This week, the tech news cycle was dominated by the announcement of the long rumored, highly anticipated cryptocurrency from Facebook. The project is called Libra. The permissioned network will be run by a set of pre-selected validators known as the "Libra Association." The group is composed of about 100 industry partners. It includes Silicon Valley companies like Stripe and traditional payment processors like Visa and Mastercard. The currency itself will be something of a stablecoin, however it is not pegged to a specific currency. Rather, the collateral held by association members will be a mix of various currencies and assets. Many more details are available in the official whitepaper. Link.
From a technical perspective, the project seems well thought out but also uninspiring. Jameson Lopp's breakdown of the whitepaper's technical bits is the best I've read so far. Here are some of my takeaways. The network has a native currency called Libra. It also enables other assets to be created, and has some degree of limited smart contract execution in a new programming language called Move. Both of these features, will be limited at launch. The network uses an account based system where state is managed in a monotonically growing Merkel tree. This is similar to Ethereum. It also includes the concept of gas to cap smart contract computations. The network is completely permissioned. Only pre-selected validators will contribute to consensus. Despite this, the network seems to be limited to 1,000 tx/sec throughput. Link.
Beyond the technical details, there are many interesting aspects about the project's mechanics. For example, Facebook announced that developers who adopt the system will be "rewarded," but it's unclear exactly how. Facebook also announced a custodial wallet for the network, called Calibra, that will require customers to verify their identity to use. The company claims, however, that interacting with the network through other wallets won't necessitate this kind of regulatory compliance. It's unclear how that could work, given that all the validators are known entities who could be forced to comply with regulatory requirements. The team at TechCrunch put together an excellent summary of the announcement that covers these kinds of details. Link.
Overall reaction to the announcement has been mixed. Some commentators have noted positively that it's more "decentralized and open" than expected, because it's open source and "controlled" by an association. They must have had a low bar. One group has reacted with surprising swiftness: legislators. Lawmakers from around the world, most notably in France and US, have responded to the announcement with skepticism and concern. Some of the Democratic presidential candidates have also weighed in. And the United States Senate has already scheduled a hearing about the proposed private currency for July 16th. Link.
Long time readers of this newsletter will know I was not looking forward to Facebook's foray into crypto. The announcement basically lines up with my expectations.
As expected, Facebook's engineers have not solved any of the important technical problems facing the crypto world. As expected, the network has zero privacy protecting technology included. As expected, the network is completely permissioned, falling well short of anything decentralized.
Adoption of the Libra network would do little to diffuse concentrated power in the world. On the contrary, its success would grant enormous power to an extragovernmental "association," over which Facebook -- of all companies -- would have disproportionate sway.
I continue to see this project as, at best, a distraction. At worst, it's an attempt by these companies to co-opt the paradigm shift brought about by crypto to establish a corporately controlled global money. Maybe we'll get lucky, and Libra will help onboard users onto "real" cryptocurrencies, as some have suggested. I'm not counting on things playing out that way. My recommendation is to stay away from Libra and advise others to do the same.
The best outcome is for Libra to flop. Maybe this is wishful thinking, but I see some signs it might do just that. For one, big tech companies are not particularly popular right now, with consumers or with regulators. The idea of a currency controlled by Facebook has so far elicited a mostly negative reaction from both groups. If it starts to look like involvement in the Libra Association is paints a regulatory target on partners' backs, all for the pleasure of being pariticipating in a project consumers don't want, we might see them start to drop out.
It's also unclear to me what consumer problem Libra is even solving. Those of us in the developed world already have fast, cheap, centralized options for everything it does. As for the "unbanked" around the world, Libra might be useful, but how will they get it? Is Facebook going to build out the on-the-ground infrastructure of money changers around the developing world? Thats whats needed to get it into the hands of the unbanked. Call me skeptical that Facebook is up to the task.
I honestly think there's a real possibility the network will never launch. To reiterate, this could be wishful thinking. Regardless of whether it flops or dominates, one thing is certain: the Libra network is going to be an important part of the narrative around crypto for the foreseeable future. Brace yourself-- things are about to get even more interesting!
7.5 Million BTC. The supply of Bitcoin that has been active in the last year. This number is up recently, for the first time in 11 months, according to a report from CoinMetrics. Link.
Build Blockchain Tech
Want Blockchain Without The Bull?
Go beyond the hype and separate the signal from the noise. Subscribe to receive a weekly dose of blockchain reality, with a heavy bias toward the technical.