On 18th of June, 2019, Facebook revealed its cryptocurrency – Libra. But apart from its white paper; the current governance model and blockchain implementation makes it more of a Fiat currency than Cryptocurrency.
It is designed to let you shop and send money overseas; with almost zero transaction fees. Immediately, critics started harping about the dangers of centralizing control of tomorrow’s money in the hands of a company; with a poor track record of privacy and security. Also, it is known that this currency draws a lot of inspiration from other cryptocurrencies.
Permissioned blockchain –
Facebook on the same day of the launch, also unveiled the Libra Association; a not-for-profit that will oversee all things Libra.
The blockchain is designed much like a true blockchain; with a Byzantine Fault Tolerance approach, the use of Merkle trees to guarantee the integrity and a network of nodes.
And yet, unlike popular blockchains, such as the bitcoin blockchain or the Ethereum blockchain; you won’t be able to run a node in your backyard. Basically, it looks like a blockchain, but it’s not a real blockchain.
Hence, only founding members of the Libra Association will be able to run a node. There are currently 28 members, such as Vodafone, Mastercard, Visa, Stripe, Uber and Spotify.
More Insight –
Facebook is well aware; and says it plans to let anyone run a node at some point over the next five years –
“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. The challenge is that as of today we do not believe that there is a proven solution that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe through a permissionless network. One of the association’s directives will be to work with the community to research and implement this transition; which will begin within five years of the public launch of the Libra Blockchain and ecosystem.”
The Shadow bank –
There’s a reason why French Finance Minister Bruno Le Maire told Europe 1 that Libra can’t “become a sovereign currency”. In some countries with high inflation rates, Libra could become an instant hit; and power many of the peer-to-peer and even business-to-customer transactions.
But central banks that issue currencies and conduct monetary policies are members of the International Monetary Funds. They also have different objectives compared to private entities.
Hence, given the current nature of the Libra Association, there’s a chance that Libra becomes a quasi-sovereign currency in Venezuela, Argentina, Turkey or South Africa; these don’t care about monetary policies.
Basically, the Association is now in charge of a quasi-fiat currency and will face a ton of challenges on the regulatory front. It comes down from its governance structure and technical implementation.
Authorized re-sellers –
The Libra cryptocurrency is a stablecoin; this is because it’s tied to a basket of fiat currencies and securities. So it requires a lot of oversight to make sure that every time the Libra Association mints a Libra; they buy and store the equivalent in fiat currencies and securities in a bank account.
Similarly, every time someone converts Libra into, say, USD, the Libra Association has to issue a selling order on the equivalent in fiat currencies and securities.
That’s why the Association will work with a list of authorized re-sellers. It creates a barrier to entry and transforms the Association into a regulatory body for the Libra-ecosystem.