Facebook Coin: Analysis of the White Paper Libra

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

From the Latin "Libra, ae", it refers to the "balance" or "counterweight" that is to say the weight that counterbalances an opposing force.

With Libra, does Facebook want to oppose traditional banks?

We presented to you on June 17, 2019, an article explaining what was known about this subject, the outstanding issues and also the potential impact of this cryptocurrency.

We will now analyze the White Paper of the Libra to confirm / refute our assumptions made in our previous article but also make a criticism and question on certain points.

The important points:

Here are some of the things you need to remember about the Libra White Paper .

"Libra's mission is to foster the development of a single global currency and financial infrastructure serving billions of people. "

• " Enable as many people as possible to access financial services and cheap capital."And also reach people who do not have access to banks. Thus the Libra seems to be really suitable for developing countries (Asia, Africa, Latin America) where access to bank accounts is not necessarily easy.
• Sending money will be as easy as sending a message or photo to users of its WhatsApp and Messenger products.
• Make decentralization of governance possible.

• Libra will be associated with the Calibra wallet to store and carry out transactions. Calibra is a separate entity, which will operate independently of 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 fulfill the conditions of the KYC (Know Your Customer) and thus to prove your identity via a photo passport, ID card.

Founding members of Libra

• In the beginning, the Libra blockchain will be a "permission network", meaning that only founding members, who hold Libra Investment Tokens (LITs), will be able to process and secure transactions. In time, the network is supposed to become "without permission", it will mean that anyone will be able to process transactions.
• Libra uses the consensus protocol LibraBFT (Byzantine Fault Tolerant) and a coding language called Move.
• Libra will be guaranteed by the Libra Reserve , which is a basket of cash reserves (corresponding to several FIAT currencies) and low-volatility equivalent cash assets.

How does the Libra Reserve work?

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

"Where does the money come from? The money from the reserve will come from two sources: investors from the Investment Token (which is separate) and users of the Libra. The association will pay Libra premiums to founding Members to encourage adoption by users, merchants and developers. Funds linked to the distribution of coins as incentive bonuses will come from a private placement with investors. On the user side, to create new Libra coins, there must be an equivalent purchase of Libra in fiduciary currency and the transfer of that currency to the reserve. Thus, the reserve will grow as demand for Libra from users increases. To summarize, on the side of investors as well as users, there is only one way to create more Libra: by buying more Libra in exchange for fiduciary money and by developing the reserve. »(For more information, click here. )

Thus, users of Libra "do not receive a return from the Reserve". Instead, interest from the Libra Reserve funds will be spent in two ways:

1. "... to support the running costs of the association ...", such as "... investments in growth and development of the ecosystem, grants to non-profit and multilateral organizations, research ..."
2. "... to pay dividends to the first investors in the Libra Investment Token for their initial contributions."

Criticisms and interrogations:

• Libra wants to be decentralized but has a governance: the Libra Association. However, when we take a closer look at this association, we note that to be a member you have to be a validator of the nodes of the Libra network. As a reminder, a knot costs $ 10 million. And right now, the owners of these nodes are the 28 officially announced partners. So, can we really talk about a decentralized cryptocurrency?

The Libra is akin to a technical point of view to a cryptocurrency however many people dispute this status. Indeed, Libra does not seem to respect the fundamental principles of crypto-currencies (real decentralization, deflationary character and lack of "need for trust").

• Libra claims to be a cryptocurrency. But it is more like a stable corner as it will be indexed a reserve of assets. However, White Paper does not explicitly specify which asset pools are involved.
• The creation of a Calibra account to use the Libra will require fulfilling the KYC conditions, but in view of the drifts that have occurred in the past concerning the protection of private data (the Facebook / Cambridge Analytica scandal), we can to question 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% whereas classic crypto-currencies are generally vulnerable to attacks at 51%. Indeed, according to the Beincrypto site , only one third of all nodes are needed to disrupt the entire network. In 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." Note that this remains "technically" feasible but in reality we must not forget that a knot costs $ 10 million! It would take huge sums to make such an attack, the Libra remains a secure stablecoin.
• The announcement of the Libra has already aroused criticism in the political sphere: Bruno Le Maire, Minister of Economy and Finance in France, shared his concerns including the fact that Libra could compete with sovereign currencies.
• For his part, the CEO of Binance spoke about the problem of privacy protection by tweeting this about the Libra:

https://twitter.com/cz_binance/status/1140914571495927808

However, the answer to this criticism is in Libra's White Paper: "The Libra protocol does not bind 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 to combine this statement with KYC regulations? Calibra seems to be the answer, indeed it is written black and white in the Calibra Customer Engagement :

"When you authorize a payment, we share the data with the third parties needed to process that transaction. We also share Calibra's customer data with authorized subcontractors and service providers (including Facebook Inc.) that support our business (for example, by providing technical infrastructure, or processing payments). In both cases, we only share Calibra customer data that is needed to complete the defined activity or service. "

And also :

"Calibra will use customer data to facilitate and enhance Calibra's product experience, commercialize Calibra products and services, meet legal and regulatory requirements, and provide protection, security and integrity."

Will the Libra be the currency of tomorrow?

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

Libra is not a competitor for crypto-currencies but a competitor for retail banks.

https://twitter.com/aantonop/status/1140937902081417216

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

Case to follow!