Throughout history, money — whether it's rare shells, gold, notes or bits of data — is only money when a network effect enables people to trust it as a store of value, a medium of exchange and a unit of account. Rare shells can operate as money when we are all willing to accept shells as payment. Other projects attempting to disrupt payments and monetary value transfer using blockchain have struggled with user adoption (i.e., creating a network effect).
But Facebook has a network like no other. If even a fraction of the Facebook user network were to adopt Libra, the coin would have a higher adoption level than any other cryptocurrency currently in the wild.
After a hailstorm of "GlobalCoin" and "ZuckBuck" memes and endless speculation, with the release of Libra's white paper, the industry finally has some clarity regarding Facebook's project Libra. While tribalism has guided many conversations in the space, the utility of Libra (or any cryptocurrency) lies on a spectrum based on a series of tradeoffs. These tradeoffs — decentralization vs. centralization, security vs. scalability and user experience, on-chain vs. off-chain collateral — are not categorically good or bad, but tradeoffs do present positives and negatives for different individuals and use cases.
Libra proposes its own blockchain, with a native Libra Coin that is used for gas fees to use computational resources on the network. Gas fees are expected to be kept minimal, and their purpose is to disincentivize malicious actors from requesting unlimited network resources.
Libra uses a continuously updated Merkle tree (called a "Merkle tree accumulator") to append transactions to the data structure. Each new version of this Merkle tree is signed by the validators, effectively confirming every transaction (in Libra's history) with every new release of the Merkle tree. Therefore, previous versions of the data structure can be "pruned," that is, not stored. This system is very different from the "proof-of-work" chain described by Bitcoin creator Satoshi Nakamoto in the Bitcoin white paper.
Other key points include:
The process for becoming a validator on the network is restrictive. Initial validators will consist of "founding members" upon launch, and this will slowly expand to perhaps a thousand validators over the next five years. Thus, Libra currently is a "permissioned blockchain," as consensus on the state of the ledger is determined by a predetermined individual, with the idea of further decentralization over time.
The governing group — the Libra Association — will be registered in Geneva, Switzerland, and will consist of the Libra founding members, the Libra Council, and social impact partners. Together, these parties will govern the technical roadmap, reserve basket, distribution of dividends and funds, and other governance matters.
Libra will not offer the benefit of earning interest on Libra Coin in a Libra wallet, so individuals without bank accounts won't get this bank-like perk from Libra either. Instead, the interest on fiat deposits and other financial instruments in the basket will pay for operating expenses, investment in the ecosystem, engineering research and grants to nonprofits. What is left will be paid in the form of dividends on the Libra Investment Tokens (held by Association members).
Find out more about Libra's implications for the crypto industry, and what this means for your business.
[1]"Money is like manure; it's not worth a thing unless it's spread around encouraging young things to grow," wrote playwright Thornton Wilder
--
