“Libra - a simple global currency and financial infrastructure that empowers billions of people to reinvent money and transform the global economy.”
A lot of buzzwords in one sentence. But this time it comes from a consortium of 20 companies that are the “Who is Who” of the digital economy, e.g.: eBay, Spotify, Uber, Vodafone, Booking.com, Facebook and on the financial side PayPal, Coinbase, MasterCard and Visa.
In this article I will give you an overview about the Technology, the Economic & Social Impact and my view of the future of LibraCoin.
Technically Libra is a permissioned distributed ledger with focus on scalability and executing financial transactions using the LibraCoin. The LibraCoin is a “stable coin” to reduce volatility, that is backed-up by real assets (Libra Reserve). Access to the ledger will be by a “custodial wallet” that simplifies user access and enables integration into other applications (paying e.g. via WhatsApp). Simplification is done by handing over the key management to the wallet provider (Calibra/Facebook). The overall design allows the implementation of Smart Contracts (called Module) to manager more complex transactions.
Currently the technical design documents describe only the core functions in detail with focus on financial transactions, the source code is published as OpenSource on GitHub.
Conclusion: The design assures that the Libra Association keeps the full control over each transaction on the platform. Technically the design looks smart and being tailored for the purpose of being a global currency. It still needs to prove its working and does not yet have the huge ecosystem and developer support of other Blockchain solutions like Ethereum and Bitcoin.
Economic & Social Impact
The Libra coin is controlled by a consortium (Libra Association), this is currently lead by Facebook and members with focus on digital and financial business. The technical set-up (permissioned ledger, custodial wallet) gives them the ability to change the “rules of the Libra coin” when the consortium members majority agrees.
With their combined market power, they will be able to push LibraCoins within their ecosystem (e.g. get a bonus at Spotify when paying with Libra) and this will impact the markets globally.
The impact finally depends on regional situation:
- Developed Markets will see an alternative payment method with low transaction costs.
- In Growing Markets, the LibraCoin can enable access to financial markets for many people (as other payment systems already do, e.g. PESA) with low transaction costs.
- In countries with high Inflation, people will move their assets into Libra to protect from inflation - eventually trading with Libra will not be allowed in these countries.
- Depending on the data privacy regulations of the countries, the association or the government may have full inside of every transaction of their users to prevent e.g. money laundering or illegal activities
- Depending on government decisions, some countries may be excluded from Libra (currently already China and potential India)
Conclusion: We could see “financial power” moving away from banks and governments into a consortium of organisations - the impact will differ per region. This explains the huge and diverse echo given by politicians and banks in the recent days.
The Libra Association is promising not to abuse its power and is planning to move from a permissioned into a permission-less ledger. They also promote the development of non-custodial wallets, that makes the user owner of the private key and hence the coins. Libra is set-up as Open Source, it will be possible (in the near future) for any SW developer to write its own Smart Contracts and develop new services based on Libra. The consortium promised to extend it members up to 1000 and to include non-profit organisation and technologists.
Conclusion: If this promise becomes reality, we are pretty close to the concept of a public, scalable and distributed Blockchain that is trusted and used by many people. This would really transform our global economy and change the way we do business and financial transactions.
But - the most interesting part at the moment is just a “promise”
What does Facebook really have in mind?
With all major players pushing their own payment-system (Google Pay, Apple Pay, PayPal….) and expanding their scope in connecting payment services with their platforms, Facebook had to take action! But - just starting with another “Facebook Pay” would not be successful.
Hence - right from the start, Facebook Coin must be different and they followed a logical approach:
- Develop a stable and scalable technology -Libra Coin: DONE
- Collect market power and onboard as many companies as possible - Libra Association: DONE
- Add a Unique Selling Point - “a great vision of improving the world” - Blockchain: DONE
Unfortunately, the last point is just a promise and nobody knows if the consortium will keep it, or - if this is just the “candy” to push Libra into the market as an alternative global payment system.
Looking at the members of the Libra Association and their current business model, you can easily come to your own conclusion.
LibraCoin is big due to market power of the Libra Association. Only the future will show if the consortium keeps their promise and Libra becomes a real game changer.
This article is based on information from the following sources: