Libra Gist

There’s something about “new money,” it truly never gets respected until it becomes “old money”. Apparently, this takes three generations to manifest or may be more. Can we say the same about Libra?

The Libra

Libra may become the next generation fiat currency, its creation was borne out of the desire to make cross-border money transfer seamless and almost for free. Before this innovation it is estimated that 9% of transferred funds are spent on transfer cost, fees and charges. Performing micro transactions might seem almost impossible. The cost of transfer may be far above the value of the transaction and the time it takes to receive the money may be between 3 to 7 working days.

Libra is scheduled to be launched in 2020 and was developed by Facebook to facilitate financial inclusion, especially in developing countries. Facebook published the official White Paper for Libra on 18th June 2019. This outlines all relevant information about the currency.

What is Libra?

Libra is a new kind of digital currency built on blockchain. Its mission is to create a simple global currency and financial infrastructure that empowers billions of people across the world. According to the White Paper, Libra is made of three parts that will work together to create a more inclusive financial system. These are:

  1. secure, scalable and reliable blockchain;
  2. backed by low-volatility assets such as deposits, government bonds and major currencies; and
  3. governing of the Independent Libra Association

The platform is currently governed by Facebook and some other 27 conglomerates (known as the Libra Association). Facebook hopes to add 73 more companies spread across the globe as its founding member companies before its eventual launch in 2020. The companies currently in the Libra Association include Fintech giants such as VISA and Mastercard as well as e-Commerce giants like eBay and Amazon.

Although Facebook officially divorced itself from Libra, the wallet for Libra will be “Calibra” –– a subsidiary company of Facebook. Calibra was officially registered with the Financial Crimes Enforcement Network (FinCEN) to provide wallet services and build other financial applications around Libra.

The most fascinating feature of Libra is that –– unlike existing cryptocurrencies –– it will be a stable coin, backed by real money.

How does it work?

Libra will be accessible through Facebook Messenger, WhatsApp and Facebook’s standalone wallet Application –– Calibra. It is important to mention that a government-issued ID will be required to set up an account on the platform. According to Facebook’s press release, Calibra wallet will allow users store the cryptocurrency and make payment easily on WhatsApp and Facebook Messenger. Basically, after completing the sign-up process, users will need to fund their Calibra wallets with Libra. Where a user needs to make payment, all he/she needs to do is to send the money to the relevant address on WhatsApp (something like an alphanumeric account number). A business that accepts Libra will be able to receive payment on any of the supported Libra platforms, such as Facebook or integrate with the Calibra application.

Conversion of local currency into Libra will also be done electronically. This will be on the Calibra App itself and other third-party wallet Apps. People will also be able to top-up their Calibra wallets at licensed outlets like kiosks, supermarkets, corner shops, etc. or partner reserves.

Now the question is, what will you be able to pay for with Libra? Facebook’s Whitepaper reveals that Libra may be transferred just like money. In other words, people will be able to pass on Libra as they pass on real-world money. In addition to this, Calibra is being developed to power Libra to do so much more.

The first version of the Calibra App will support peer-to-peer payments and a few other ways to pay, such as QR codes, which small merchants can use to accept payment in Libra. Also, there will be many other payment methods, including in-store payments and integrations into point-of-sales system. The practicality of this is that Libra may be liberated to allow for payment of a wide range of goods and services, through a variety of systems, platforms and processes.

When studying the workings of Libra, one may be tempted to conclude that it is not different from mobile money operations (MMO). However, whilst MMO allows users who operate accounts to add money to their digital wallets and make payment for goods and services supplied by their merchants, they are not built on blockchain and are not a currency.

Will people use it?

The natural answer is yes. We believe that Facebook’s 2.38 billion monthly active users when combined with WhatsApp's 1.5 billion users[1], should provide a good user base for Libra to begin with. As such, adoption may not be a problem.

Anonymity, AML/CFT and Fraud.

Libra retains a level of pseudonymity, which is a common feature of cryptocurrencies. In essence, it does not link your real-life identity to the network. However, signing up for the wallet, will require some level of KYC documentation. As stated earlier, a user must provide some sort of Government-issued ID before he/she is allowed to use the Calibra wallet. The intention is to lessen the tendency to use the platform for money laundering and other criminal activities as is common with existing cryptocurrencies.

How does it affect your privacy?

We feel that the ID requirement may not be good news in the ears of data privacy and digital rights advocates, given the antecedents of Facebook and data protection. It might be comforting to know however that Facebook has promised that Calibra will not share people’s information or financial data with Facebook.

The Calibra wallet will have built-in fraud protection, password and recovery option with multi-factor authentication. Although we are not sure of the nature of authentication that the platform may choose to use yet, we can only hope that it will provide adequate security protection. Trust and data privacy will certainly be at the core of this product and the key question for both consumers and regulators alike.

Any plans for regulation?

According to an exclusive interview with CNBC, Facebook confirms it intends that Libra will be regulated and is in talks with regulators to see how this will work. Developers building on the Libra blockchain will have a responsibility to comply with the laws and regulations in the jurisdictions in which they operate. But, Libra blockchain itself may not be regulated (it may take global effort to regulate the cryptocurrency).

What about transfer charges on Libra?

Libra is set to transform the existing fiat system and traditional banking. In fact, it is targeted at disrupting the entire fintech ecosystem with the ability to send and receive money across the world in just a matter of seconds and at little or no cost. Libra promises to make sending and receiving money as easy as sending a message on Facebook or WhatsApp.

How do you carry out fund top-ups and how does it drive financial inclusion?

From information available so far, there is no doubt the process for adding Libra funds and carrying on transactions is poised to be as easy as breaking biscuits. A grandparent Okitipupa (an oil palm rich village in south West Nigeria) may be able to top-up funds in his Calibra wallet by visiting a local agent, he may also be enabled to receive money from any location in the world using the Calibra Application.

Can you reverse transactions on Libra?

One of the most talked-about features of blockchain is the fact that a transaction cannot be reversed, except it is reinitiated. It is however expected that Libra as a technology solution will enable the reversal of transactions. Consequently, your money will not be lost simply because you sent it to a wrong person (address) on the network. While the reversal capability is a welcome development, we of course also look forward to what protections are put in place for sellers and service providers from recalls and reversals from fraudulent buyers.

How about smart contract?

The Libra technology will allow developers build decentralized Applications (DApps) especially financial applications on its platform, just like Ethereum.

Will you join the “Move”?

For technology enthusiasts, the blockchain platform is built with a new programming language called “Move” as opposed to existing blockchain technology built on “Solidity”. According to Facebook, this technology is built with safety and security in mind and is open source.

Is Libra permissioned or permissionless?

Libra is currently permissioned (i.e. only founding members will have access to the network) but it is hoped that it will transition to a permissionless network over time. Unlike other cryptocurrencies open to the public, for a company to operate a node on the network, that company must join the Libra Association. As at date, to join the Libra network, you must be ready to contribute at least US$10 million dollars to the project and have the right infrastructure to run the network.

Article written by Bolakale Mallick for TNP.

[1] As of 31st March 2019 available at https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/ and https://www.statista.com/statistics/730306/whatsapp-status-dau/