Facebook Releases Details of Libra
What We Know About Facebook’s Libra From the White Paper
Facebook released details of its Libra cryptocurrency via the Libra White Paper. Libra is stable coin with near zero fees meant to allow for quick, cheap, and stable global transactions.
Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.
Libra will be usable on Facebook products like Messenger and WhatsApp and more.
The project also includes a “reserve token” that, in overly simple terms, pays interest based on the performance of the stable coin.
The stable coin is meant to be used by everyone world wide, the reserve token is for those who are actively working on the project.
The Libra token lives on the open source (i.e. anyone can build on it) Libra blockchain.
Like Ethereum, the blockchain can host smart contracts. And, like Ethereum, the smart contracts have their own programming language, in this case a language called “move.”
Despite Libra being open source, the actual reserves are managed by “the Libera Association” which includes “Founding members” (here organized by industry):
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
Above I said Libra is a stable coin. That means it is designed to keep a stable value (like $1 USD), it is not designed to fluctuate in prices.
Libra is designed to be a stable digital cryptocurrency that will be fully backed by a reserve of real assets — the Libra Reserve — and supported by a competitive network of exchanges buying and selling Libra.
Above I also said there was another token, one that was associated with interest. This “reserve token” may or may not fluctuate in value, in fact it may not have a market value at all. This token is meant to pay the entities working on the coin and the Libra association interest, so their payout relates back to the success of the coin. It is unclear if this token will ever be offered for trade.
How do Libra reserves work? Libra is backed by a basket of historically stable assets. From what I understand every dollar put into the Libra system results in that much value worth of Libra being created and every dollar remove results in that much Libra being destroyed. The basket of stable assets is bought with Libra in the system and is held in reserve. Then, the reserve token pays out interest based on the excess capital created from the basket of assets. This allows Libra to create an income stream without charging fees.
All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges. Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100. When people are asked why they remain on the fringe of the existing financial system, those who remain “unbanked” point to not having sufficient funds, high and unpredictable fees, banks being too far away, and lacking the necessary documentation.
When is Libra Launching? According to current reporting, Libra plans to launch by the first quarter of 2020. The launch date was not covered in the White Paper.
Bottomline: Libra is Facebook’s stable coin, it lives on the Libra blockchain, and it handles smart contracts which are programmed in a new programming language called “move.” It is sort of like Facebook’s take on Bitcoin, Ethereum, XRP, and Maker all at once. Does it replace other cryptos? Does it replace other payment systems? Does it replace banks when it comes to global transfers? That remains to be seen, but the answer is likely no. Instead, Facebook’s coin introduces more people to the concept of blockchains, smart contracts, stable coins, digital monies, and forces other projects to compete at a higher level (not just crypto projects, but payment companies as well).
This is the goal for Libra: A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.
Our hope is to create more access to better, cheaper, and open financial services — no matter who you are, where you live, what you do, or how much you have. We recognize that the road to delivering this will be long, arduous, and won’t be achieved in isolation — it will take coming together and forming a real movement around this pursuit. We hope you’ll join us and help turn this dream into a reality for billions of people around the world.
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