Libra explained: why Facebook has launched a cryptocurrency
“We lived on farms, then we lived in cities and now we’re going to live on the internet,” was a premonition from a movie about Facebook. Is it coming true?
The Social Network was a dramatisation, denounced by all founding members of Facebook. Yet Sean Parker’s quote accurately predicted the future of technology in a way that perhaps not even Mark Zuckerberg could have when he hacked into college databases to steal photos of female students (according to the film, of course).
The Internet of Things has been one of the rising forces behind “living on the internet”. For some of us, the internet is now responsible for the lights in our homes and the temperature of our refrigerators. As smart cities develop and become ever more popular, it won’t be long before traffic lights, vandalism and air quality in the streets are moderated by the internet. 5G will only heighten the feeling of living online.
Yet for many, cryptocurrency is the biggest shift from “reality” to “digital”. It’s perhaps fitting that Facebook should, quite literally, cash in.
The ability to pay money to someone, without a bank in between, is a radical enough idea. A pseudonymous system for passing coins between Facebook, WhatsApp, Messenger and even grocery stores sounds like one giant leap into moving even more of your life digitally. Given the bad press that Facebook has had over how they use our data, this may come as a concern.
Zuckerberg and co. have seemingly learned their lesson though. Facebook is launching a company to handle its crypto dealings and protects users’ privacy by never mixing your cryptocurrency payments with your Facebook data. Basically, you won’t be targeted for ads based on spending virtual coins.
This big idea is called Libra, and Facebook wants it to replace PayPal.
Why is Facebook investing in cryptocurrency?
Let’s start with the basics of what Facebook stands for as a brand.
The California-based company is one of the “big four” along with Amazon, Google and Apple. Whilst Amazon and Google especially though have branched away from their original product – an e-commerce site and a search engine respectively – to develop AI and hardware products, Facebook has stayed on a relatively narrow path.
Facebook has never launched a phone or a tablet. They have never acquired a streaming service and they use Amazon’s cloud servers. When consumers think of Facebook as a brand, they still conjure images of an online service for connecting with their friends, rather than a far-reaching tech firm. It seems that every innovation that comes from the Menlo Park company is to better the experience of social media users.
Together with the community, the association will research the technological challenges on the path to a permissionless ecosystem so that we can meet the objective to begin the transition within five years of the launch.
Libra.org
Libra is apparently more of the same. According to its whitepaper, Libra can deliver on the promise of “the internet of money,” looking to target the 1.7 billion adults who currently don’t have access to a traditional bank.
Facebook is taking advantage of how we now live on the internet. Libra’s whitepaper explains how “connectivity has driven economic empowerment by enabling more people to access the financial ecosystem.” However, the company has also seen an opportunity in “how people will increasingly trust decentralized forms of governance.”
This brings us a full circle. After Facebook’s high profile data scandal, the company are helping to repair the damage with a cryptocurrency you can trust, backed by another 27 founding members, including Visa, Spotify and Coinbase.
How does Facebook’s Libra actually work?
Libra is based on a newly-designed blockchain. The blockchain was designed in Move, a new programming language. Move takes insights from security incidents and is designed to prevent assets being cloned.
By building from scratch, Facebook hopes to be even more watertight than Bitcoin. The Move language also prioritises automatic proofs and payment transactions, only changing the account balances of the payer and receiver. The Libra Blockchain will adopt the BFT approach too. This means that a BFT system can continue operating even if some of the validator nodes fail or act maliciously.
The value of Libra in any local currency could fluctuate. However, there are assets in the Libra Reserve that will be held by geographically distributed custodians: this will preserve the value of Libra over time. The reserve assets’ interest is set to cover the costs of the system, to ensure low transaction fees and pay dividends to the investors who provided capital initially to Libra.
From here, The Libra Association is looking to develop the system in the next few months. There will be procedures for reviewing any changes to the Move language and the association will be thoroughly testing the blockchain. Once stabilised, third parties will be able to create smart contracts.
Will a Facebook-backed cryptocurrency catch on?
For years, all Facebook users wanted was a Dislike button. The idea that everyone on your friend list, relatives and friends alike, will tap into a Bitcoin-like initiative, may seem a far-fetched one.
Facebook is creating a Libra wallet, called Calibra. The hope is that it’s as easy to send money as it is to send a Facebook message; Facebook hopes that Libra replaces PayPal eventually as a quicker, simpler online currency that appeals not just to those that want an alternative, but to those that don’t even have a bank.
Whether or not Libra is embraced by the masses will become clear over the next few months. Despite the rapid and unprecedented success of Facebook as a social network, the company has had its failures over the years. Remember Facebook Lite and Facebook Gifts? Both were discontinued after mere months and Facebook Markup Language – a subset of HTML to encourage Facebook page administrators to customise tabs – was not particularly popular.
Is Libra the next big Facebook flop or a sign of us “living on the internet”? Facebook hopes that there are 100 founding members of the Libra association when it launches. This could well change the way that we send money to one another, not just on Facebook, but beyond. Providing, of course, that internet users give Libra the thumbs up.
