What is Libra? Facebook Coin Explained Simply

Summary

Facebook's Libra is a cryptocurrency project initiated by Facebook, intended to launch in late 2020. It aims to create a global digital currency to connect billions of people, particularly those without access to traditional banking systems. Libra is designed as a stablecoin, backed by a reserve of assets to maintain low volatility. The project is led by the Libra Association, a non-profit consortium of global companies, social organizations, and academic institutions, with Facebook as a founding member. The Libra wallet, Calibra, will integrate with Facebook and WhatsApp, allowing users to send funds with ease. Initially centralized, Libra plans to become decentralized within five years. However, concerns exist regarding its centralization, regulatory compliance, privacy, and the potential for corporate control over a global currency.

Takeaways

• 🚀 Libra is a cryptocurrency project initiated by Facebook, aiming to launch in late 2020 with the goal of creating a global digital currency accessible to billions.
• 🤝 Libra is designed to be a stablecoin, backed by a reserve of assets and currencies, which aims to provide financial inclusion for unbanked and underbanked populations.
• 💼 Facebook has established Calibra Inc. to develop the first Libra wallet, which will integrate with Facebook and WhatsApp, allowing for easy and low-cost fund transfers.
• 🔑 The Calibra wallet requires identity verification with a government ID for users to sign up, and it will facilitate the purchase of Libra in exchange for fiat currencies.
• 🌐 Major companies such as Uber, Coinbase, Spotify, and Vodafone are partners in the Libra project and will be part of the Libra Association, managing the currency's development.
• 🕒 Libra starts as a centralized currency but plans to become fully decentralized within five years, similar to Bitcoin, through a transition that involves running validator nodes.
• 💰 To become a founding member of the Libra Association, a significant financial stake and meeting certain scalability and operational criteria are required.
• 📈 The Libra reserve, which backs the currency, will be invested in low-risk assets, and the yield will support the Libra association's operations and be distributed to Libra Investment Token holders.
• 🔗 Libra's value is tied to major fiat currencies, which could expose it to the same volatility it aims to avoid, and its governance model faces regulatory and political challenges.
• 🔒 Privacy concerns arise with Libra, as transactions are pseudonymous, and user verification could potentially lead to financial information being compiled and leaked.
• ❓ The Libra project has faced criticism and regulatory pushback, with some major partners withdrawing support, casting uncertainty over its launch and future success.

Q & A

What is Facebook's Libra cryptocurrency project?

Facebook's Libra is a cryptocurrency project initiated by Facebook with the aim to connect billions of people through a single digital currency. It is designed to work like a stablecoin, backed by a reserve of assets to maintain low volatility in value.

What is the purpose of Libra in the global economy?

The purpose of Libra is to facilitate participation in the digital economy, especially for unbanked or underbanked individuals who lack access to traditional banking systems, as the world moves towards a cashless economy.

How does Libra aim to maintain its value stability?

Libra aims to maintain its value stability by being backed by a reserve of stable and liquid assets, which helps to reduce volatility compared to cryptocurrencies like Bitcoin or Ethereum that are subject to price speculation.

What is Calibra Inc. and how does it relate to Libra?

Calibra Inc. is a subsidiary set up by Facebook that is developing the first Libra wallet, also called Calibra. It is designed to work as an independent wallet for Libra and will also integrate with services like Facebook and WhatsApp, allowing users to send funds with low fees.

Who are the partners in the Libra project and what is their role?

The Libra project has partners such as Uber, Coinbase, Spotify, and Vodafone. These companies are part of the Libra Association, which manages the development of the currency and its network.

How is the Libra currency expected to transition from a centralized to a decentralized system?

Initially, Libra will be a centralized currency managed by the Libra Association. Within five years, the plan is for it to become completely decentralized, similar to Bitcoin, through a transition that involves opening up the network to more participants and validators.

What are the requirements to become a founding member of the Libra Association?

To become a founding member of the Libra Association, an entity needs to stake $10 million, run a validator node, and meet certain scalability requirements such as having a market value of over $1 billion for commercial companies, or significant assets under management and a track record in social organizations.

How does the Libra Association distribute power among its members?

The Libra Association is governed by the Libra Association Council, which consists of one representative from each member. The council votes on key decisions, with voting power generally proportional to the stake invested by each organization, but also capped to prevent power concentration.

What is the Libra reserve and how does it function?

The Libra reserve is a backing of stable and liquid assets for every Libra created. It helps maintain the currency's stability by allowing users to sell Libra coins close to the value they bought them for. The reserve expands or shrinks according to market demand for Libra.

What is the Libra Investment Token and how does it benefit the founding members?

The Libra Investment Token is a security issued by the Libra Association to the founding members in return for their initial investment in the reserve. It represents a share in the Libra association, and if the reserve generates a profit, it will be distributed to the token holders.

What are some of the criticisms and concerns surrounding the Libra project?

Criticisms of the Libra project include concerns over it being controlled by corporations rather than central banks, potential privacy issues due to user verification requirements, the unclear transition to a decentralized system, and regulatory challenges as it would need to comply with various countries' regulatory regimes.

Why is the Libra project considered groundbreaking despite its challenges?

The Libra project is groundbreaking because it signifies a shift towards a new world where corporations, not just governments, can create money. It represents a significant step towards the acceptance and integration of cryptocurrencies in the global economy.

Outlines

00:00

🚀 Introduction to Facebook's Libra Cryptocurrency

The video script introduces Facebook's Libra, a cryptocurrency project set to launch in late 2020 with the goal of connecting billions through a single digital currency. Libra aims to include unbanked populations in the digital economy and operates as a stablecoin, backed by a reserve of assets to maintain low volatility. Facebook's subsidiary, Calibra Inc., is developing the first Libra wallet, which will integrate with Facebook and WhatsApp services for easy fund transfers. The Libra Association, a consortium of global companies and organizations, will manage the currency's development. Initially centralized, Libra plans to become decentralized within five years, similar to Bitcoin.

05:02

🌐 Libra's Governance and Social Impact

The script discusses the governance structure of the Libra Association, which includes a council, an executive team, and a board, all designed to manage the Libra protocol and reserve. The social impact advisory board, consisting of non-profit organizations and academic institutions, holds limited influence. The Libra currency is backed by a reserve of stable assets, allowing it to maintain value and be less volatile. The reserve's growth and shrinkage correspond to market demand, and the initial funding comes from founding members and users. The Libra Investment Token is offered to founding members as a return for their investment, functioning as a share in the association with potential for profit distribution. Criticisms of Libra include its centralized nature, regulatory challenges, privacy concerns, and the potential for corporate control over a global currency.

10:04

🔑 Challenges and Criticisms of Libra's Decentralization

The video outlines the challenges Libra faces in transitioning from a centralized to a decentralized currency. It emphasizes the need for trust in the companies behind Libra to prioritize its vision over their interests. Key issues include decentralizing the reserve function, scaling the system for speed, securing the network against fraud, and establishing decentralized governance. The 'trilemma' of blockchain design is introduced, where only two out of three desirable features—decentralization, security, and scalability—can typically be achieved. Libra's governance and regulatory compliance are also critiqued, with concerns about the incentives for companies to participate and the potential for political maneuvering within the Libra Association. The script concludes by acknowledging the groundbreaking nature of Libra and its implications for the future of global finance.

Keywords

💡Libra

Libra is a cryptocurrency project initiated by Facebook, intended to be a stable digital currency that facilitates global transactions. It is designed to be less volatile than cryptocurrencies like Bitcoin and is backed by a reserve of assets. In the context of the video, Libra represents Facebook's entry into the cryptocurrency market and its ambition to connect billions of people through a single digital currency.

💡Stablecoin

A stablecoin is a type of cryptocurrency that is designed to minimize price volatility by being pegged to a stable asset, often a fiat currency like the U.S. dollar. In the video, Libra is described as functioning like a stablecoin, which means its value is intended to remain relatively stable, making it suitable for everyday transactions and financial services.

💡Calibra Inc.

Calibra Inc. is a subsidiary of Facebook that is developing the first digital wallet for the Libra cryptocurrency. The wallet, also named Calibra, is significant because it will allow users to send and receive Libra coins with low fees and is set to integrate with Facebook's other platforms. It represents a key component of Facebook's strategy to facilitate financial transactions within its ecosystem.

💡Libra Association

The Libra Association is a non-profit organization composed of various global companies, social organizations, and academic institutions that are partners in the Libra project. It is responsible for managing the development of the Libra currency and its network. The association is central to the governance and operation of the Libra blockchain, and its members have a say in the decision-making process through a voting system.

💡Decentralization

Decentralization in the context of Libra refers to the project's goal of transitioning from a centralized system controlled by the Libra Association to a fully decentralized network similar to Bitcoin. This is a critical aspect of the Libra project, as it aims to eventually allow public participation in network validation and governance, reducing the control exerted by the initial consortium of companies.

💡Validator Node

A validator node in the Libra network is a computer that validates and approves transactions according to the Libra protocol. It is analogous to miners in the Bitcoin network. Each founding member of the Libra Association is required to run a validator node, which is essential for the operation and security of the blockchain.

💡Libra Reserve

The Libra Reserve is a reserve of assets, including a variety of currencies and other liquid assets, that backs the value of the Libra cryptocurrency. It is designed to maintain the stability of the Libra coin by ensuring that for every Libra created, there is a corresponding amount of assets in the reserve. This mechanism helps to keep the value of Libra relatively stable compared to other cryptocurrencies.

💡Libra Investment Token

The Libra Investment Token is a security issued by the Libra Association to its founding members in return for their initial investment in the Libra Reserve. It represents a share in the association and entitles holders to a portion of the profits generated from the reserve's investments. This token is a key incentive for the founding members and is central to the financial model of the Libra project.

💡Pseudonymous Transactions

Pseudonymous transactions refer to the nature of Libra transactions where the transactions are public and visible to everyone on the blockchain, but the identities of the parties involved are not directly disclosed. This concept is important for understanding the privacy aspects of Libra, as it suggests that while transaction details are transparent, personal identities are obscured, similar to Bitcoin.

💡Permissioned Blockchain

A permissioned blockchain is a type of blockchain where participation is restricted to certain entities that have been granted permission by a central authority. In the case of Libra, the initial stages of the blockchain will be permissioned, with control held by the Libra Association. This is a starting point for Libra before it aims to transition to a permissionless, decentralized network.

💡Regulatory Compliance

Regulatory compliance is a critical issue for the Libra project, as it must adhere to the financial regulations of various countries in which it operates. The video discusses the challenges Libra faces in terms of regulatory approval and the potential for restrictions that could limit its global reach. Compliance is essential for the project to be successful and to avoid legal and operational obstacles.

Highlights

Facebook’s Libra is a cryptocurrency project aimed at connecting billions of people through a single digital currency.

Libra is designed to be a stablecoin with low volatility, backed by a reserve of currencies and assets.

Calibra Inc., a subsidiary of Facebook, is developing the first Libra wallet, which will integrate with Facebook and Whatsapp services.

The Calibra wallet requires identity verification with a government ID and allows purchasing Libra with fiat currencies.

The Libra association, consisting of global companies, social organizations, and academic institutions, will manage the currency's development.

Libra is intended to start as a centralized currency and become completely decentralized within five years.

To become a founding member of the Libra association, a $10 million stake is required along with running a validator node.

The Libra association has a council that votes on key decisions, with voting power proportional to the stake held by each member.

The Libra reserve, which backs the currency, expands and shrinks based on market demand, allowing an ever-changing supply of Libra.

The Libra Investment Token is a security issued by the Libra association, providing a share in the association and potential returns from the reserve's yield.

Libra faces criticism for being potentially another fiat currency controlled by corporations rather than central banks.

There are concerns about Libra's ability to reach unbanked populations due to regulatory restrictions and Facebook's operational limitations.

Libra transactions are pseudonymous, raising privacy concerns due to required user verification and potential financial information leakage.

The transition of Libra from a centralized to a decentralized currency is unclear, with significant challenges to overcome.

The Libra project has faced regulatory scrutiny and loss of major council members, casting doubt on its launch and success.

Despite challenges, Libra represents a shift towards a new world where corporations can create money, indicating the growing influence of cryptocurrencies in the global economy.

Transcripts

What is Facebook’s Libra? Is it the next Bitcoin?

Should I invest in it?

When is it coming out and who controls it?

Well, stick around,

in this episode of Crypto whiteboard Tuesday

we’ll answer these questions and more.

Hi, I’m Nate Martin from 99Bitcoins.com

and welcome to Crypto Whiteboard Tuesday

where we take complex cryptocurrency topics,

break them down and translate them into plain English.

Before we begin,

don't forget to subscribe to the channel

and click the bell so you’ll immediately get notified

when a new video comes out.

Today’s topic is Facebook’s cryptocurrency known as Libra.

Libra is a cryptocurrency project, pioneered by Facebook,

that is presumed to launch sometime in late 2020.

Its purpose is to connect

the billions of people living together on this planet

through one digital currency.

As the world moves into a cashless, digital only economy,

many unbanked or underbanked people may be left out.

The Libra cryptocurrency

aims to help people that don’t have any access to the banking system

to participate in the digital economy.

Libra is designed to work much like a stablecoin -

a cryptocurrency with a relatively stable value against real world currencies

also known as fiat currencies.

Unlike Bitcoin or Ethereum,

which widely fluctuate in value due to price speculation,

Libra’s value will have low volatility

due to a reserve of currencies and assets that back it.

Facebook also set up a subsidiary called Calibra Inc.

which is currently developing the first Libra wallet also called Calibra.

Calibra is set to work as an independent wallet for Libra

but will also integrate with other services such as Facebook and Whatsapp

allowing billions of users to send funds to each other with a single tap

and with low fees.

The Calibra wallet is still in development,

but according to its site,

you will be required to verify your identity with a government ID

in order to sign up.

The wallet will also allow you to purchase Libra

in exchange for fiat currencies.

While the Libra initiative was set in motion by Facebook,

some of the major companies around the world are partners in it.

Uber, Coinbase, Spotify and Vodafone to name a few.

These companies will be part of the Libra association

and will manage the development of the currency and its network.

So does this mean that Libra is actually centralized?

The answer to that requires some explanation...

Libra is set to start out as a centralized currency,

but that within 5 years will become completely decentralized

just like Bitcoin.

In its initial stages,

the Libra project will be managed and controlled by the Libra association;

A non profit organization comprised of global companies,

social organizations and academic institutions.

To become a founding member you need to stake $10m.

Each founding member will also be required to run a validator node -

a computer that validates and approves transactions

following the Libra rules.

This is a bit similar to a what a miner does in the Bitcoin network.

But money and computing power aren’t enough to join the Libra association

as a founding member.

You’ll also have to pass a certain scalability bar.

For example, commercial companies

need to have more than $1 billion in market value,

reach over 20 million people a year

and be recognized as a top 100 industry leader.

Cryptocurrency focused investors

need to have at least $1 billion in assets under management.

Social organizations will need to have

a track record of working on poverty alleviation,

ranked in the top 100 in their field

and have an operating budget of over $50 million.

And lastly, academic institutions wanting to join

will need to prove that they are in the top 100 universities in the world

according to certain standards.

While Libra’s vision is that anyone with sufficient stake in the Libra network

will be able to serve as a validator,

initially the network will be limited to

100 qualified founding members and validators.

It's important to note

that while Facebook Inc. is indeed

the initial founding member of the Libra project,

it has the same commitments, privileges and financial obligations

as any other founding member.

But what does the association actually do?

How is the power distributed between its members?

The Libra association is in charge of the Libra protocol,

meaning the rules of the network, and of managing the Libra reserve

which I’ll get to in a moment.

The governing body of the Libra Association

is the Libra Association Council,

comprised of one representative from each member of the association.

You can think of the council as shareholders in the Libra association.

They get to vote on key decisions

but they’re not involved in the day to day management.

The voting powers in the council are generally proportional to stake,

in other words -

the money invested by each specific organization.

However, the voting powers are also capped

to avoid concentration of power.

The council appoints an executive team under a managing director

to carry out decisions and manage day to day issues,

similar to shareholders appointing a CEO.

Additionally, a Libra Association Board,

comprised of 5 to 19 members of the council

will provide guidance to the executive team.

This would be similar to a board of directors

to which a CEO is accountable.

Finally we have the social impact advisory board

led by nonprofit organizations and academic institutions.

This advisory board seems to have limited influence

since the board has to approve its recommendations.

For Libra’s vision of decentralization to indeed be realized,

the association would eventually become unnecessary

and the Libra project will be controlled

through the public’s participation in the network.

But what about the value of the Libra currency?

How will it be maintained?

As you may already know,

most cryptocurrencies aren’t backed by any commodity or fiat currency.

That’s why they often fluctuate so dramatically in price,

since a lot of people are speculating on how much they will be worth

in the future.

Libra, on the other hand, is set for day to day use,

which requires it to have a less volatile nature.

That’s why for every Libra created

there will be a set of stable and liquid assets backing it.

This backing, known as the Libra reserve,

helps make Libra more stable

so users will be able to sell Libra coins at

or close to the value for which they bought them.

The Libra reserve expands and shrinks

according to supply and demand for Libra from the market.

So unlike many cryptocurrencies that have a limited supply,

or use mining to generate new coins,

the Libra supply is ever changing.

If people demand Libra -

more coins will be created

in exchange for the fiat currency used to buy it.

If people sell off the Libra -

the reserve will shrink accordingly and so will the Libra money supply.

The initial funding for the reserve

will come from founding members of the Libra association

and from users buying the coin once it launches.

It will be safeguarded by several different custodians,

to avoid centralization risk, and it will be audited periodically.

The reserve backs the Libra in full

with a goal to always preserve Libra’s purchasing power.

This type of reserve discourages a classic run on the bank.

The typical rationale behind a bank run is that a coin is only fractionally backed,

and there isn’t enough hard cash to go around

if everyone were to decide to cash out at the same time.

A fully backed reserve

promises that everyone would be able to cash out at any moment

even if the market were to panic.

You may be wondering

what do the founding members get in return for their initial investment

which creates the reserve?

The answer is the Libra Investment Token.

The reserve funds I mentioned earlier

will be invested in low-volatility, highly liquid assets

like bank deposits and government bonds

with low default probability and low inflation expectations.

The yield from the reserve

will be used to support the operating expenses

of the Libra association

but will also be distributed to the holders of the Libra investment token.

The Libra Investment Token is in fact

a security issued by the Libra association

which, unlike the Libra coin, can, and probably will fluctuate in value.

When a founding member of the Libra association

invests an initial amount in the reserve,

they get the Libra Investment Token in return.

This token can be considered as a share in the Libra association.

If the Libra reserve generates a profit it will be distributed to the token holders.

Since the Libra Investment Token is considered a security,

it will be available only to founding members of the Libra association

and to accredited investors from the general public.

Keep in mind that since the reserve

is invested in very low risk - low yield assets,

it’s planned to make a substantial profit

only if the Libra project were to truly take off.

The reserve needs to be large enough to generate substantial profits

even from low interest rate investments.

So there you have it-

a vision for a global decentrazlied currency

that’s starting out as a centralized cryptocurrency

controlled by a consortium of corporates worldwide.

As you can imagine,

the Libra project attracts its share of criticism.

So before we conclude today’s lesson,

let me point out some of the more concerning points about Libra.

First of all, Libra seems to be just another fiat currency,

only this time it’s controlled by corporates

and not by central banks.

The Libra association states

that in the early development of the Libra network,

its founding members are committed to working with authorities

and to address all regulatory concerns.

Basically, this means that Libra will probably be available

only for people who pass a certain verification process,

making it still unreachable to many unbanked

and underbanked people around the world.

Keep in mind that over half of the 1.7 billion underbanked

come from just seven countries:

Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan;

in more than half of these places,

cryptocurrencies are banned, Facebook can’t freely operate,

and heavy regulatory restrictions exist

to combat crime and money-laundering concerns.

On top of that,

Libra’s value is backed by major fiat currencies

making it inherently attached to their fluctuations.

Then we have the issue of privacy,

for which Facebook is already widely criticized.

Much like Bitcoin, Libra transactions are pseudonymous.

This means all transactions are public and visible to everyone,

but you can’t tell who sent what to whom,

since Libra addresses are just random letters and numbers.

However, if you take into account

that Libra wallets will require some sort of user verification,

you can easily see how financial information

can be constructed by certain entities like Libra wallets

and therefore possibly leaked.

Another important issue is the fact that Libra is a centralized,

also known as permissioned blockchain,

with intentions of becoming permissionless,

but it remains unclear how and if this transition will actually occur.

The financial interests of the companies behind Libra

may collide with this vision

if Libra becomes extremely popular,

and it requires a significant level of trust on the public’s part

to believe that those organizations would lobby for Libra’s vision

over their own interests.

Moreover, there are almost a dozen major unsolved issues,

clearly stated on Libra’s website that will need to be addressed

in order for it to become truly decentralized.

Some of the challenges the switch to decentralization presents includes

how to decentralize the reserve function,

how to scale the system so it will work fast enough

with more than 100 validators,

how to secure a decentralized network against fraud,

and most importantly,

the issue of decentralized governance -

how will decisions be made once there is no centrazlied council?

Bitcoin proponents would argue that if you want to create a decentralized coin,

you should make it decentralized from the get go,

since a decentralized model

is something that needs to be taken into account

when building the foundations for any blockchain.

One theory suggests that when building a blockchain

you’re ideally looking for three main elements:

1. Decentralization -

meaning anyone can participate and it's free for all.

Next, security -

Since these are digital currencies

you need to protect against double spending issues.

And scale -

You want the system to be able to have a high rate of transaction approval

so it can easily be adopted worldwide.

The problem is that by design you can only have two out of the three.

Currencies that are decentralized and secure like Bitcoin,

aren’t really scalable.

Currencies that are scalable and secure aren’t truly decentralized,

like Ripple and its XRP currency.

Currencies that are decentralized and scalable are inherently insecure

since it takes time for the data to travel between all participants in a large system,

and bad actors can take advantage of this lag in information.

In Libra’s case - while it is starts out as secure and scalable,

there’s no clear understanding of how it will become decentralized as well.

Finally, we have Libra’s governance model and regulation.

One of the most interesting points of criticism about this issue

comes from an article by Dmitriy Brenzon, a research partner at Zenith Ventures.

Brenzon says it is unclear whether the benefits of the public good

which Libra aims to serve, is a strong enough incentive

for competing organizations with conflicting priorities.

For example what happens if Calibra, the Libra wallet developer,

wants to launch in the same market as Celo,

a platform for stable, secure digital payments?

Celo is a portfolio company of Andreessen Horowitz and Coinbase,

which are part of the Libra council.

Or what happens if Vodafone,

another founding member of the Libra council,

wants to launch a Calibra competitor similar to M-Pesa,

a mobile phone based money transfer system?

Brenzon puts it this way,

“With only 28–100 Council members,

politics should be expected;

after all, there will be individuals from organizations

who know how to play that game.”.

His final point really hits the mark -

“What is the incentive for companies to participate,

and will it be strong enough to stand up against regulators and governments

when push comes to shove?

While Libra intends to create a network that operates across any country,

it’s actually creating a network that will have to comply

with every country’s regulatory regime.”

Several regulators from countries around the world

like France and Germany have already lashed out against Libra.

Subsequently, major council members

Visa, Mastercard, PayPal, Stripe, eBay, Booking.com and Mercado Pago

decided to withdraw their membership,

leaving Libra with no major US payment provider

and with hindered momentum.

As you can see,

there’s still a big question mark

on whether Libra will actually launch and if so,

how successful it will become.

But there’s no doubt about it:

Libra is a groundbreaking move on Facebook’s part.

It shows we’re entering a new world

where not only governments can create money,

but also corporates.

A lot of crypto-anarchists believe that

the world is already run by a corporatocracy -

companies that dictate national interests through lobbying,

and this is just another step towards increasing the corporate hold

over governments.

No matter how the Libra project pans out,

it's a statement that cryptocurrencies are the future of the global economy.

That’s it for today’s episode of Crypto Whiteboard Tuesday.

Hopefully by now you understand what Libra is -

A centralized, global, stable cryptocurrency project

set to launch in 2020,

headed by Facebook and a consortium of major companies around the world.

You may still have some questions.

If so, just leave them in the comment section below.

And if you’re watching this video on YouTube,

and enjoy what you’ve seen, don’t forget to hit the like button.

Then make sure to subscribe to the channel

and click that bell so that you’ll be notified as soon as we post new episodes.

Thanks for joining me here at the Whiteboard.

For 99bitcoins.com, I’m Nate Martin, and I’ll see you…in a bit.