Analysis of Libra Facebook Cryptocurrency–part 1

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Analysis of Facebook Libra — The Cryptocurrency — part 1

There’s a lot to cover about the Libra project and a lot more to uncover. I’ll take it one step at the time. In this first blog post, I’ll analyze the Libra project and do a 10k feet introduction–sharing some of my thoughts on it.

What is Libra

Libra is a programmable stablecoin created by Facebook. The stability comes from a reserve backed by a basket of fiat currencies and other assets with low volatility. Libra is made by 3 parts:

  1. The Blockchain, which holds the transaction history.
  2. The Reserve, which keeps the currency stable.
  3. The Libra Association, responsible for the governance and for mint/burn the currency.

Why Libra?

Facebook wants to provide economic access to 1.7 billion unbanked. At least that is the mission on the libra.org website. I believe the master plan of Facebook is to access a global multi-trillion dollar market. My speculation is that Libra and the Libra Foundation are a very smart attempt to decentralize the custody of the reserve, and consequently delegating the KYC/AML to each member in their own country. Basically, a way to go around regulation.

As you probably know Facebook oil is the user data. But, Libra is pseudo-anonymous, meaning you can create a wallet and remain anonymous. Introducing Calibra, the Libra wallet. With Calibra, Facebook will be able to connect the user identity to a wallet, tracing all the transactions. Very clever.

Calibra. Libra Facebook wallet.

The blockchain

Libra blockchain is derived from HotStuff. A leader base consensus mechanism, that uses a validator model, with staking and voting (PoS) to accept transactions. Libra is NOT a blockchain. It’s a DLT. The transactions are stored with an accounting model (think Excel). The history of the transactions is kept with a Merkel Tree.

Overview of the Libra protocol.

The Reserve

The value of Libra is created by a basket of fiat currency and other low volatility assets, such as central bank bonds (of stable countries), and other unspecified. Libra is effectively an IOU. The Libra website says that each member will keep a full reserve–auditing ain’t easy. So the truth is it won’t take long for the reserve to become fractional.

The Libra Association

The member of the Libra Association will be staking the initial reserve, as well as becoming a validator node. The validator nodes are responsible for mint/burn the coin. The incentives to join the association are clear: seignorage, return in fees and potentially reinvesting the funds to yield more returns.

Move: Programmable Money

Libra implements Move a new programming language. Move clearly separates the data from the code, specifically resources, and models. Resources represent the data, such as the tokens and the list of validators. Modules are the containers of the resources, that defines the rules of those resources. What’s interesting is that Modules are extensible, this means that you’ll be able to create roles for how your Libra will behave.

Here’s a code example:

module Currency {
resource Coin {value: u64}
// ...
}

In the white paper, there is no mention about Move being Turing complete, but each command will have a gas cost, just like in Ethereum.

ERC20 vs Libra Resources/Modules

Conclusion

Facebook shared a ton of resources about Libra. Part of the Libra project is open source. The other is closed.

The blockchain, the Move language, and the Libra client are open source. The white papers leave a few details open to future research and improvements. For example, Libra did not solve the scalability problems that Ethereum and other blockchain are still trying to solve.

The validators, the reserve and other specifics of the project are private. Leaving us with many open questions:

  • How the Libra Foundation will operate?
  • Who’s going to do the KYC/AML?
  • What are the regulators thinking about?
  • What currencies and assets will be part of the basket? Is Bitcoin or other cryptocurrency going to be included in the basket?
  • Is it going to be a full or a fractional reserve?
  • What will be the value of 1 Libra?
  • How Facebook is going to monetize on it? Is that through the Calibra Wallet project, and if so, how?
  • What kind of incentive will Libra offer to the user to drive adoption?
  • After the Russian interference with the US election and the disaster with the Cambridge Analytica, the most pressing of all questions is: Can we trust Facebook?

Analysis of Libra Facebook Cryptocurrency–part 1 was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.