, should they be robbed or mugged. Libra will give migrant workers and the unbanked a better and economical means for the transfer of funds.
Blockchain technology has been continuously disrupting the financial sector and making money simple is something entrepreneurial ventures have time and again invested it. How Libra will turn out in this regard is yet to be seen. But for starters, they seem to be having the conversation in the right direction.
“This is the goal for Libra: A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.”