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Analysis : Libra’s White Paper

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On Tuesday, June 18, 2019, Facebook unveiled its famous project concerning the Facebook Coin, or rather Libra.

 

Click here to access Libra’s White Paper
 

From the Latin “Libra, ae”, it refers to the “balance” or “counterweight”, i.e. the weight that counterbalances an opposing force.

With Libra, does Facebook want to stand up against traditional banks?

On June 17, 2019, we presented you an article explaining what is known about this project, the pending issues and also the potential impact of this crypto currency.

We will now analyze Libra’s White Paper to confirm/refute our assumptions made in our previous article but also to criticize and question some points.

The important points:

Here are the general elements you should remember about the Libra’s White Paper.

“Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”

  • To enable as many people as possible to have access to cheap financial services and capital.” And also reach people who do not have access to banks. Thus, Libra seems to be really well suited for developing countries (Asia, Africa, Latin America) where access to bank accounts is not necessarily easy.
  • Sending money will be as simple as sending a message or a picture for users of its WhatsApp and Messenger products.
  • Enable the decentralization of governance.
A preview of Calibra, Libra’s wallet
  • Libra will be associated with the Calibra wallet to store and execute transactions. Calibra is a separate entity, which will operate independently from Facebook.
  • Transaction fees will be inexpensive and transparent, even if you send money abroad.” Calibra will reduce fees to help users save more of their money.
  • The creation of a Calibra account will require you to meet the KYC (Know Your Customer) requirements and therefore to prove your identity via a passport, identity card.
Founding members of Libra
  • At the beginning, the Libra blockchain will be a “permission network”, i.e. only the founding members, who hold LITs (Libra Investment Tokens), will be able to process and secure transactions. Over time, the network is supposed to become “permissionless”, which means that anyone will be able to process transactions.
  • Libra uses the LibraBFT (Byzantine Fault Tolerant) consensus protocol and a coding language called Move.
  • Libra will be guaranteed by the Libra Reserve, which is a portfolio of cash reserves (corresponding to several FIAT currencies) and low volatility cash equivalents.

How does the Libra Reserve work?

Here is an excerpt explaining the process behind the Libra Reserve:

“The money in the reserve will come from two sources: investors in the separate Investment Token, and users of Libra. The association will pay out incentives in Libra coin to Founding Members to encourage adoption by users, merchants, and developers. The funds for the coins that will be distributed as incentives will come from a private placement to investors. On the user side, for new Libra coins to be created, there must be an equivalent purchase of Libra for fiat and transfer of that fiat to the reserve. Hence, the reserve will grow as users’ demand for Libra increases. In short, on both the investor and user side, there is only one way to create more Libra — by purchasing more Libra for fiat and growing the reserve.” (For more information, click here.)

Thus, Libra users “do not receive any returns from the Reserve”. Instead, the interest from the Libra Reserve funds will be spent in two ways:

  • “…to support the operating expenses of the association…”, such as “…investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research…”
  • “…to pay dividends to early investors in the Libra Investment Token for their initial contributions.”

Comments and questions:

  • Libra wants to be decentralized but has a governance system: the Libra Association. However, when we take a closer look at this association, we see that to be a member you have to be a validator of the nodes of the Libra network. As a reminder, a node costs $10 million. And at the moment, the owners of these nodes are the 28 official partners announced. Thus, can we really talk about a decentralized crypto currency?

Libra is technically similar to a cryptocurrency, but many people dispute this status. Indeed, the Libra does not seem to respect the fundamental principles of cryptocurrencies (real decentralization, deflationary nature and the absence of a “need for trust).

  • Libra claims to be a cryptocurrency. However, it is more like a stable coin since it will be indexed as a reserve of assets. However, the White Paper does not explicitly specify which asset reserves are involved.
  • The creation of a Calibra account to use the Libra will require that you meet the KYC requirements, but in view of the abuses that have occurred in the past regarding the protection of private data (the Facebook/Cambridge Analytica scandal), we can wonder about the security of our data. Facebook will be in possession of billions of identity documents. These could be used for marketing purposes or even to improve their facial recognition algorithms, who knows?
  • Libra could technically be the victim of attacks at 34% while traditional crypto currencies are generally vulnerable to attacks at 51% (for more information on this subject, click here). Indeed, according to the Beincryptosite, it only takes a third of all nodes to disrupt the entire network. In the Libra’s White Paper, Facebook states that “BFT consensus protocols are designed to work properly even if some validation nodes — up to a third of the network — are compromised or down”. It should be noted that this remains “technically” possible, but in reality it should not be forgotten that a node costs 10 million dollars! It would therefore take huge amounts of money to carry out such an attack, so Libra remains a secure stable coin.
  • The announcement of the Libra has already been criticized in the political sphere: Bruno Le Maire, Minister of Economy and Finance in France, shared his concerns, particularly about the fact that Libra could compete with sovereign currencies.
  • The CEO of Binance raised the issue of privacy protection by tweeting this about Libra:

 

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However, the answer to this criticism can be found in Libra’s White Paper: “The Libra protocol does not link accounts to a real-world identity. A user is free to create multiple accounts by generating multiple key pairs.” It remains to be seen how this declaration can be combined with KYC regulations. Calibra seems to be the answer, in fact it is written in black and white in the Calibra Client Commitment:

When you authorize a payment, we share data with third parties necessary to process that transaction. We also share Calibra customer data with managed vendors and service providers — including Facebook, Inc. — that support our business (e.g., to provide technical infrastructure or direct payment processing). In both cases, we share only the Calibra customer data that is necessary for completing the defined activity or service

And also:

“Calibra will use Facebook, Inc. data to comply with the law, secure customers’ accounts, mitigate risk, and prevent criminal activity. Beyond these cases, if a Calibra product feature can be personalized or improved with data from Facebook, we will first obtain customers’ consent to share the relevant data with Calibra.”

Conclusion:

“Will Libra be the currency of the future?”

Libra seems well on its way to being the first blockchain network that could trigger a democratization of crypto currencies with major financial institutions, technology conglomerates, merchants etc….

“Libra is not a competitor for crypto currencies but a competitor for retail banks”

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One thing is for sure, we have not finished hearing about crypto currencies and the Blockchain! Some analysts even believe that Libra will have a huge positive impact on the crypto currency market in general.

To be continued!


Warning, these are estimates and it is obviously necessary to monitor the information concerning this project. This is a trading plan and not a prediction. Invest only what you can afford to lose.

Useful links :

? White Paper Libra :https://libra.org/en-US/white-paper/?noredirect=1

? Official website: https://calibra.com/?locale=en_US

Libra for developers: https://developers.libra.org/docs/assets/papers/libra-consensus-state-machine-replication-in-the-libra-blockchain.pdf


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