Libra Whitepaper Summary: is Facebook’s new cryptocurrency going to change the world?
By: Matt Katz
Tags: Blockchain, Facebook, Libra, Cryptocurrency, Tech

Everybody is talking about Libra, Facebook’s new cryptocurrency. Facebook’s stock is swinging, politicians are already calling for regulation, and fans of crypto are still divided on whether to cheer or boo.

But how will the Libra work? I went through the whitepaper and summarized it section-by-section to give you a quick, high-level understanding of what Facebook is trying to do. Note that my summary (and the whitepaper itself, to be honest) is not very technical, so if you’re looking to get into the nitty-gritty details, this isn’t the right article for you (the Libra Github repo or the Move Technical Paper may interest you more). But if you’re just looking to wrap your head around Facebook’s latest endeavor, you’re in the right place!

Without further ado, let’s begin!

Libra branding

01 — Introduction

The whitepaper begins with a problem statement, highlighting the issues that Libra is supposed to solve. It can be distilled down to two main ideas:

Traditional financial transactions, such as wire transfers and ATM withdrawals, are generally coupled with high fees. Facebook also makes the point that “people with less money pay more for financial services” (payday loans are the example given, but one can easily identify others like minimum balance fees for bank accounts).

There exist 1.7 billion people who are “unbanked”. In other words, they lack access to a traditional bank account. Libra sees many of these people as potential users, noting that one billion of the unbanked has access to a cell phone and almost a half-billion have internet access.

Libra is presented as the solution to these problems. You may note that these are not novel problems for cryptocurrencies to try to tackle — Bitcoin was, from the beginning, extolled as a low-fee alternative to fiat payments, and cryptos like Stellar have long emphasized remittances as a use-case.

It’s clear that Libra is focusing on its main advantage: the Facebook ecosystem. The paper notes that “the existing blockchain systems have yet to reach mainstream adoption” — an undeniably true statement no matter where you lie on the cryptocurrency debate: only nine percent of Americans own crypto. Although Libra is not breaking new ground in the problems it’s purported to tackle, Facebook is positioning it as the first cryptocurrency with potential to become mainstream.

02 — Introducing Libra

Libra will be comprised of three parts:

A “secure, scalable, and reliable blockchain” A reserve of assets that will give Libras “intrinsic value” The Libra Association, which will govern and “evolve” the Libra ecosystem

These are talked about in more depth in the following chapters:

03 — The Libra Blockchain

Facebook is upfront in their desire for Libra to reach mass adoption; they emphasize their goal for the Libra blockchain to be able to “scale to billions of accounts”. In addition, the paper mentions their blockchain’s security and flexibility.

Smart contract CREDIT: CoinDesk

Libra is also coupled with a new programming language, “Move”. Move will be a way for developers to create smart contracts on the Libra blockchain. Simply put, Move is to Libra as Solidity is to Ethereum. These smart contracts are what will enable developers to create assets on Libra. In addition, the paper states that Move will “[lessen] the risk of unintended bugs or security incidents”. This is hugely important, as smart contract bugs have lead to hundreds of millions of dollars in losses. It’s likely to be an uphill battle though; any developer can tell you how easy it is to write buggy code.

04 — The Libra Currency and Reserve

Libra will be backed by “a basket of bank deposits and short-term government securities”. Unlike the majority of cryptocurrencies, it will be a stablecoin. In other words, it’s being designed to hold a relatively steady value and to be used as a medium of exchange, not a speculative investment. Facebook’s goal is for Libra to be treated as money, not a commodity.

Note that this does not mean that a Libra’s value will remain exactly equal to any present currency. Rather than being directly pegged to the US Dollar or the Euro, Libra’s value is pegged to the various assets in the reserve. While these will be “low-volatility” assets, they will still fluctuate in value, and thus so will Libra.

You may be wondering where potential interest payments or dividends from these assets will go. The whitepaper has a potentially disappointing answer to that: they’ll go back to the organizations who invested in Libra. The average user won’t receive any dividend payments from Libra.

05 — The Libra Association

The Libra association is comprised of companies like Visa, Paypal, Uber, Facebook (duh), and Coinbase, venture capital firms like Andreesen-Horowitz, and nonprofit organizations like Kiva. These organizations will provide both governance (each org gets one vote) and “validator nodes” (systems that confirm transactions on the network) to the Libra blockchain.

Herein lies the debate on how “decentralized” the Libra actually is. On one hand: yes, Facebook has relinquished complete control of the Libra network. On the other: the votes have been mostly given to large corporations, some of which have also come under scrutiny for their ethics. You can see a full list of the Libra Association’s members here and decide for yourself whether this setup is worthy of your trust.

The current members of the Libra association. Note that Facebook/Calibra receives just one vote in total, not two. CREDIT: The Block

From my count, there are 28 voters (the “founding members”) in the Libra association. Here’s the high-level breakdown of members by type:

(Non-blockchain) Tech companies — 15 (53.6% of total votes)

Venture capital firms — 5 (17.9% of total votes)

Blockchain companies (ie Coinbase) — 4 (14.3% of total votes)

Nonprofit and/or Academic Orgs — 4 (14.3% of total votes)

Major decisions will require two-thirds of the vote to pass. This is hard-baked into the protocol. Your trust in Libra will depend on your trust in these companies to do the right thing (or, at least, to have an interest in preserving the sanctity of the blockchain). While Libra is definitively more centralized than cryptos like Bitcoin or Ethereum, the case is easily made that it is less centralized than your current bank or credit card company. But you might prefer to take your chances with your (regulated, federally-insured) bank than with Facebook, Uber, and Paypal.

I should note that the Libra association is looking to expand to having 100 members and increase its geographic diversity. The whitepaper does also mention Libra’s objective to “move toward increasing decentralization over time” and follow a path to “permissionless governance and consensus on the Libra network”.

06 — What’s next for Libra?

This section was split into three parts…

For the Libra Blockchain: the Libra code has been open-sourced, allowing anyone to look through it and contribute to the codebase. APIs and libraries are being created to support developers who want to interact with Libra.

For the Reserve: finding institutional custodians for the reserve’s assets, and establishing “policies and procedures” that dictate the reserve’s activity.

For the Libra Association: expansing to 100 members, recruiting a managing director, and creating a charter and bylaws.

07 — How to get involved

If you’re interested in this, it’s probably best to go straight to the source.

08 — Conclusion

Here’s the paper’s conclusion, verbatim:

This is the goal for Libra: A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association. Our hope is to create more access to better, cheaper, and open financial services — no matter who you are, where you live, what you do, or how much you have. We recognize that the road to delivering this will be long, arduous, and won’t be achieved in isolation — it will take coming together and forming a real movement around this pursuit. We hope you’ll join us and help turn this dream into a reality for billions of people around the world.

A lofty goal, if I do say so myself.

My Conclusion!

I’m both excited and fearful for how Libra will affect the world. The issue of financial inclusion is a pressing one, and I hope that Libra is able to make a sizable dent in the 1.7 billion people who are unbanked. As a developer, I’m looking forward to seeing if Libra can reduce the hassle of accepting payments.

However, it’s undeniable that there is the capacity of the Libra association to abuse their power. Users will need to place a significant amount of trust in the associations’ component companies. On the other hand, we already put a lot of trust in these companies (admittedly, with mixed results).

As you might be able to tell, I’m still unsure of my stance on Libra. What’s your opinion? I’d love to hear what you have to say in the comments.