The Key Points
Let’s drill down into the key takeaways from Libra.
Gateway to Crypto
First and foremost, Libra is a huge deal simply because it will introduce Facebook’s 2 billion+ users to digital assets in a way that arguably no other enterprise can. This will drive integration of tokens into the world’s largest consumer-facing apps and is a huge validation of digital assets and blockchain technology.
Global Currency and the Unbanked
The mission statement in the heading is “…to enable a simple global currency and financial infrastructure that empowers billions of people.” Libra’s strategic focus is clear: cryptocurrencies, stable coins, and decentralized finance.
However, it makes no mention of Web3 at all.
Digital Asset Wallets and Mobile
The first paragraph of the white paper references the connectivity powered by $40 smartphones.
Facebook has already pivoted successfully from desktop to mobile and it is now pivoting again. Native wallets in smartphones and web browsers will accelerate, catapulting digital asset adoption. Developers will create new and much-improved UX (a major failing of crypto to date).
The white paper gives the three reasons why blockchains have not achieved mainstream adoption yet: volatility, scalability, and compliance.
Hence, Libra’s adoption of a permissioned blockchain with a governance model managed by the Libra Association supported by a consortium of large corporations. The technical paper states that the Libra protocol uses an account-based data model which is like Ripple and Ethereum.
They have the ambition to become a permissionless blockchain in five years. Executing on this is a big challenge and will be a key consideration for certain parts of the developer community who take a permissionless-only approach. The technical paper suggests that they want to shift to a proof of stake model over time, which is what Ethereum is doing. Starting from a permissioned structure may make this easier … we will see.
Move Programming Language
Move is the new programming language for implementing transaction logic and smart contracts.
Developers will be intrigued to understand how feature-rich the language is. The white paper states they have taken insights from security incidents which have happened with smart contracts to date — programming language has been problematic in crypto.
This section of the white paper talks about how Move “enables 'resource types' that constrain digital assets to the same properties as physical assets.” This is the first and only time the term digital assets is used, and it suggests that the ambition, over time, for Libra may be much broader than just a stable coin.
The white paper uses the term "global currency" five times.
Libra is a stablecoin fully backed by a reserve of low-volatility assets such as bank deposits and government securities. The white paper points out that it is not a peg to a single currency. This appears to be a freely floating currency, and comparisons with a special drawing right have already emerged. This is a key reason that the regulatory backlash has been so swift, with Congresswoman Maxine Waters asking for Facebook to halt development of Libra until hearings can be held.
There were various other comments from other policymakers in the US and Europe citing various concerns around Facebook’s size, privacy, and its potential of becoming a shadow bank.
The Senate Banking Committee has scheduled a July 16 hearing on Libra, and regulation is clearly a big hurdle to launch, which is scheduled in the first half of 2020.
Not a New Asset Class
However, this is not a new asset class, unlike bitcoin and other cryptocurrencies, which are on the cusp of integration into institutional portfolios and likely to benefit from upward volatility when the crypto bull market returns. The technical paper also points out that Libra does not actually have transaction blocks (and so isn't actually a blockchain).
Centralized Permissioned Structure
In summary, Libra is a milestone in enterprise involvement in digital assets and has the partners in place to drive integration of key digital asset infrastructure and tokens into mainstream consumer-facing apps.
However, it is highly centralized and reliant upon the traditional financial system (in terms of both traditional reserve assets and asset custody) in ways that Bitcoin isn’t.
Its grand ambitions of a global currency coupled with its currently centralized structure mean that regulators have a target, and it will be interesting to observe how Libra manages this continuing regulatory scrutiny.
From a developer’s perspective, there is huge attraction to Facebook’s installed (and future) user base; however, certain parts of the developer community will only work on truly decentralized projects with no “platform risk.”
The five-year objective of transitioning to a permissionless governance structure is, frankly, light-years in crypto terms. If progress to this goal is perceived as slow or Libra gets bogged down in regulatory issues, then this may catalyse developers towards the permissionless ecosystem, which is growing all the time.
Nevertheless, this is a significant milestone in the evolution of cryptocurrencies.