Libra has a chance of becoming the most popular digital asset and bringing cryptocurrency to a new development level. The project promises to spread to over 1.7 million users and organize cooperation with companies for making quick payments with no comission. Some experts suggest that Libra can replace the dollar, due to its large-scale coverage. What is the Zuckerberg project, why does the Facebook social network need its own cryptocurrency, and how will the coin replace banks? We are telling about the most important things. Part I.
The world famous Facebook corporation presented the Libra project on the 18th of June, which is a cryptocurrency on its own Libra Blockchain with an open source. The company is registered and based in Geneva, Switzerland, despite the headquarters of Facebook is located in California.
The Facebook proceeds reached $55.8 billion in 2018, so it is obvious that the company is turning from a social network into a financial one. There are less than 40 million people of the audience of the current leading crypto platforms like Blockchain LLC and Coinbase per month, while Facebook has 2.7 billion active users per month, and this dominance is able to leave all the competitors behind, Michael del Castillo, the American Forbes contributor, says about the economic reasons.
‘Mark Zuckerberg’s company has also a benefit in terms of shareholder value — its capitalization ($539 billion) is more than twice the total valuation of all known cryptocurrencies ($290 billion),’ del Castillo adds.
Why Facebook Has Its Own Cryptocurrency
Facebook Corporation with companies from the Libra Association, based on its Facebook and Instagram social networks, and WhatsApp and Messenger messengers, is planning to launch cryptocurrency transactions that will allow to transfer money with the help of social networks and the Internet quickly, easily and with no commissions. Moreover, banking organizations won’t take part in direct transactions.
Libra will allow people all over the world to pay for goods and services in a single currency. We hope, we can integrate a lot of innovations into the cryptocurrency ecosystem, David Marcus, the head of the Calibra blockchain project, says in the first comments.
Facebook has always allocated resources to create an infrastructure for all population segments, so the establishment of its own cryptocurrency will allow more people to get and transfer money. The Binance Research analysts assume this. Moreover, it will be a new digital milestone for Mark Zuckerberg’s corporation, because the open source economic platform on the Libra blockchain will allow the company to find itself at the forefront of technical development.
In case other companies that join Libra Association accept Facebook cryptocurrency as the default currency for payment, Facebook will become a key component in e-commerce of the future. The costs will be reduced for companies, including start-ups, and individuals to run and do a business.
Digital acceptance of new technologies, which aren’t fully integrated into our lives, will be realized by a society. Libra has every chance to become a real and simple mass instrument, just like social networks.
In the long term, the Libra cryptocurrency, like other digital assets, can change the concept of the payment industry, increase the offers of financial services, and provide lower barriers to entry for individuals with proper and active use. Also, money will become ‘free’, because the restrictions on movement and volume of capital will decrease all around the world.
Companies Integration in the Libra Association
The project is supported by the non-profit Libra Association organization. At the moment, the association includes 27 companies from different industries, including MasterCard, Visa payment systems, which repeatedly and negatively expressed the essence of cryptocurrencies, claiming that they’d never cooperate with crypto projects, PayPal, PayU, and Stripe.
At the time of launching the main network, which is scheduled for 2020, the number of partners should increase to 100, so the companies will provide stability of the project and the exchange rate itself. Moreover, purchasing with the help of partner companies, such as the Farfetch online luxury clothing store, will be easier due to integrated payments.
There also must be some competition within the association, as project economists plan. After all, all the companies that are already in Libra, and those that are to join the union, have different models and business strategies. The companies, operating in the same segment, will compete for their customers using the new technology provided by Facebook.
Libra Cryptocurrency And LIT Token
From a technical point of view, the Libra Association is going to maintain and control the network, including managing support operations, creating and burning coins.
According to the plan, the Libra coin will keep a stable rate (stablecoin category), provided with several currencies (which is not yet known what) and short-term government documents. They will probably use such currencies as the US dollar, the British pound, Euro and the Japanese yen, will connect the US Federal Reserve System, the Bank of England, the Bank of Japan and the National Bank of Switzerland to cooperation, which will provide low volatility and inflation to the assets.
In the long term, according to Binance Research analysts, other assets can be included in the Libra reserve portfolio: cryptocurrency and fiat money that satisfy the principles of free asset market trading, that are widely recognized, that are linked to public organizations (banks) or have free access.
In addition to the Libra cryptocurrency, Libra Investment Tokens (LIT) security tokens, that are not linked to currency, will be available for sale, and they will have a free value, like Bitcoin or Ethereum. The number of launched coins isn’t known yet. However, their price will depend on the overall market demand, investors’ mood and other factors that influence the crypto industry.
LIT tokens are quite comparable to stocks functionally. Public companies need to have capitalization of more than $1 billion to purchase coins, and crypto enthusiasts need to have the same.
These tokens will be launched in order to distribute the main coins, they will become an important part of the business model. So, LIT will be received in exchange for investment, the ownership interest will be proved and transactions in the Libra blockchain will be confirmed with the help of them; participants of the consensus can participate in the project development.
The association members’ funds and those investments in currency that Libra users will make are planned to be invested in low-risk and low-income assets. It means that the company will remain a significant player in the classic market system.
The cryptocurrency creators, who work separately from the entire Facebook office and keep most of the information in secret, won’t collect any percentage from the reserve fund balance; they will redirect all unused sums to the association development or to dividend payments to investors.
Libra’s Own Blockchain
The Libra cryptocurrency will operate on the basis of the homonymous native blockchain on the Proof-of-Stake mechanism. According to the project developers, the nodes of this network, are geographically distributed over different parts of the world and correspond to rather high technical requirements.
LibraBFT is unique and created specially for the project. It got the name due to Byzantine fault tolerance (BFT).
This algorithm is an option of the large HotStuff system, which was created by Maofan Yin and Dahlia Malkhi from the VMvare company in 2018. HotStuff itself is a modified version of the pBFT protocol, where strict requirements are imposed on the platform of node validators and channel capacity. LibraBFT can be combined with other blockchains, based on the BFT consensus: Tendermint, Binance Chain, etc.
Libra blockchain smart contracts will be created in a specially created Move programming language. It is translated into executable bytecode and is used to implement user transactions and smart contracts.
The blockchain testing started on the 18th of June, 2019, the same day as the project release announcement, under the license for the Apache 2.0 Open Source free software. Since Libra is a closed blockchain, only 28 members of the Libra Association will be able to run the software to verify all the settings.
In the long term (in about five years), the Libra blockchain will change a close structure into an open one, it will be done to attract new participants, expand the network and popularize cryptocurrency in society.
However, Facebook project got some critics, who claim the company’s self-serving goals of obtaining financial data and confidential economic information of the users. All the negative reviews and disadvantages of the Libra system will be discussed in the following article.
