Facebook is launching Libra in 2020. Here’s what you need know.

Meta: Libra, a global cryptocurrency, announced by Facebook is gaining popularity. This post elaborates on what is Libra and how it works.

In June 2019, Facebook announced that it will launch Libra, a global cryptocurrency that will facilitate peer-to-peer transactions globally. Sounds familiar? It must. Libra can be called a spin-off of Bitcoin – world’s most popular cryptocurrency characterized by a large decentralized network. Libra works on the same principles, but a little a differently.

Similarly, a range of blockchain currency are circulating in the market – Ethereum, Litcoin, Tether, etc. All are cryptocurrencies, however, different in the way they operate. Libra uses an innovative approach for transactions, taking inspiration from old algorithmic techniques.

Blockchain industry has given the world smart contracts, cryptocurrencies, and more to make processes more streamlined efficient, and make life more convenient. Bitcoin has set a precedent for the upcoming technologies. Today Bitcoin is held by 2.5 million people, while Facebook plans to push Libra to 2 billion people (according to Libra Whitepaper). To achieve this goal, Facebook has built Libra from scratch, abandoning Bitcoin and its underlying technology. Libra has five essential properties –

1. It is built on a secure, scalable, and reliable blockchain
2. It is a stablecoin, backed by a reserve of assets.
3. It is governed by the independent Libra Association.
4. It uses the LibraBFT consensus mechanism.

Driving the future economy with Libra

With the above characteristics, Facebook has created a global cryptocurrency. Bitcoin was limited in terms of scalability which defeats the goal of reaching to 2 billion people (mostly Facebook users). Building a blockchain from scratch (as is the case with Libra) offers scalability that Bitcoin couldn’t have matched.

Libra will work as a digital currency on a wide network overseen by Libra Association. This also means all decisions related to Libra will be taken under the scrutiny of the said organization. In all matters of concern, final decision making will lie with the association. However, Facebook will be a part of it.

Libra Association is a network of businesses participating in the creation and monitoring of Libra. The association consists of world’s leading companies including Uber, Stripe, Ebay, Spotify, Lyft, Coinbase, PayPal, PayU, Visa, Vodafone Group among others. This is an independent body that will also control the value of Libra to an extent. The association could be easily called the master of the blockchain industry.

Each participating company of the association has paid $10 million for the development of Libra. The value of Libra will be derived from an asset reserve that will include hard cash, stocks, and more. The interest on this asset reserve will be used to run Libra independently and pay for the dividend of the participating parties.

Bringing more transparency to finance

Libra will be a stable coin. This means its value will not fluctuate like Bitcoin. Moreover, Libra will be a fiat-collateralized currency, meaning its value will depend on exchange of hard currency like hard cash, gold, or any hard currency kept in store.

1. Bitcoin works on proof-of-work mechanism to verify authenticity of transactions, while Libra will use LibraBFT mechanism to authenticate transactions.
2. Calibra, a digital wallet will be used to send and receive Libra. Users can convert Libra into dollars and vice-versa using Calibra on their smart phones.
3. Libra will be permission less.

Bitcoin and Ethereum are two popular blockchains. Both these blockchains require permission to operate. After buying ACIS, anyone can be a part of these two blockchains. However, to be a part of Ripple (another popular blockchain) only selected banks and institutions can be part of it.

Libra will start as a permissioned blockchain. Later, however, it will become a more streamlined permission less network.

Solution for unbanked people

Every upcoming technology promises to solve a major problem and make life more convenient. Libra is truly a technology which wishes to solve problems for unbanked people. According to McKinsey report, 437 million South East Asian people don’t have a bank account. Reaching this population can increase economic contribution from $11 to $17 billion. India, target market for Libra, has over 190 million unbanked populations. Using Libra will solve this problem.

All in all, Libra wouldn’t be another cryptocurrency and a source for investment. It will solve a real problem.