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Libra, explained

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What is Libra?

It’s an excellent book by Don DeLillo, the American master. Published in 1988, it is a fictional account of the life of Lee Harvey Oswald, President John F. Kennedy’s eventual assassin. It’s better than White Noise but not as good as Underworld.


Fine. It’s Facebook’s new cryptocurrency. The point is that you can send money all over the world with lower fees than if you were to engage, say, Western Union.

It’s shady as hell, though. You remember Tyler and Cameron Winklevoss? The twins from whom Mark Zuckerberg ripped the initial idea for Facebook? Yeah, so they have a cryptocurrency exchange called Gemini. As any astrology buff will tell you, both Libra and Gemini are air signs, and Geminis are stereotypically scarier than Libras. Gemini is the sign of twins and is associated with two-faced-ness. Plus, it’s a mutable air sign, which makes it somewhat unstable. Libra, as a cardinal sign, is somewhat more stable. Libra sees both sides; Gemini tries to be both sides.

On the other hand, astrology is made up. On some theoretical third hand: so is money!

What I’m trying to say here is that Zuckerberg seems to love crushing the dreams of these handsome men, so who can say how this will turn out? Anyway, the name seems kind of bitchy.

Is Libra a cryptocurrency?

This is kind of a contentious question. Relative to the US dollar, the euro, or the yen, it’s decidedly a cryptocurrency because there’s no central bank. There’s also a public ledger, although only some people are allowed to mine the coin. So I chatted with some experts to find out whether Libra is a cryptocurrency.

“It’s fair enough to say this uses cryptocurrency technology,” says Matthew Green, an associate professor of computer science at Johns Hopkins University. (Facebook contacted Green “a few weeks ago” and asked him if he’d look at its white paper as an outside reviewer. This was unpaid work Green would have had to sign a nondisclosure agreement to perform. He declined.) “It’s more restricted in the way the blockchain works, but even that’s not totally unprecedented.”

Compared to the OG cryptocurrency, bitcoin, well… it looks less like a cryptocurrency. For instance: bitcoin is a permissionless system. You participate through proof of work by competing to solve a puzzle that lets you add a block to its chain. What that means, essentially, is that anyone can participate. This is one of the most significant ideas behind Satoshi Nakamoto’s 2008 paper: bitcoin requires consensus, not trust.

Libra, by contrast, is permissioned, meaning only a few trusted entities can keep track of the ledger. That makes it more like a digital currency rather than a cryptocurrency, says Lana Swartz, an assistant professor of media studies at the University of Virginia who’s studied the bitcoin community extensively. “I actually agree with the folks who’ve been saying that this actually isn’t really a cryptocurrency at all,” Swartz says.

On the other hand, Libra is assigned to pseudonymous “wallets,” and transfers are done through public key operations, says Nicholas Weaver, a researcher at the International Computer Science Institute and a lecturer in the computer science department at the University of California, Berkeley. “So yes,” he told me, “it is a cryptocurrency.” Weaver also notes that the permissioned model means less computing power is needed. Bitcoin wastes a lot of energy, preventing so-called Sybil attacks in which an attacker fills the network with computers the attacker controls and wreaks havoc.

The only conclusion I have come to is that there is no stable definition of “cryptocurrency,” so I am going to just call Libra a cryptocurrency for the sake of ease and keep it moving. If you’d like to put an asterisk on that, I can’t blame you.

Why is decentralized currency exciting to some people?

Well, theoretically, removing the central bank from the equation democratizes currency. In practice, that’s not exactly how it works out. Bloomberg’s Matt Levine has explained this very succinctly, so I’m just going to paraphrase him. It’s true that the internet is, in some ways, decentralized since it’s not controlled by the government or a specific corporation. But the result is that certain massive tech companies run most of the infrastructure: internet search is Google, email is Gmail, cloud computing that powers most websites is Amazon. “The democratizing effect of the internet’s openness and decentralization is counteracted by its vast economies of scale and network effects, which tend to concentrate power in a few big winners,” Levine writes.

And Facebook wants to be cryptocurrency’s big winner.

I’ve heard Libra is a “stablecoin.” What is that, and how does it figure into this?

Libra is a stablecoin — kind of! Unfortunately, much like “cryptocurrency,” this is something of a semantic gray area.

Basically, any cryptocurrency pegged to either a fiat currency (say, the US dollar) or some kind of government-backed security (like a bond) counts as a stablecoin. The idea is that there’s more stability — hence the name — and less volatility than in something like bitcoin, which isn’t pegged to anything. Bitcoin is exactly as valuable as people believe bitcoin is, which makes it very, very volatile.

Unlike most stablecoins, though, Libra isn’t pegged to one specific currency. Libra is pegged to a group of “of low-volatility assets, including bank deposits and government securities” in multiple currencies. While there is a Libra Reserve, Libra doesn’t seem like it’s necessarily pegged to its value. Rather, the reserve functions as a kind of lower bound on Libra’s value.

That means that there’s just one Libra, no matter where you live. Levine is great here, too, so I am going to paraphrase him again: if Libra does catch on, it’s likely to displace currencies like the dollar. That’s because if you spend mostly Libra, perhaps because you buy most things online, you’ll only convert your Libras into dollars for when you need to spend IRL money, and the dollar will begin to seem annoying to you since it keeps moving up and down relative to the Libra. “The goal is for Libra to be more useful than any national currency, accepted in more places and with fewer complications; pegging it to a single national currency would only hold it back,” Levine writes.

What else do I need to know about the reserve?

Again, if you think about the classic cryptocurrency, bitcoin, its monetary policy is pretty sparse: there’s a finite number of bitcoins that can ever exist, and the number of bitcoins that are released by mining decreases over time. That is bitcoin’s entire monetary policy. That’s it!

By contrast, the governing members of Libra will be setting some kind of policy by picking the basket of investments used for the reserve. (They have said: “The association does not set monetary policy. It mints and burns coins only in response to demand from authorized resellers.” But Tyler Cowen helpfully points out that there’s some debate about what monetary policy is.)

The reserve will come initially from Facebook and its partners, but later, if you buy Libra (Libras? This also seems semantically unclear to me) for cash, your cash will be part of the reserve. That reserve is then “invested in low-risk assets that will yield interest over time.”

There’s a different hitch here, though. Under normal circumstances, like with a bank deposit, you’d get to keep the interest. But with Libra, that’s not the case. Don’t take my word for it, this is from Libra itself:

The revenue from this interest will first go to support the operating expenses of the association — to fund investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research, etc. Once that is covered, part of the remaining returns will go to pay dividends to early investors in the Libra Investment Token for their initial contributions.

So any interest from Libra will go primarily to Libra and then to early Libra investors like… Facebook. Isn’t that fun! It’s also how Venmo and PayPal make money: any cash that’s held in those systems is cash they get to keep the interest on, per their user agreements.

Don’t cryptocurrencies typically run on a blockchain? Does Libra?

Let’s start by. uh… defining blockchain. Just kidding, you can’t.

If you look through the white papers, you’ll notice this, like, capitalization thing. Libra Blockchain, in these papers, always takes a capital. And while I love capitalizing things for no reason, my editors consistently remind me that it makes my copy harder to read, and the joke is usually only funny to me. Now it’s possible the itty-bitty blockchain committee shares my amazingly sophisticated sense of humor, but what seems more likely is that some sleight of hand is going on. For instance, check out this paragraph from the white paper:

In order to securely store transactions, data on the Libra Blockchain is protected by Merkle trees, a data structure used by other blockchains that enables the detection of any changes to existing data. Unlike previous blockchains, which view the blockchain as a collection of blocks of transactions, the Libra Blockchain is a single data structure that records the history of transactions and states over time. This implementation simplifies the work of applications accessing the blockchain, allowing them to read any data from any point in time and verify the integrity of that data using a unified framework.

Libra Blockchain takes capital letters, but the regular blockchain doesn’t. Isn’t that interesting! What’s even more interesting is the sentence that starts “Unlike previous blockchains. ” If the Libra Blockchain isn’t using blocks for transactions, is it even a blockchain?

Whatever it is, it doesn’t work, according to this Bloomberg piece — at least not yet. But what it does seem like from these materials is that, actually, Libra isn’t very decentralized.

What do you mean?

I keep noticing there’s this stuff in here about being decentralized “in the future,” but from the jump, it’s coming out in centralized form. They call this centralization “permissioned” in the paperwork. Basically, the first version of Libra is controlled by the founding coiners. You know, the ones who also get to keep the interest. (There is a vague plan for expanding this initial cabal in five years or so. Any new members of the cabal will have to meet its requirements, which are substantial.)

Ugh, that sounds like fiat currency.

Actually, it’s worse. In the white papers, there’s a possibility that your data could be archived for a fee to save space. I am pleased to report that the Fed can’t pull that shit. Paper money 4eva.

But it’s worse for another reason, too. The thing about cryptocurrency is that it does everything regular currency does but way slower. That’s because of the blockchain: doing all of that computation slows your transaction. Libra’s setup makes the transactions a little faster, but not nearly as fast as traditional payments processors. It looks like Libra can do about 1,000 transactions per second, says Green. A traditional payments processor like Visa can do about 3,000 transactions per second.

So it might be reasonable for Facebook to do something else, rather than all those individual transactions. Aggregate all of its users’ Netflix bills into one giant bill, and then allow one giant transaction to cover the whole thing, Green says.

So is that private?

This is Facebook. Your privacy does not exist to Facebook. If you trust Zuckerberg, it’s worth remembering that he thinks you are “dumb fucks.” He’s apologized for this exchange, but I have to say, in light of how Facebook has treated privacy, I think he’s mostly just sorry we know about it.

“They’ve sort of hand-waved around the idea that their business model isn’t rooted in user data, but I can’t imagine that there isn’t an interest there,” Swartz says. French Finance Minister Bruno Le Maire shares her skepticism. “This money will allow this company to assemble even more data, which only increases our determination to regulate the internet giants,” Le Maire said, according to Bloomberg.

In the example I just used of a large, aggregated Netflix bill, there’s still the problem of Facebook itself knowing your transaction history, which isn’t great. But this is the best-case scenario.

There is a vision of Libra where people just… use it, like at physical locations or to send money to individual people. And unlike a bank transfer, this won’t be private information. In that world, the privacy problem can be pretty bad, Green says, because every business doing anything on that layer is visible. “Then, all of a sudden, you have Twitter for your bank account, where everyone in the world learns all the transactions that you make.”

Yeah, but with a much larger user base. Imagine the scale here, which is deliberately international. There are almost certainly governments that would be interested in the transaction data, particularly if it’s granular, says Green.

But I don’t get privacy at my bank, do I?

Well, you do and you don’t. Chase is not broadcasting the details of everywhere I sent money, so, in that sense, it’s more private. But in another important sense, Chase is less private. That’s because of the Know Your Customer and Anti-Money Laundering laws, which, in the US, mandate that certain parts of my identity be divulged by my bank to the US government and also that my bank assess how likely it is that I’m doing crimes (like, for instance, money laundering). Those laws seem like something Facebook should be paying close attention to if it is serious about Libra. The laws also vary on a country-by-country basis. Seems like a lot of overhead for regulatory compliance, if you ask me!

So far, how Libra will deal with those laws is kind of vague. “They’re doing a weird dance between like, oh, we’re kind of going to be light on KYC and super inclusive, but also we’re going to be really by the book regulatory,” Swartz says. “They’re seeming to play it both ways.”

But that’s not all. There’s also the IRS. So if Libra is a cryptocurrency — and, again, it does kind of seem to be one — it’s classed by the IRS as a commodity, like pork bellies or gold. That has tax implications, Weaver tells me. Remember how cryptocurrencies are usually kind of volatile, and Libra is designed deliberately to be less so? That doesn’t necessarily guarantee low or no volatility. So if I’m taking my paycheck in Libra, and the value of Libra relative to the dollar goes up while the money is being transferred such that I make $100 extra, that $100 is taxable.

That means something for me, sure, but it also means something for Facebook, Weaver wrote:

[S]ince any integration into Facebook Messenger or WhatsApp is under the control of Facebook, Facebook should probably file income tax documents and keep track of the otherwise difficult cost-basis math on behalf of Facebook’s customers, like other investment brokerages do. The IRS needs to remind both Facebook and the public of these implications and requirements. Of course, this would make Libra completely useless in the U.S. by increasing the cost of using it beyond any utility.

When we spoke on the phone, Weaver told me that true financial privacy is “a vehicle for bad outcomes.” What you want is a company that doesn’t allow privacy but is good at protecting your data. “And since Facebook is notorious for misusing data, the notion of giving Facebook insight into a whole bunch of financial transactions is just flat out disturbing.”

It’s not just Facebook. It’s also everyone who has a node to help process these transactions, right?

Yeah, and that brings us to another potential legal hurdle: keeping banking and commerce separate. Facebook has 27 partners, including Visa, Mastercard, eBay, PayPal, Stripe, Spotify, Uber, Lyft, and Coinbase. Depending on what data is visible to them, there may be some legal kinks to work out, writes Matt Stoller, a fellow at the Open Markets Institute:

Since the Civil War, the United States has had a general prohibition on the intersection between banking and commerce. Such a barrier has been reinforced many times, such as in 1956 with the Bank Holding Company Act and in 1970 with an amendment to that law during the conglomerate craze. Both times, Congress blocked banks from going into nonbanking businesses through holding companies, because Americans historically didn’t want banks competing with their own customers. Banking and payments is a special business, where a bank gets access to intimate business secrets of its customers. As one travel agent told Congress in 1970 when opposing the right of banks to enter his business, “Any time I deposited checks from my customers,” he said, “I was providing the banks with the names of my best clients.”

Imagine Facebook’s subsidiary Calibra knowing your account balance and your spending, and offering to sell a retailer an algorithm that will maximize the price for what you can afford to pay for a product. Imagine this cartel having this kind of financial visibility into not only many consumers, but into businesses across the economy. Such conflicts of interest are why payments and banking are separated from the rest of the economy in the United States.


Yikes is right. And that’s before we get to the possibility of scammers! Look, the entire draw of cryptocurrency for the nerds who started the bitcoin community was the lack of interference, Green says. But most of us aren’t sophisticated enough to function without some kind of safety net. And the reality is that bitcoin created a lot of opportunity for scams and extortion. Remember when all those “Elon Musks” showed up on Twitter hawking crypto scams? Also, Weaver points out, cryptocurrency is the preferred vehicle for ransomware.

Those were problems among early adopters who tend to be savvier than us normies. There’s a world in which a billion people adopting Libra leads to those problems on an unimaginably huge scale.

Weaver views scams as being of some concern, but extortion worries him more. For instance, he points out, a major limiting factor on online drug markets is that paying with bitcoin is a pain in the ass. But an easily accessible cryptocurrency — one that has privacy protections that keep everyone from seeing who you send money to — makes it way easier to pay for illegal drugs online. “I like to say that cryptocurrency has committed a crime against me,” Weaver says. “It has made me believe in the need for rigorous enforcement of money laundering laws.”

So can Libra be stopped?

Rep. Maxine Waters (D-CA), the chairwoman of the House Finance Committee, is asking House leadership to join her in demanding that Facebook halt Libra’s development until Congress reviews Libra, Bloomberg has reported. Sen. Mike Crapo (R-ID), the chairman of the Senate Banking Committee, has scheduled a hearing for July 16th. Facebook has been invited to testify at a hearing of the financial services panel on July 17th, so pop your popcorn!

But legal and regulatory hurdles can be removed in some cases. Or Mark Zuckerberg could go all honey badger about it and dare governments to come get him. It’s 2020, and anything is possible. I will say, however, that I find this all to be very entertaining, and I would like to share with you what may be the most implausible way to stop Libra, and it involves presidential hopeful Howard Schultz.

Before he decided to run for president, Schultz was just the billionaire CEO of Starbucks. During an earnings call last year, he said legitimate cryptocurrencies were on their way. (Bitcoin is not legit, in Schultz’s view.) His comments sounded like a big hint that Starbucks was working on cryptocurrencies, or at least the blockchain, in some capacity.

People don’t trust Facebook. They do trust Starbucks. Trust is a huge part of how money works, Swartz tells me. Starbucks has a greater geographical reach in terms of branches than any bank in the world, she says. It has a heavily used payment app and some of the most sophisticated fintech in the world. So maybe that’s the answer: Starbucks launches StarBucks, its own branded cryptocurrency, and it just massacres Libra because we like and trust Starbucks, and we don’t like or trust Facebook.

Facebook announces Libra cryptocurrency: All you need to know

The use cases, technology and motive behind the new digital money

Facebook has finally revealed the details of its cryptocurrency, Libra, which will let you buy things or send money to people with nearly zero fees. You’ll pseudonymously buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using interoperable third-party wallet apps or Facebook’s own Calibra wallet that will be built into WhatsApp, Messenger and its own app. Today Facebook released its white paper explaining Libra and its testnet for working out the kinks of its blockchain system before a public launch in the first half of 2020.

Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association, including Visa, Uber and Andreessen Horowitz, which have invested at least $10 million each into the project’s operations. The association will promote the open-sourced Libra Blockchain and developer platform with its own Move programming language, plus sign up businesses to accept Libra for payment and even give customers discounts or rewards.

Facebook is launching a subsidiary company also called Calibra that handles its crypto dealings and protects users’ privacy by never mingling your Libra payments with your Facebook data so it can’t be used for ad targeting. Your real identity won’t be tied to your publicly visible transactions. But Facebook/Calibra and other founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable.

Facebook’s audacious bid to create a global digital currency that promotes financial inclusion for the unbanked actually has more privacy and decentralization built in than many expected. Instead of trying to dominate Libra’s future or squeeze tons of cash out of it immediately, Facebook is instead playing the long-game by pulling payments into its online domain. Facebook’s VP of blockchain, David Marcus, explained the company’s motive and the tie-in with its core revenue source during a briefing at San Francisco’s historic Mint building. “If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”

The risk and reward of building the new PayPal

In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That’s another thing Facebook wants to be.

Yet existing cryptocurrencies like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars, and the experience of buying and spending them is easy enough for a mainstream audience. But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well-poised to tackle this juggernaut of a problem.

Now Facebook wants to make Libra the evolution of PayPal . It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers and more long-lasting through decentralization.

“Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee,” Facebook writes in its Libra documentation. That would be a big improvement on today, when you’re stuck paying rent in insecure checks while exploitative remittance services charge an average of 7% to send money abroad, taking $50 billion from users annually. Libra could also power tiny microtransactions worth just a few cents that are infeasible with credit card fees attached, or replace your pre-paid transit pass.

…Or it could be globally ignored by consumers who see it as too much hassle for too little reward, or too unfamiliar and limited in use to pull them into the modern financial landscape. Facebook has built a reputation for over-engineered, underused products. It will need all the help it can get if wants to replace what’s already in our pockets.

How does Libra work?

By now you know the basics of Libra. Cash in a local currency, get Libra, spend them like dollars without big transaction fees or your real name attached, cash them out whenever you want. Feel free to stop reading and share this article if that’s all you care about. But the underlying technology, the association that governs it, the wallets you’ll use and the way payments work all have a huge amount of fascinating detail to them. Facebook has released more than 100 pages of documentation on Libra and Calibra, and we’ve pulled out the most important facts. Let’s dive in.

The Libra Association — crypto’s new oligarchy

Facebook knew people wouldn’t trust it to wholly steer the cryptocurrency they use, and it also wanted help to spur adoption. So the social network recruited the founding members of the Libra Association, a not-for-profit which oversees the development of the token, the reserve of real-world assets that gives it value and the governance rules of the blockchain. “If we were controlling it, very few people would want to jump on and make it theirs,” says Marcus.

Each founding member paid a minimum of $10 million to join and optionally become a validator node operator (more on that later), gain one vote in the Libra Association council and be entitled to a share (proportionate to their investment) of the dividends from interest earned on the Libra reserve into which users pay fiat currency to receive Libra.

The 28 soon-to-be founding members of the association and their industries, previously reported by The Block’s Frank Chaparro, include:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
  • Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
  • Telecommunications: Iliad, Vodafone Group
  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
  • Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
  • Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

Facebook says it hopes to reach 100 founding members before the official Libra launch and it’s open to anyone that meets the requirements, including direct competitors like Google or Twitter. The Libra Association is based in Geneva, Switzerland and will meet biannually. The country was chosen for its neutral status and strong support for financial innovation including blockchain technology.

Libra governance — who gets a vote

To join the association, members must have a half rack of server space, a 100Mbps or above dedicated internet connection, a full-time site reliability engineer and enterprise-grade security. Businesses must hit two of three thresholds of a $1 billion USD market value or $500 million in customer balances, reach 20 million people a year and/or be recognized as a top 100 industry leader by a group like Interbrand Global or the S&P.

Crypto-focused investors must have more than $1 billion in assets under management, while Blockchain businesses must have been in business for a year, have enterprise-grade security and privacy and custody or staking greater than $100 million in assets. And only up to one-third of founding members can by crypto-related businesses or individually invited exceptions. Facebook also accepts research organizations like universities, and nonprofits fulfilling three of four qualities, including working on financial inclusion for more than five years, multi-national reach to lots of users, a top 100 designation by Charity Navigator or something like it and/or $50 million in budget.

The Libra Association will be responsible for recruiting more founding members to act as validator nodes for the blockchain, fundraising to jump-start the ecosystem, designing incentive programs to reward early adopters and doling out social impact grants. A council with a representative from each member will help choose the association’s managing director, who will appoint an executive team and elect a board of five to 19 top representatives.

Each member, including Facebook/Calibra, will only get up to one vote or 1% of the total vote (whichever is larger) in the Libra Association council. This provides a level of decentralization that protects against Facebook or any other player hijacking Libra for its own gain. By avoiding sole ownership and dominion over Libra, Facebook could avoid extra scrutiny from regulators who are already investigating it for a sea of privacy abuses as well as potentially anti-competitive behavior. In an attempt to preempt criticism from lawmakers, the Libra Association writes, “We welcome public inquiry and accountability. We are committed to a dialogue with regulators and policymakers. We share policymakers’ interest in the ongoing stability of national currencies.”

The Libra currency — a stablecoin

A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line unicode character ≋ like the dollar is represented by $. The value of a Libra is meant to stay largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the dollar, pound, euro, Swiss franc and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.

The name Libra comes from the word for a Roman unit of weight measure. It’s trying to invoke a sense of financial freedom by playing on the French stem “Lib,” meaning free.

The Libra Association is still hammering out the exact start value for the Libra, but it’s meant to be somewhere close to the value of a dollar, euro or pound so it’s easy to conceptualize. That way, a gallon of milk in the U.S. might cost 3 to 4 Libra, similar but not exactly the same as with dollars.

The idea is that you’ll cash in some money and keep a balance of Libra that you can spend at accepting merchants and online services. You’ll be able to trade in your local currency for Libra and vice versa through certain wallet apps, including Facebook’s Calibra, third-party wallet apps and local resellers like convenience or grocery stores where people already go to top-up their mobile data plan.

The Libra Reserve — one for one

Each time someone cashes in a dollar or their respective local currency, that money goes into the Libra Reserve and an equivalent value of Libra is minted and doled out to that person. If someone cashes out from the Libra Association, the Libra they give back are destroyed/burned and they receive the equivalent value in their local currency back. That means there’s always 100% of the value of the Libra in circulation, collateralized with real-world assets in the Libra Reserve. It never runs fractional. And unliked “pegged” stable coins that are tied to a single currency like the USD, Libra maintains its own value — though that should cash out to roughly the same amount of a given currency over time.

When Libra Association members join and pay their $10 million minimum, they receive Libra Investment Tokens. Their share of the total tokens translates into the proportion of the dividend they earn off of interest on assets in the reserve. Those dividends are only paid out after Libra Association uses interest to pay for operating expenses, investments in the ecosystem, engineering research and grants to nonprofits and other organizations. This interest is part of what attracted the Libra Association’s members. If Libra becomes popular and many people carry a large balance of the currency, the reserve will grow huge and earn significant interest.

The Libra Blockchain — built for speed

Every Libra payment is permanently written into the Libra Blockchain — a cryptographically authenticated database that acts as a public online ledger designed to handle 1,000 transactions per second. That would be much faster than Bitcoin’s 7 transactions per second or Ethereum’s 15. The blockchain is operated and constantly verified by founding members of the Libra Association, which each invested $10 million or more for a say in the cryptocurrency’s governance and the ability to operate a validator node.

When a transaction is submitted, each of the nodes runs a calculation based on the existing ledger of all transactions. Thanks to a Byzantine Fault Tolerance system, just two-thirds of the nodes must come to consensus that the transaction is legitimate for it to be executed and written to the blockchain. A structure of Merkle Trees in the code makes it simple to recognize changes made to the Libra Blockchain. With 5KB transactions, 1,000 verifications per second on commodity CPUs and up to 4 billion accounts, the Libra Blockchain should be able to operate at 1,000 transactions per second if nodes use at least 40Mbps connections and 16TB SSD hard drives.

Transactions on Libra cannot be reversed. If an attack compromises over one-third of the validator nodes causing a fork in the blockchain, the Libra Association says it will temporarily halt transactions, figure out the extent of the damage and recommend software updates to resolve the fork.

Transactions aren’t entirely free. They incur a tiny fraction of a cent fee to pay for “gas” that covers the cost of processing the transfer of funds similar to with Ethereum. This fee will be negligible to most consumers, but when they add up, the gas charges will deter bad actors from creating millions of transactions to power spam and denial-of-service attacks. “We’ve purposely tried not to innovate massively on the blockchain itself because we want it to be scalable and secure,” says Marcus of piggybacking on the best elements of existing cryptocurrencies.

Currently, the Libra Blockchain is what’s known as “permissioned,” where only entities that fulfill certain requirements are admitted to a special in-group that defines consensus and controls governance of the blockchain. The problem is this structure is more vulnerable to attacks and censorship because it’s not truly decentralized. But during Facebook’s research, it couldn’t find a reliable permissionless structure that could securely scale to the number of transactions Libra will need to handle. Adding more nodes slows things down, and no one has proven a way to avoid that without compromising security.

That’s why the Libra Association’s goal is to move to a permissionless system based on proof-of-stake that will protect against attacks by distributing control, encourage competition and lower the barrier to entry. It wants to have at least 20% of votes in the Libra Association council coming from node operators based on their total Libra holdings instead of their status as a founding member. That plan should help appease blockchain purists who won’t be satisfied until Libra is completely decentralized.

Move coding language — for moving Libra

The Libra Blockchain is open source with an Apache 2.0 license, and any developer can build apps that work with it using the Move coding language. The blockchain’s prototype launches its testnet today, so it’s effectively in developer beta mode until it officially launches in the first half of 2020. The Libra Association is working with HackerOne to launch a bug bounty system later this year that will pay security researchers for safely identifying flaws and glitches. In the meantime, the Libra Association is implementing the Libra Core using the Rust programming language because it’s designed to prevent security vulnerabilities, and the Move language isn’t fully ready yet.

Move was created to make it easier to write blockchain code that follows an author’s intent without introducing bugs. It’s called Move because its primary function is to move Libra coins from one account to another, and never let those assets be accidentally duplicated. The core transaction code looks like: LibraAccount.pay_from_sender(recipient_address, amount) procedure.

Eventually, Move developers will be able to create smart contracts for programmatic interactions with the Libra Blockchain. Until Move is ready, developers can create modules and transaction scripts for Libra using Move IR, which is high-level enough to be human-readable but low-level enough to be translatable into real Move bytecode that’s written to the blockchain.

The Libra ecosystem and the Move language will be completely open to use and build, which presents a sizable risk. Crooked developers could prey on crypto novices, claiming their app works just the same as legitimate ones, and that it’s safe because it uses Libra. But if consumers get ripped off by these scammers, the anger will surely bubble up to Facebook. Yet still, Calibra’s head of product tells me, “ There are no plans for the Libra Association to take a role in actively vetting [developers],” Calibra’s head of product Kevin Weil tells me.

Even though it’s tried to distance itself sufficiently via its subsidiary Libra and the association, many people will probably always think of Libra as Facebook’s cryptocurrency and blame it for their woes.

Libra incentives — rewarding early businesses

The Libra Association wants to encourage more developers and merchants to work with its cryptocurrency. That’s why it plans to issue incentives, possibly Libra coins, to validator node operators who can get people signed up for and using Libra. Wallets that pull users through the Know Your Customer anti-fraud and money laundering process or that keep users sufficiently active for over a year will be rewarded. For each transaction they process, merchants will also receive a percentage of the transaction back.

Businesses that earn these incentives can keep them, or pass some or all of them along to users in the form of free Libra tokens or discounts on their purchases. This could create competition between wallets to see which can pass on the most rewards to their customers, and thereby attract the most users. You could imagine eBay or Spotify giving you a discount for paying in Libra, while wallet developers might offer you free tokens if you complete 100 transactions within a year.

“One challenge for Spotify and its users around the world has been the lack of easily accessible payment systems – especially for those in financially underserved markets,” Spotify’s Chief Premium Business Officer Alex Norström writes. “ In joining the Libra Association, there is an opportunity to better reach Spotify’s total addressable market, eliminate friction and enable payments in mass scale.”

This savvy incentive system should massively help ratchet up Libra’s user count without dictating how businesses balance their margins versus growth. Facebook also has another plan to grow its developer ecosystem. By offering venture capital firms like Andreessen Horowitz and Union Square Ventures a portion of the reserve interest, they’re motivating to fund startups building Libra infrastructure.

Using Libra

So how do you actually own and spend Libra? Through Libra wallets like Facebook’s own Calibra and others that will be built by third-parties, potentially including Libra Association members like PayPal. The idea is to make sending money to a friend or paying for something as easy as sending a Facebook Message. You won’t be able to make or receive any real payments until the official launch next year, though, but you can sign up for early access when it’s ready here.

None of the Libra Association members agreed to provide details on what exactly they’ll build on the blockchain, but we can take Facebook’s Calibra wallet as an example of the basic experience. Calibra will launch alongside the Libra currency on iOS and Android within Facebook Messenger, WhatsApp and a standalone app. When users first sign up, they’ll be taken through a Know Your Customer anti-fraud process where they’ll have to provide a government-issued photo ID and other verification info. They’ll need to conduct due diligence on customers and report suspicious activity to the authorities.

From there you’ll be able to cash in to Libra, pick a friend or merchant, set an amount to send them and add a description and send them Libra. You’ll also be able to request Libra, and Calibra will offer an expedited way of paying merchants by scanning your or their QR code. Eventually it wants to offer in-store payments and integrations with point-of-sale systems like Square.

The Libra Association’s e-commerce members seem particularly excited about how the token could eliminate transaction fees and speed up checkout. “We believe blockchain will benefit the luxury industry by improving IP protection, transparency in the product life cycle and — as in the case of Libra — enable global frictionless e-commerce,” says FarFetch CEO Jose Neves.

Privacy — at least from Facebook

Facebook CEO Mark Zuckerberg explained some of the philosophy behind Libra and Calibra in a post today. “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall. It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.”

By default, Facebook won’t import your contacts or any of your profile information, but may ask if you wish to do so. It also won’t share any of your transaction data back to Facebook, so it won’t be used to target you with ads, rank your News Feed, or otherwise earn Facebook money directly. Data will only be shared in specific instances in anonymized ways for research or adoption measurement, for hunting down fraudsters or due to a request from law enforcement. And you don’t even need a Facebook or WhatsApp account to sign up for Calibra or to use Libra.

“We realize people don’t want their social data and financial data commingled,” says Marcus, who’s now head of Calibra. “The reality is we’ll have plenty of wallets that will compete with us and many of them will not be in social, and if we want to successfully win people’s trust, we have to make sure the data will be separated.”

In case you are hacked, scammed or lose access to your account, Calibra will refund you for lost coins when possible through 24/7 chat support because it’s a custodial wallet. You also won’t have to remember any long, complex crypto passwords you could forget and get locked out from your money, as Calibra manages all your keys for you. Given Calibra will likely become the default wallet for many Libra users, this extra protection and smoother user experience is essential.

For now, Calibra won’t make money. But Calibra’s head of product Kevin Weil tells me that if it reaches scale, Facebook could launch other financial tools through Calibra that it could monetize, such as investing or lending. “In time, we hope to offer additional services for people and businesses, such as paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass,” the Calibra team writes. That makes it start to sound a lot like China’s everything app WeChat.

A global coin

Facebook got one thing right for sure: Today’s money doesn’t work for everyone. Those of us living comfortably in developed nations likely don’t see the hardships that befall migrant workers or the unbanked abroad. Preyed on by greedy payday lenders and high-fee remittance services, targeted by muggers and left out of traditional financial services, the poor get poorer. Libra has the potential to get more money from working parents back to their families and help people retain credit even if they’re robbed of their physical possessions. That would do more to accomplish Facebook’s mission of making the world feel smaller than all the News Feed Likes combined.

If Facebook succeeds and legions of people cash in money for Libra, it and the other founding members of the Libra Association could earn big dividends on the interest. And if suddenly it becomes super quick to buy things through Facebook using Libra, businesses will boost their ad spend there. But if Libra gets hacked or proves unreliable, it could cost lots of people around the world money while souring them on cryptocurrencies. And by offering an open Libra platform, shady developers could build apps that snatch not just people’s personal info like Cambridge Analytica, but their hard-earned digital cash.

Facebook just tried to reinvent money. Next year, we’ll see if the Libra Association can pull it off. It took me 4,000 words to explain Libra, but at least now you can make up your own mind about whether to be scared of Facebook crypto.

Ask a Fool: How Is Facebook’s Libra Cryptocurrency Different From Bitcoin?

There are two big differentiating factors to be aware of.

Q: I’ve been following the story about Facebook’s upcoming cryptocurrency and was wondering what makes it different from bitcoin?

There are currently more than 2,600 different cryptocurrencies, including 14 that have more than $1 billion in total value. One might wonder why we could possibly need another.

First, there’s a big fundamental difference between bitcoin, most other leading cryptocurrencies, and Facebook‘s (NASDAQ:FB) upcoming Libra.

Libra is designed as a so-called stable coin, meaning that its value will be pegged to another currency — in this case, the U.S. dollar. Facebook’s goal is to get 100 partners to each contribute $10 million in funding in order to get a $1 billion reserve pool. In other words, if this happens and there are a billion Libra in circulation, each coin will be worth exactly $1.

This is a sharp contrast to cryptocurrencies like bitcoin, whose values can fluctuate rapidly. In fact, bitcoin lost 17% of its value in the 24 hours before I wrote this.

Second, it’s important to point out that there are some stable coins already in existence. Most notably is Tether, a stable coin with nearly $4 billion in total circulating $1-denominated virtual coins.

However, there’s no way to readily use Tether and other stable coins to pay for everyday online purchases. That’s where Facebook’s 2.7 billion unique users, 90 million businesses who have Facebook pages, and the project’s numerous partners including Visa, Mastercard, PayPal, Uber, and eBay come in. Widespread consumer adoption and ease of use when it comes to actually buying things could be a big differentiator.

In short, Facebook’s Libra cryptocurrency has two key factors that set it apart from other cryptocurrencies. Its value is not going to be volatile, and it could be easily used to make purchases. That’s why it isn’t just another bitcoin.

Should you care about Facebook cryptocurrency?

It’s not bitcoin. It’s also not Venmo. It’s more like an attempt at the internet-age US dollar.

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Facebook announced Libra, a new cryptocurrency, Tuesday morning. Getty Images

This story is part of a group of stories called

After months of rumors and partial leaks, Facebook confirmed on Tuesday that it’s working on a cryptocurrency called “libra,” which will launch next year.

First, a quick and dirty explanation of what libra is and isn’t: While it is a cryptocurrency — in short, digital money — it doesn’t have a ton in common with bitcoin, the most famous cryptocurrency. Bitcoin derives its value from risk and scarcity, and making a profit off it is inherently difficult (in addition to a huge energy suck). And despite years of fervor about a magical future made possible by the blockchain, bitcoin is still basically a niche currency, not widely used for everyday transactions or even peer-to-peer payments.

Libra payments will be written into a new blockchain, which is still being built. There’ll be no “mining” for libra; you’ll basically just buy it. And the value of libra — which Facebook is imagining as a new global currency standard, like the US dollar but supposedly more stable and easier to exchange — will be guaranteed by a reserve of real assets, initially provided by the partners that buy into Facebook’s Libra Association. (Making it, also, more stable than bitcoin.) Right now, that includes a pretty staggering roster of heavyweights in venture capital, tech, and the nonprofit world: Mastercard, Visa, Uber, Lyft, Spotify, eBay, PayPal, Union Square Ventures, and Andreessen Horowitz, to name a few.

As crypto trade journal The Block reported earlier this week, Facebook charged at least some of these organizations $10 million to join. Facebook’s lengthy public summary of libra says it will seek a group of at least 100 financial contributors which then also become voting board members in a not-for-profit governing body called the Libra Association. But because Facebook’s new subsidiary Calibra — which will create the consumer-facing digital wallet and various libra plugins and apps — also gets a vote, Facebook really gets two.

This news has already shaken regulators in Europe and lit up cryptocurrency subreddits, and will likely be the subject of months of commentary from financial analysts and the various watchdogs currently thinking about the scale of Facebook’s global power. But what does it mean, exactly, for you? (If anything.)

Facebook’s plans for libra start with people who have limited access to traditional banks

Facebook says its motivation for making libra is primarily as a service to the developing world and the parts of the developed world where it’s difficult to access a bank. “People with less money pay more for financial services,” the overview reads. “Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges. Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100.” The goal is “financial inclusion” on a global scale, subsidized by Facebook’s might and its enormous user base.

While using libra as your primary form of currency obviously still requires access to a smartphone or computer — something that not everyone has — the Pew Research Center recently estimated that more than 5 billion people worldwide now own some kind of mobile device, with numbers growing especially quickly among the younger populations of developing countries. Facebook would like to be the entity that connects these new smartphone users to broader financial opportunity.

It’s worth noting that this echoes much of the altruistic, rich-savior rhetoric around Facebook’s controversial Free Basics internet service — long criticized as an example of “digital colonialism” and of making developing countries dependent on Facebook for internet access (that is, when the free internet program worked at all). And signing up for a bank account through Calibra will understandably require a government-issued ID — not exactly an uncomplicated proposition for many of the people Facebook is trying to bless with bank accounts.

The US likely won’t be part of the equation at first. Though initial guesses suggested that libra might launch in India, where more than 200 million people already use Facebook-owned WhatsApp, TechCrunch has since reported that this will not be the case. “Calibra won’t be available in US-sanctioned countries or countries that ban cryptocurrencies,” a Facebook spokesperson told TechCrunch, eliminating China, North Korea, and Iran on the first point, and India on the second.

Is this going to be a big deal?

Facebook wants libra to one day be a go-to payment option for both online and offline purchases, as well as for sending money among family members and friends — in every country in the world. The digital currency would convert easily in and out of any other currency, with very low conversion and transaction fees. Calibra’s vice president of product Kevin Weill (formerly head of product at Twitter and Instagram) told The Verge’s Nick Statt that Calibra will start off in Facebook Messenger and WhatsApp, then move into standalone apps.

Through Calibra, libra would also be used to perform most of the functions of a financial institution, including hosting bank accounts, administering loans and credit, and connecting to Calibra-branded ATMs. (Presumably converting Calibra to local currency, not printing out, like, Facebook bucks with Zuckerberg’s head on them.) Calibra could then serve the same function in a typical person’s life as do a combination of Western Union, Venmo, their checking account, and (for many purposes) cash. It would be different from paying someone back through the payment system Facebook Messenger already has, because you’d be seamlessly transferring a secure digital currency, not sending over information to later be processed by a bank and spit out in dollars.

In short: The goal is for libra to become the first truly mainstream cryptocurrency.

“If [l]ibra succeeds, it could represent one of the most consequential products Facebook has ever released — both for the company and for the world,” Statt writes. “It could offer a compelling alternative to the existing banking system, particularly for people in developing nations. It could also make Facebook inextricable from its users’ lives.”

This won’t happen immediately, obviously. And The Verge’s Casey Newton pointed out Monday that it might not happen at all, writing, “Or is it more like that time that Facebook gave everyone facebook.com email addresses, and then no one used them, and they were quietly forgotten?”

Why would anybody trust Facebook with more power and intimate information?

Facebook is trying to nip this one in the bud with a section on the Calibra website that says that customer account information and financial data “will not be used to improve ad targeting on the Facebook family of products.” (However, it will use Facebook data “to comply with the law, secure customers’ accounts, mitigate risk, and prevent criminal activity.”)

The question remains.

It’s not like anyone loves banks the way they are — but should we be worried about Facebook replacing them?

The libra mission statement includes a bulleted list of core “beliefs” shared by its various participants, including, “We believe that global, open, instant, and low-cost movement of money will create immense economic opportunity and more commerce across the world.” This reasoning is intuitive, and there’s some evidence that it’s true. The following two beliefs are a little, uh, bolder and less proven:

“We believe that people will increasingly trust decentralized forms of governance.”

“We believe that a global currency and financial infrastructure should be designed and governed as a public good.”

David Marcus, head of cryptocurrency at Facebook, also referred to the project as “a new decentralized form of government” in an interview with The Verge. It’s a good reminder that we haven’t answered one big question yet: What’s in this for Facebook? The company is not going to be charging the transaction fees that competitors charge — which would make them a big chunk of change — so money is not, first or foremost, the goal.

New York magazine’s Read, who has been writing for the last several years about Facebook’s strange government-like ambitions to provide global infrastructure, wrote Tuesday that Facebook isn’t actually competing with credit card companies or payment platforms, but rather global superpowers of the more traditional sort.

“Since when has Zuckerberg limited his ambition to competing with mere companies?” Read asked. “As far as I know, there’s only one other entity out there developing a blockchain-based digital currency for a billion-plus-member economy: China.” If you’ve been jokingly worried about Facebook “taking over the world,” now might be the time to get serious, he suggests. The company could become, effectively, “the global federal reserve, overseeing a global currency over which it has not just monetary control but a visible, minable record of every transaction made.”

Chilling as that is, acute worry about the implications of libra should be a long way off for the average consumer. There are a lot of steps between Facebook announcing a cryptocurrency and Facebook successfully making that the default global currency. If and when that future arrives for people like us, well, these questions probably won’t be worth the time it takes to ask them.

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Here’s How Facebook’s Libra Currency Will Work

Video Duration: 0

Facebook (FB) – Get Report is making a foray into blockchain-backed payments, with reams of data in a newly published white paper.

So now the key questions are: What is it and how does it work?

The coin is what is termed a “stablecoin,” which means it is pegged to a basket of existing currencies such as the dollar and the euro, and allows users to buy and sell goods on the platform by use of a digital wallet that the system facilitates through its Calibra application.

“Being able to use mobile money can have an important positive impact on people’s lives because you don’t have to always carry cash, which can be insecure, or pay extra fees for transfers,” CEO Mark Zuckerberg said. “We aspire to make it easy for everyone to send and receive money just like you use our apps to instantly share messages and photos.”

WhatsApp and Messenger will be connected to offer seamless payments around the world at low or no cost in order to bring further accessibility to the effort, especially as WhatsApp remains overwhelmingly popular in underbanked regions like India.

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The effort will be backed by a blockchain called the “Libra protocol” that allows “validators” across authorities with program resources “owned by different user accounts authenticated by public key cryptography and adhere to rules specified by the developers.

“All of this is built on blockchain technology,” Zuckerberg explained. “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall.”

For the time being, the validators will be 27 founding members that include major corporations across the tech industry including PayPal (PYPL) – Get Report , Uber (UBER) – Get Report , and Lyft (LYFT) – Get Report .

“Facebook teams played a key role in the creation of the Libra Association and the Libra Blockchain,” a note explaining the governance structure adds. “While final decision-making authority rests with the association, Facebook is expected to maintain a leadership role through 2020.”

As far as investment impact, some Wall Street analysts are forecasting the new currency to be the biggest impact on the company in years, akin to the “iPhone moment” that took Apple (AAPL) – Get Report to staple investment status over a decade ago.

“We think this is among the most important initiatives at the company and may be critical to commercializing the value of its messaging infrastructure,” Loop Capital analyst Alan Gould said.

Still, with the lingering concerns surrounding Facebook’s corporate governance and potential antitrust practices, there is certainly room for caution on the new initiative.

Recently, Donald Trump said Facebook’s Libra will have “little standing or dependability,” and suggested that the social media giant would have to seek a banking charter to proceed with the project.

Additional details on the investment outlook are available here.

For more on the potential pitfalls that could curtail the currency play, click here.

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