Quotable Quote
"The question isn't 'What do we want to know about people?' It's, 'What do people want to tell about themselves?"
Mark Zuckerberg, Nov 2011, in an interview to Charlie Rose
“Why talk about Libra?”, you ask.
Well because you will be using it knowingly or unknowingly in a year or two (along with probably over a billion others), won’t it be nice to know what the fuss is all about?
“But isn’t it like, a kwyptocrunchy?” - a cryptocurrency yes, but…
“So it’s like that shitcoin thing which I almost bought?”
Ok, let’s try again.
So there’s this big company Facebook, you might have heard of, which was already facing a lot of scrutiny over the last few years for alleged interference into the United States election and being at the centre of a massive data breach. In Jun 2019, facebook announced that it will be launching a cryptocurrency, which will be solving the payments puzzle for billions of unbanked and underbanked people across the world. And the promise from the Libra Association is that it will help make money global, stable and secure.
“So, Is it Facebook or Libra Association?”
Facebook is one of the founding members and proponents of the Libra association. Since the ambitions are to reform (and likely, dominate) the global financial system, facebook would not have been able to go about it all by itself, falling short on the trust metric - which is the bare minimum necessity to be in the money business.
The Libra Association’s mission is to enable a simple global payment system and financial infrastructure that empowers billions of people. […] We have worked with regulators, central bankers, elected officials, and various stakeholders around the world to determine the best way to marry blockchain technology with accepted regulatory frameworks. Our objective is for the Libra payment system to integrate smoothly with local monetary and macroprudential policies and complement existing currencies by enabling new functionality, drastically reducing costs, and fostering financial inclusion.
Libra.org
“Got it, so are they trying to do something like the bitcoin?”
Yes, and no. For anything to enjoy a status of “money”, it should satisfy the following definition: Money is supposed to serve as a medium of exchange, a unit of account and a store of value. Unfortunately for Bitcoin, its volatility hinders it being ascribed as a unit of account and a store of value, and pop-culture Bitcoin evangelists have hence pivoted to Bitcoin having a digital gold status. But I digress.
Libra tries to step in adopting a Fiat-collateralized Stablecoin format. In simple words, every Libra unit or Libra coin you will purchase, will be backed by a reserve of fiat currency assets (collection of low volatility cash or cash equivalents and short term government bonds from stable and reputable central banks). While this means that Libra’s value may fluctuate as foreign currency rates change, by design it is intended to be fairly stable to enable payments and remittances.
“What is this block-chain and why did Libra (Facebook) have to use it as the underlying technology?”
Blockchain refers to a distributed collection of independent servers - or nodes - to operate a database of transactions. Bitcoin runs on blockchain technology and Libra decided to utilize the same building blocks but recreated it from ground up.
Blockchains have a number of unique properties that can potentially address some of the problems of accessibility and trustworthiness. These include distributed governance, which ensures that no single entity controls the network; open access, which allows anybody with an internet connection to participate; and security through cryptography, which protects the integrity of funds. […] We believe that it is possible to combine the best aspects of blockchain-based technological innovation — distributed governance, open access, and security — with a robust compliance and regulatory framework. Building certain compliance requirements at the Libra protocol level can improve the effectiveness of programs like prevention of illicit activities or Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), and sanctions compliance
A key difference from most of existing blockchain based cryptocurrencies will be that instead of being a permission-less system - a truly public blockchain that anyone can build on any way they see fit - the Libra blockchain will need companies to comply with global regulators or face potential removal from the ecosystem.
The payment system infrastructure that the Libra Association talks about in its white paper, in theory, can be a game changer in dealing with issues like cross border payments, remittances etc. Imagine you sent the below gif to your friend in another part of the world.
Now imagine that instead of this, what you sent was money in your currency from your Libra wallet, and instead of the minor chuckle, what your friend received was money in her currency in her Libra wallet. Yep. Just like that. And that’s what Libra ecosystem will look like.
“Ah, sweet. Btw, Libra wallet?”
And thats where Facebook’s massive user-base will be capitalized. Surely you use Whatsapp, and some of your friends use Messenger? And well, talk about that expensive acquisition that was Instagram. The common link- all of them are property of facebook. Enter the sneakily named wallet, Calibra. To send funds to your Calibra wallet, Facebook will allow you to select from a list of partner payment providers, such as MasterCard, Visa, PayPal, and Stripe. People will also be able to turn US dollars into Libra for their Calibra digital wallet, by going to local or online currency exchanges. A recent announcement from facebook says,
“Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent.”
Make of it what you will.
The idea is for wallets (and other services) like Calibra to co-exist on the Libra ecosystem. The higher the traction for any one of them, the higher the chance of Libra’s eventual broader adoption and “making the world a better place”
“Ok! What else?”
I have tried to avoid all technicalities in the above write-up (like the fact that Libra is technically a Merkle tree) and that along with a single currency Stablecoin (LibraUSD, LibraGBP, LibraSGD etc), the Libra association also plans to have something called a Multi-currency coin. The reason being that once you decide to go into the formative blocks of Libra blockchain and how the system works, there is a deluge of sources to refer to, which are by design a little bit involved. There is an entirely new programming language called MOVE, which facebook has developed for this ecosystem!
“Appreciate, so this is the dawn of a new era? The coming of Jesus?”
Not so fast, my friend. Sample the below quote,
“Paper money is an ancient technology and an inconvenient means of payment. You can run out of it. It wears out. It can get lost or stolen. In the 21st century, people need a form of money that’s more convenient and secure, something that can be accessed from anywhere with a (PDA) or an Internet connection. Of course, what we’re calling ‘convenient’ for American users will be revolutionary for the developing world. Many of these countries’ governments play fast and loose with their currencies.”
Nope. Not Mark. These are the words of Peter Thiel, to a small group of people, around the time when he founded PayPal. Oh and did I mention that it was 1999? Thiel told WIRED at the time that PayPal would make money “on the float” (the interest earned by the money as it sits in an account).
Later, PayPal would become a Silicon Valley giant by charging for transactions, even if it didn’t ever become a financial operating system of the world.
And now Libra is trying.
Occam’s Earworm
And that’s all for this time. Hope you are liking the content. Share the love by telling others about it. Or give a shout out @bajajrahul