Libra, not a cryptocurrency

I did this memo because friends keep asking me my thoughts on Libra. So I took few hours to read the technical whitepaper.

Please note I am not supporting Facebook in any way. I barely use it and continuously beg people to use Signal instead of WhatsApp.

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Libra, a complete socio-technical system for finance

(You should not, but you can skip that part if you are in a hurry)

The Libra Blockchain

The Libra Blockchain is a database composed of digital wallets controlled by individuals or organisations.

Wallets contain 2 things : modules and resources.

• Modules are pieces of code to be executed by the Libra Blockchain
• Resources are assets of the database that can not be copied, only transferred between users.

A transaction on the Libra Blockchain is the process of executing code contained in a module in order to create or move a resource.

A Libra Coin is just another resource of the Libra Blockchain.

The Libra Blockchain is public permissionned. That means everyone can read the database (public) and ask for transactions or new assets but only the Libra Association Members — known as validators, those who compute proofs of the transactions and store the database — have governance rights over the blockchain (permissioned).

The Libra Association

The Libra Association is a non-profit organisation whose members are responsible for processing transactions and taking governance decisions regarding Libra Blockchain.

Libra Core

Libra Core is the open source code of Libra Blockchain. It is aimed to be maintained (without compensation) by an open community of developers.

Calibra

Calibra is the wallet Facebook intends to launch to manage Libra Coin on behalf of their users. It’s somehow an equivalent of Lydia app or Square Cash.

Libra Capabilities

First, Libra is not a cryptocurrency, nor a replica of WeChat Pay. Libra is a universal infrastructure designed to create, store and operate financial assets.

International money transfers? Libra can do it.
New asset or product definition? Libra can do it.
Complex financial mechanisms? Libra can do it.
Insurance contracts? Libra can do it.
Inter-banking infrastructures? Libra suppress the need for it.
Reassurance on assets ownership? Libra do it better.

Thus, resources allow you to create assets which characteristics and behaviours are described in modules. Assets are defined with an object-oriented programming language (Move), providing them with unmatched capabilities. You can virtually recreate anything (savings accounts, insurance contracts, company shares, etc) and imagine much more.

Libra Coin is the first asset defined on this infrastructure, it’s just the tip of the iceberg.

Second, Libra will not be owned nor controlled by Facebook. The Libra Blockchain is open-source and independent of any Facebook infrastructure. Governance of the Blockchain will be delegated from the very beginning to The Libra Association, an international non-profit and non-governmental organisation.

It implies that assets creation and transfer (including Libra Coin) could happen outside Facebook scope (eg. an insurance firms create a contract they sell for Libra Coin to individuals, without using Facebook Calibra app).
Also, because of the technology used and the governance split among numerous geographically distributed actors, once Libra launched and active, unplugging it will be realistically impossible (even if governments decide to brake up Facebook).

Third, Libra can not handle low fee instant transactions. Capacity is of “ 1,000 transactions per second with a 10-seconds finality time between a transaction being submitted and committed.” Which is far from the 7,000 low latency transactions per second the Visa network can support.
That’s why the — chatty but comprehensive — technical white paper, states “we anticipate that many payment transactions will occur off-chain [ie. they will not be recorded on the blockchain], for example, within a custodial wallet or by using payment channels“.

Using Libra as an end user, will therefore suppose you delegate the management of your coins to a third party — most likely through an app on your phone. Actual Coin transfers will only happen between custodians under a clearance mechanism, a bit like the one currently used by banks.

Few thoughts on Libra

What likely happened

Facebook wanted to:

1. Leverage their 2 billion users to increase and diversify their revenues
2. Not being overexposed to public opinion and regulators, especially regarding privacy and governments sovereignty

Creating online payments relying on blockchain was an interesting move as it allows them to both (1) tell and prove they are not in control of the assets nor of the technology and (2) be out of reach of any court decisions while creating a whole new paradigm they can master.

Indeed if something went wrong, they will just be one member out of the hundred making up the Libra Association.
On the opposite, if it’s successful, they are likely to gain a leadership position thanks to their deep knowledge of the technology and the 2 billion users they can reach through their apps.

But to build that cryptocurrency, they needed a mind to hold up the vision and execute the masterplan.

David Marcus, as former president of Paypal, and Bitcoin enthusiast was that mind. But they might have underestimate his support to Bitcoin community core idea: getting rid of the current financial ecosystem. What he indeed built with his team is not only a coin suitable for Facebook, it’s an intellectual and technical masterpiece which endless capabilities have the potential to kill most of the structures finance relies on.
He designed a matrix wide and flexible enough to be the foundation — if it ever succeed — for the future of finance.

Conclusions

Libra have the characteristics to overtake any existing meta financial structure wether it is technical, contractual or social. It’s not only a smart move for Facebook, it’s a whole new foundation for finance.

Will Libra make it ?
I hope so, as we finally get the opportunity to throw out the outdated finance IT infrastructure. But I am also afraid of a world where a handful of corporations (through the Libra Association) will have the power to define and control the new financial paradigm.

As they state at the end of the introduction video: “This is Libra, and it’s just the beginning”.

Free tips for a world where Libra is a serious perspective:

• Governments, if you want to kill it, do it now. Otherwise think of how you could get in.
• Developers, consider learning the Move programming language as soon as it’s released, in the meantime learn Rust.
• Banks, exchanges, regulators, insurance firms, setup a technical team to work on it right now, and ask yourself how Libra is going to change your business. This is a wake up call.
• Last but not least, the one doing efficient lobbying on the Libra Association will have a significant power on the new financial paradigm.