5 important things to know about Facebook's Libra

19 Jun, 2019
by David Borman
Analysis
5 important things to know about Facebook's Libra

Just yesterday Facebook announced the Libra, the new currency they hope to roll out in 2020. There has already been a lot of talk and debate about what this coin will mean for the crypto world, and much is still unclear. To help spread understanding, we have compiled a list of 5 important details about the Libra that everyone should be aware of.

1. The Libra protocol supports smart contracts, and has its own language, but initially will only support pre-approved code.

As is outlined in the recent report from Binance, which highlights most of the key features, Libra will be supporting smart contracts. The new proprietary language being used for these contracts is called "Move" and when the network launches it will only support code made by the official development team, until a future time when the network becomes more "permissionless."

Taken from the Binance report:

"One of the features of this currently-permissioned blockchain is out-of-the-box smart contracts that are pre-approved for running on the network. However, these smart contracts will be the only ones that are able to be executed at the time of the network’s launch. While this set up limits the possible functionalities on day one for companies and individuals adopting the chain, this limitation also reduces the likelihood of any error that occurs on chain, such as the Ethereum Parity Wallet incident as the only functions allowed are peer reviewed amongst the consortium and in the open-source community."

2. The Libra system uses 2 coins, not just 1.

The coin that is largely being focused on is the Libra, but as we reported yesterday, the whitepaper also outlines the Libra Investment Token (LIT). The important thing to know here is that the Libra is the coin that will be available to Facebook's users for general purchases. LIT however is the Libra Association's main source of funding for the "basket" of currencies backing Libra. LIT will only be offered to partners of the Libra Association. Purchasing enough LIT will make an entity elligible for becoming a "node."

From the whitepaper:

"To be such a node, an entity needs to make an investment of at least $10 million in the network through purchasing Libra Investment Tokens.
Each $10 million investment entitles one vote in the council, subject to a cap."

3. The Libra is not a stablecoin.

There has been some confusion about this, but the Libra is not technically a stablecoin. It is backed by a "reserve" of fiat currencies, initially USD, GBP, EUR and JPY, though more may be added in time. What is important to note is that the price is not "pegged" to any one value. As it is explained in the whitepaper:

"It is important to highlight that this means one Libra will not always be able to convert into the same amount of a given local currency (i.e., Libra is not a “peg” to a single currency). Rather, as the value of the underlying assets moves, the value of one Libra in any local currency may fluctuate. However, the reserve assets are being chosen to minimize volatility, so holders of Libra can trust the currency’s ability to preserve value over time."

4. The Libra network will not technically be a blockchain.

Jameson Lopp, CTO of Bitcoin security company Casa, recently did some pretty thoughtful analysis on the Libra whitepaper and among many things, he observed that the protocol doesn't technically act as a blockchain.

In essence, Lopp notes the following line from the whitepaper:

"There is no concept of a block of transactions in the ledger history."

To which he elaborates:

"Interesting; there is no actual blockchain data structure in the Libra protocol — blocks are more of a virtual / logical construct that are used by validators for the purpose of coordinating confirmed snapshots of the system state."

The Libra network is more like a single ledger that gets occasionally "verified" with "snapshots," which could be called "blocks," but this is not how a real blockchain works.

5. Because it is run by a company, it is susceptible to government intervention.

This issue was almost immediately highlighted by the swift and negative responses that came from both US and European lawmakers. French Finance Minister Bruno Le Maire was quoted "It is out of question," as to whether the Libra could be legal currency, adding, "It can’t and it must not happen."

Meanwhile, United States Congresswoman Maxine Waters released a statement on the matter which read, in part:

"Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues."

Now, no one government can necessarily force the Libra network to shut down, however they can make it illegal in their country to use the Libra. While technically any government could outlaw Bitcoin, the difference is that Bitcoin has no company or single entity behind it. There's no one for a government to attack. This makes for at the very least a stickier situation for Libra than other, truly decentralized coins.

Overall, none of this means the Libra is bad or will fail, but they are all points that anyone curious about this new currency should be aware of. If some of these issues are addressed, perhaps the coin will see broad adoption and lead many new people into the realm of crypto. If not, it may still find its place. Stick with Chepicap for all updates on the Libra!

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