This morning, Facebook has finally released its long-awaited whitepaper describing its blockchain and stablecoin project codenamed Libra, as well as more detailed technical documentation.

Three quick takeaways from the whitepaper:

  1. Facebook opted for developing its own initially permissioned blockchain with PBFT consensus and its own smart contract language Move rather than adopting another existing platform or platform under development.
  2. The stablecoin used on this platform will be backed by a basket of bank deposits and short-term government securities but there will be no strict peg.
  3. The platform will be governed by a purportedly independent Libra Association to be formed in Switzerland in which other members are supposed to have equal rights with Facebook.

The blockchain platform

The Libra blockchain will initially be a permissioned one based on a Byzantine-Fault-Tolerant (BFT) consensus protocol called LibraBFT. It is a variant of a brand new consensus approach called Hotstuff that promises to combine responsiveness with low communication overload.

Surprisingly for some skeptics, the blockchain maintains the pseudonymous nature of user addresses and the auditability features, retaining the basic familiar features of widely-known blockchains.  

For smart contracts, the platform will rely on a specifically designed language called Move. It appears to be destined primarily for financial applications, and focuses a lot on security and asset transfers. Its detailed overview can be found here.

While transaction validation on the platform will initially be limited to the approved nodes, in the whitepaper, Facebook commits to maintaining open access to the platform for all users and developers. It remains to be seen to what extent this guarantee can be honored in practice.

The stablecoin

The platform’s native token Libra will be a stablecoin backed by the Libra Reserve consisting of bank deposits and short-term government securities. However, the whitepaper emphasizes that no attempt will be made to strictly peg Libra to any national currency, the goal is to merely minimize volatility.

Governance

The Libra platform will initially launch as a permissioned one governed by the aforementioned association. The whitepaper contains a commitment to start switching the platform to a permissionless mode within 5 years after launch.

The Libra Association already features an impressive list of founding members the most notable of which are Visa, Mastercard, PayPal, Uber, ebay and Lyft. There are even several prominent companies from the blockchain space proper, including Coinbase, Andreessen Horowitz and Xapo. This approach bears strong resemblance to the one already pursued by Hedera Hashgraph.

In a clear attempt to try to separate the projects from itself in the public opinion, Facebook claims that its eventual role in the project will be equal to that of the other members of the association. It also created a separate subsidiary called Calibra in order to manage its services on the Libra platform and ensure the separation of the social and financial data.

The implications for other blockchain projects

The Libra platform is supposed to go live in the first half of 2020. Can its announcements, nonetheless, have major implications for the blockchain space?

Both a positive and a negative interpretation are plausible. On the one hand, Facebook’s announcement will certainly raise public awareness about blockchain technology and cryptocurrencies, potentially benefiting the whole space. However, Libra could also siphon away the attention and resources from other projects. Some governments may, in theory, also choose it as the preferred ‘tame’ crypto platform, while marginalizing others.

As for the direct competition between Libra and other platforms and decentralized applications, Libra is obviously more of a threat to those projects that are heavily focused on financial applications. This especially concerns currency-transfer-focused platforms and the De’Fi space.

Another question that may be asked is why Facebook has opted for developing its own blockchain platform as opposed to forming a partnership with one of the scalable smart contract blockchain projects such as Ethereum 2.0, Zilliqa, Algorand, Hashgraph, etc. One interpretation of this is that, having reviewed their tech, Facebook is justifiably skeptical about their technical prospects. Facebook seems to be hinting at this at several points in the whitepaper.

However, a more plausible interpretation is that, despite the expressed commitment to ultimate decentralization, Facebook and other founding members wanted to maintain a significant degree of control which an open-source project would not allow. It is unlikely that in the short time frame after the announcement of the project, the Facebook team has had time to study all the major smart contract platform projects in-depth. In fact, its documentation mostly mentions only Bitcoin and Ethereum.

Potential challenges for Libra

The key challenge that the Libra project will face is minimizing the impact of Facebook’s tainted reputation with regard to ensuring that its services are not misused. Pressure from activists and interventionist politicians may make governments hamper the project’s rollout. However, three factors may act in Facebook’s favor: the focus on global financial inclusion for the unbanked, the broad coalition of business actors it has assembled and the commitment to separate the social and financial data.

The choice to add short-term government securities to the stablecoin reserve is a surprising one and may endanger the stability properties of the coin in the future, given that most developed countries’ public debts keep growing and that their social security systems are under increasing pressure from the aging populations.

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