Facebook has now joined the cryptocurrency arena with its cryptocurrency named Libra. In June have released their white paper. The deadline for the release of the coin is set to 2020. In this article, I will cover the different aspects of this new currency starting with the target audience and then Ii will dive into the technical aspects of the cryptocurrency.
Let’s start with crunching some numbers. As of 2018, the number of social media users is 3 billion, with an increase of 13 percent from last year. The number. Facebook has 2.38 billion monthly active users. The largest presence of facebook is in Indian with 270 million users, followed closely by the USA with 210 million users.
Why these numbers are significant we have to look at the current cryptocurrency market. Bitcoin which is the major cryptocurrency has a user base of 2.5 million users. Adoption is the major hurdle of cryptocurrencies. The majority of the people don’t understand the technology and its benefits and are scared into owning something that is not backed by banking and financial institutions. We have seen projects like Tron who have bought BitTorrent to try and push their currency to the user base of existing companies.
So Facebook has the user base but why should users use their cryptocurrency. The answer is simple. Facebook is after a specific category of individuals the unbanked.
Who are the unbanked?
Unbanked are individuals that do not own an account with a banking institution. Typically unbanked persons perform all their transactions in cash. Let’s look again at some numbers.
As of August 2017, 2 billion people do not own a bank account. South East Asia has 438 million unbanked people which is 73% of the overall population. Followed closely by India with 190 million unbanked individuals.
This is the main reason why Facebook will release the Libra in India. So it is the largest penetration when it comes to users base and it can provide a mechanism to access the cash money of these individuals through its cryptocurrency.
Let’s now have a look at their white paper and dive into the technical details of the coin and how it differentiates itself from the other cryptocurrencies.
Scalability and Security
As we have seen the biggest advantage of Facebook is its user base. However, this means that the infrastructure/network has to handle millions of concurrent users from day one. As we have seen with the major cryptocurrencies like Bitcoin and Ethereuem. Scaling is an after taught. In 2017 Ethereum network was ground to a halt because of the cryptokitties dApp became a viral sensation and halted the system.
The vision of Satoshi Nakamoto is to build a cryptocurrency that is based on a permissionless system that is not centralized in nature. Anyone can add itself as a node in the system and process the transactions and become a minor. The more minor the more the system is secure. However, this comes at a disadvantage which is speed. The more node the system has the slower it gets.
Libra will start as a permissioned system. The Libra association has control over who can be a node in the system. This is concept is more secure as the association has control over who joins the network which means that a rogue node cannot add themselves to the network. The whitepapers state how the Libra association will be working to transition to a permissionless system within 5 years of the launch of the currency
Libra will be a stable coin.
Cryptocurrencies are very volatile when it comes to price. This is an advantage when it comes to trading as it is easy to make a considerable amount of cash in a short period of time. However, it hiders adoption as the prices of items will fluctuate constantly. To solve this the concept the stable coin has been introduced. The best-known stablecoin being tether. These currencies are typically pegged against fiat currencies, other cryptocurrencies, precious metals like gold and a combination of all.
Looking at the technology that will be used for Libra it is clear that performance is at the core of their design.
Cryptocurrencies like Ethereuem and Bitcoin are based on blockchain technology. Where transactions are bundled together into blocks and proof of work is used to add the blocks to the chain. This process is not efficient due to the amount of processing power required.
Libra designers opted for a more efficient approach based on a tree structure. This a similar concept used in other cryptocurrencies like IOTA. Transactions are stored in Merkle Trees. This process is more efficient as the hash mechanism is based on the children and the parents rather than all the blocks in the chain.
As with Ethereum, Libra is based on a gas model. The gas represents the cost of performing a transaction. Every transaction with and smart contract operation will cost gas. Gas will have a cost in Libra so the gas will represent the amount of gas will represent the Libra that the sender must pay for the transaction
The more complicated a smart contract is the more gas will be required.
In Libra, a transaction will store the following information
– The account of the transaction sender.
– Dapp code that is written in Move.
– The gas price associated with the transaction
– The gas limit of the transaction
– Integer identifying the sender Libra Account.
As I already have hinted Libra will also provide support for DApps. ie. smart contracts. The smart contracts in Libra will be based on the Move programming language. Move is a functional programming language. Use of functional programming makes the smart contracts more secure as the resulting code is easier formally verify and mathematically prove what a program will do.
Move is also static typed. This will help that bugs can be discovered during compilation rather than execution.
Conclusion – Is Libra good or bad?
If you read the media there is a lot of mixed feelings about Libra. People in the crypto community see Libra as positive because it is the first project that will start to a huge user base which will help solve the adoption problem of cryptocurrency. Every user in facebook will now own a digital wallet which means that one-third of the population will have access a cryptocurrency.
Facebook has a bad reputation when it comes to privacy. In march 2018 50 million Facebook users got their private data compromised in one of the worst data privacy breaches in history.
A lot argue that Facebook is also after the transaction history of its users which is a very valuable data set.
Another issue is that Libra will start as a permissioned system which is central in nature. This is against the core fundamentals of cryptocurrencies. No single entity has control over the network. Libra will be based on a fully private, controlled and centralized system. That will be verified by a small number of nodes.