Facebook's Libra Cryptocurrency: Everything We Know
Facebook's Libra Cryptocurrency: Everything We KnowFacebook today released a lengthy white paper, along with a post from Mark Zuckerberg and another from VP of blockchain David Marcus, announcing the ambitious crypto initiative and all that comes with it.
The open-source Libra cryptocurrency and blockchain will be governed by the nonprofit Libra Association, while a new Facebook-owned subsidiary called Calibra will release a wallet for Libra tokens and ultimately other banking and finance products—a move that could turn Facebook into a financial services giant in addition to a social and advertising one.
See: Facebook’s Cryptocurrency: Great Idea, Wrong Company
While the public launch of Libra won't happen until the first half of 2020, the developer testnet of the Libra blockchain is live today. There will also be a new programming language called Move for developers to build distributed applications atop the Libra blockchain, though Facebook said neither itself nor the Libra Foundation will be in charge of vetting and approving apps, meaning there could be the potential for fraudulent or scam apps.
We've heard rumblings about a secret blockchain project since last May, when Cheddar's Alex Heath reported that Facebook had been exploring blockchain and the creation of its own cryptocurrency for use within its apps since 2017. Facebook's goal is to launch a virtual token allowing anyone in the world—and particularly billions of unbanked individuals who don't have bank accounts but do have smartphones—the ability to make seamless digital payments and transfers both inside and out of Facebook's apps.
There's a staggering amount of technical detail to how the permissioned Libra blockchain works (read: not completely open like Bitcoin and Ethereum) and how the Libra Association will keep the price stable using a reserve asset pool tied to multiple currencies including the dollar, pound, euro, Swiss franc, and yen.
But for consumers wary of trusting their money and financial data to a company known for privacy problems, there are a few important points Facebook is hammering home with Libra. Not only is it ceding control of the blockchain, but Facebook's social data and Libra's financial data will be kept entirely separate. You don't need a Facebook or WhatsApp account to use Libra or sign up for Calibra.
While users will be vetted for anti-fraud protection when setting up an account, like other blockchains there will be no personal information associated with Libra and all transactions will be encrypted. Facebook can't take the data from your transaction history and use it to target ads or sell you products.
See: Stablecoins: Experience the Stability
What We Know About Libra
Cheddar reported in December that Facebook was on a hiring spree led by Marcus, the ex-PayPal president who formerly served as VP of Facebook's Messaging products. Marcus, an early Bitcoin investor who serves on the Coinbase board, confirmed he was leaving Messenger to focus on heading "a small group to explore how to best leverage Blockchain across Facebook, starting from scratch."
The team has grown from a dozen members to more than 50 employees, including the former team behind blockchain startup Chainspace, which Facebook acquired in February.
Facebook explored a number of different avenues while figuring out exactly how the financial side of its cryptocurrency will work. After meeting with dozens of financial institutions and tech companeis about backing its token (including Zuckerberg's old friends the Winklevoss twins), Facebook decided to give up absolute control by setting up an independent governance body called the Libra Association, based out of Geneva, Switzerland, to oversee the token.
The 27 founding members of the Libra Assocation paid a minimum of $10 million to operate a node on Facebook's blockchain underlying the token, which will be a stablecoin—meaning Facebook's cryptocurrency will have a stable price during payments and transactions backed by a number of different global currencies beyond just the US dollar. Facebook employees will reportedly have the option of taking the cryptocurrency as part of their salaries.
At launch and for the foreseeable future, Libra will not be a permissionless blockchain other cryptocurrencies, meaning that it's not truly decentralized: not just anyone can set up a node and join the blockchain. Facebook said it couldn't figure out how to make a permissionless blockchain scalable to the number of transactions Libra is expected to see; upwards of 1,000 per second. Libra has a vague plan to transition to a permissionless system "within five years," but for now the association will focus on adding new, vetted members.
See: JP Morgan is rolling out the first US bank-backed cryptocurrency to transform payments business
What Libra Mean for the Crypto Market
Facebook's token is poised to achieve two very important firsts for cryptocurrency: the first crypto asset launched by a major tech company with a wide global rollout across both the financial world and consumer web services, and the launch of the most high-profile stablecoin ever created.
Stablecoins are enticing but risky endeavors, and in some cases fraught with controversy. The idea behind a stablecoin is to reduce the volatility and uncertainty of crypto prices to ensure that conversions, remittances, and other transactions remain, well, stable for consumers.
There are a few ways to do this. One is to peg a cryptocurrency either as a fiat currency (or in Facebook's case, a basket of currencies) such as in the case of Tether, the most high-profile stablecoin until now, which is in theory pegged 1:1 to the US dollar. This turned out not to be entirely true, and Tether has dealt with a myriad of issues, from allegations of price manipulation to a loss of trust and investigations into in whether the coin was fully backed and was used to cover popular exchange Bitfinex's losses.
Stablecoins can also be peggged to a reserve resource like gold or silver, or in some cases it can be a coin where the supply, demand, and exchange rates are monitored and controlled to keep prices consistent. Stablecoins have gained popularity in countries like Venezuela where citizens need an alternative to the hyperinflated bolivar, but they can come in many different forms. JPMorgan's JPM Coin is a stablecoin in a fashion (albeit only for use within the bank's own private blockchain network), and IBM has partnered with blockchain payment network Stellar to let international banks launch their own stablecoins on the Stellar public blockchain.
The way Facebook has structured Libra gives the cryptocurrency instant global legitimacy, both it the high-profile members behind the effort and in tying the tokens to a number of government-backed fiat currencies. Particularly through apps like WhatsApp, Libra could also realize the promise of frictionless remittances and cross-border payments in the developing world that gives unbanked users simple, low-fee ways to send and receive money.
See: Fidelity Will Offer Cryptocurrency Trading Within a Few Weeks
Libra is a huge market validation for crypto's long-held promise of digital payments, but the trade-off is that the permissioned, more centralized blockchain creates the transaction scalability needed while somewhat compromising the truly decentralized and distributed nature of the technology.
A Lightning Rod for Regulation
The moral is, Facebook's coin will work quite differently from Bitcoin, Ethereum, or any of the mainstream cryptocurrencies built on public blockchains. Libra won't be transacted over a public blockchain like Bitcoin where it would be difficult for Facebook to ensure the coin wasn't being used for illegal activities; the private, permissioned network set up through the Libra Association (where only verified companies control nodes) creates a network that's still decentralized to a degree, but governed and monitored by a foundation that Facebook and its partners control.
Bloomberg reports that Facebook will test its stablecoin first in India for WhatsApp transfers, with the goal of realizing one of cryptocurrency's ultimate goals: seamless cross-border payments and remittances anywhere in the world.
Facebucks will shine a bright light on the cryptocurrency market as a whole, and it'll also come with increased regulatory scrutiny from US agencies, including the SEC and CTFC, as well as countries worldwide. Rolling out a global stablecoin of this kind that's pegged to multiple currencies and backed by giants of the tech and financial worlds will force the kind of accelerated regulatory action that the cryptocurrency market has been waiting for.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. 
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