Summary
Libra (now renamed "Diem") is a payment system proposed by Facebook. It is based on a permissioned blockchain and aims to support an ecosystem of digital payments and other financial services.
Its currency, called Diem Dollar (formerly known as "Libra"), will be backed by a series of stablecoins and is scheduled to be released in 2021. What else do you need to know about Facebook's digital currency? This article will provide a detailed introduction and analysis.
Introduction
Digital payment is a field full of opportunities. Nowadays, more and more people use cheap smartphones to access the Internet, and many economic activities can be carried out online. Companies such as Paypal, Visa and MasterCard have also followed the market trend and launched many online activities. In addition, many projects in the field of digital currency are also constantly launching new products.
However, unlike those other projects, Facebook has already built a massive user base. “Massive” might be an understatement. In the third quarter of 2020, Facebook had approximately 2.7 billion monthly active users. With a user base of that size, a payment system they launch could be an overnight success.
What is Facebook Libra (Diem)?
Libra (now renamed "Diem") is a blockchain-based payment system proposed by Facebook. The system aims to provide financial services to users who cannot establish a bank account. Some of the founding members include Morgan Beller, David Marcus and Kevin Weil.
The project was originally scheduled to go online in 2020, but was postponed for various reasons and may be officially launched in 2021.
Libra will be managed and operated by the Libra Association (now renamed the "Diem Association"), an independent membership organization headquartered in Geneva, Switzerland. The organization's members are companies in the blockchain, technology, payment services, telecommunications industry, venture capital and non-profit organizations.
Members of the Libra Association are responsible for making governance decisions, overseeing the operation of the Libra payment system (a project built on the Libra blockchain), and providing financial support. Facebook aims to have 100 members by the time the project goes live.
Is Libra launched by Facebook a cryptocurrency?
Libra is built on the blockchain and does use cryptography. However, Libra lacks the conventional attributes of a "cryptocurrency."
We will discuss these properties in detail in our in-depth analysis of cryptocurrencies. In short, it is more accurate to call Libra a digital currency.
How Does Facebook’s Libra Work?
The Libra blockchain (now renamed the Diem blockchain) is a permissioned blockchain that forms the backbone of this payment system. So how is it different from other blockchains?
The Bitcoin or Ethereum we often talk about are permissionless blockchains. This means that all users on the Internet can freely use such blockchains, conduct transactions on the chain, or conduct research and development activities based on them. No one person (or organization) can control their access rights.
In contrast, permissioned blockchains require permission from the network controller. More specifically, the application requires special access rights.
Libra is a permissioned blockchain. Unlike other blockchains, it does not use mining or staking to verify transactions. Instead, it relies on a group of permissioned validators (Libra Association members) to verify transactions.
According to the founding team, Libra may transition to a proof-of-stake (PoS) mechanism five years after its launch. However, five years is a long time for such a nascent field. Why not use PoS from the beginning? The Libra white paper explains the reason - they believe that there is currently no permissionless system that can support billions of people to conduct transactions.
Is Facebook's Libra a centralized or decentralized product?
The mainstream view in the blockchain field is that permissioned blockchains are more like traditional corporate databases and their degree of decentralization cannot match that of permissionless blockchains.
In this sense, Libra is not censorship-resistant, unlike Bitcoin and other digital currencies. These validators must be members of the Libra Association, so the network will ultimately be more centralized.
On the other hand, there are also advantages to controlling and auditing the applications that can interact with the distributed ledger. For example, malicious applications and scams can be easily excluded.
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Libra Payment System
The Libra payment system (now renamed the Diem payment system) supports a variety of single-currency stablecoins pegged to fiat currencies such as the US dollar, euro, and pound. These stablecoins work similarly to well-known stablecoins because their value is derived from the so-called Libra Reserve, which consists of cash, cash equivalents, and short-term government securities.
In addition, the Libra payment system will also support a multi-currency token called Diem Dollar (formerly known as "LBR"). It is a combination of all these stablecoins, with a series of assets behind it to protect its value. You can think of it as a stablecoin for various stablecoins (and other assets such as securities). Different forms of collateral protect Diem Dollar from price fluctuations. For a technology that is expected to become a means of payment, the importance of this effective guarantee is self-evident.
The Libra digital currency will be stored in the upcoming Novi wallet (formerly known as the "Calibra wallet"). As you might expect, this digital wallet may be integrated with other social media products, such as Facebook Messenger and WhatsApp. According to the plan, users will be able to freely exchange between US dollars (or other legal currencies) and Facebook tokens.
"Diem Core" is Libra's open source code, written in Rust. You can visit Diem GitHub to view the specific content yourself. According to relevant plans, Libra will also use a programming language called Move to provide support for smart contract functions.
Can Facebook's Libra replace Bitcoin?
So far, Libra and Bitcoin have obvious differences in nature, and are likely to coexist harmoniously in the future. Although both can be classified as digital payment systems, the application scenarios of their services are very different.
While Bitcoin is a decentralized, censorship-resistant digital currency that is often used as a reserve asset or store of value, Libra is an innovative proposal that relies on a permissioned network, demonstrating a more centralized model.
What is the future of Libra (Diem)?
Soon after the Libra project was announced, Facebook received a lot of negative comments. Criticisms from central banks, legislatures and regulators are endless. It remains to be seen whether the founding team can integrate all the necessary elements to lead Libra to success.
Summarize
Libra is a payment system proposed by Facebook based on a permissioned blockchain. It will provide financial services to users who do not have bank accounts based on Facebook's social media app.
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