With the release of social media giant Facebook’s digital asset, might come confusion for folks who do not know much about Bitcoin. Let’s dive into what Facebook’s new Libra coin is, and how it differs from the most famous cryptocurrency Bitcoin.
Facebook’s Libra Asset
Operating under the name Libra, the digital asset by Facebook will be used for global payments, according to its whitepaper, released on June 18, 2019. “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people,” the whitepaper stated.
The whitepaper talks about the current problems in global finance, including limited access for certain individuals and high fees, for example. The paper also points out a few difficulties, such as a lack of adoption seen in crypto assets, as well as volatility seen in those assets.
Noted in its whitepaper, the Libra touts three key components:
“It is built on a secure, scalable, and reliable blockchain […] It is backed by a reserve of assets designed to give it intrinsic value, and it is governed by the independent Libra Association tasked with evolving the ecosystem.”
Facebook’s asset runs on an open-source blockchain called the “Libra Blockchain,” and operates in relation to a reserve, the whitepaper said.
“Libra is fully backed by a reserve of real assets. A basket of bank deposits and short-term government securities will be held in the Libra Reserve for every Libra that is created, building trust in its intrinsic value. The Libra Reserve will be administered with the objective of preserving the value of Libra over time.”
The asset will be a stablecoin of sorts, the whitepaper said. “Libra is designed to be a stable digital cryptocurrency that will be fully backed by a reserve of real assets — the Libra Reserve — and supported by a competitive network of exchanges buying and selling Libra.” The Libra Association is also in charge of the coin supply and its relation to the reserve.
Besides, the paper mentions the Libra Association. “The Libra Association is an independent, not-for-profit membership organization headquartered in Geneva, Switzerland,” the whitepaper explained. “The association’s purpose is to coordinate and provide a framework for governance for the network and reserve and lead social impact grant-making in support of financial inclusion,” the paper added. “The association’s membership is formed from the network of validator nodes that operate the Libra Blockchain.”
Comprised of various businesses, organizations and institutions across the globe, the Libra Association’s “Founding Members” list is quite substantial. The list includes the likes of PayPal, Mastercard, eBay, Lyft, Vodafone Group, Coinbase, Andreessen Horowitz and Union Square Ventures, in addition to many more. The asset is expected to launch within the first six months of 2020, the whitepaper said.
The Libra will begin with operations based on a permissioned blockchain, with the goal of turning into a permissionless network, the whitepaper said. Libra’s blockchain also differs from traditional blockchain technology with regards to its chain. “[T]he Libra Blockchain is a single data structure that records the history of transactions and states over time.”
In terms of asset addresses, the whitepaper stated such addresses will still be pseudonymous, similar to what currently is seen in crypto.
Bitcoin Vs. Libra: Vastly Different
Bitcoin differs significantly from Facebook’s new asset in many ways. Perhaps the most notable difference lies within Bitcoin’s decentralization. No single entity controls Bitcoin. In contrast, Facebook and the Libra Association have a large amount of control over the Libra asset and its usage. Libra’s Association setup also appears to give sizeable entities (or chosen entities) power in terms of what might become a top global asset – the Libra. Bitcoin does not give control to such businesses in the same fashion.
A Question Of Value
Facebook’s digital asset also is tied to national currencies and other assets. This means Libra’s value depends on the inflation and effects of the underlying currencies, as well as government control. Bitcoin’s value is not dependent on any single government in the same way seen in fiat currencies (USD, AUD, etc.).
Bitcoin is also deflationary. There will only ever be 21 million Bitcoin in existence. This protects against inflation. In contrast, the Libra Association, as stated above, is in control of the Libra asset’s supply. Essentially, this means citizens must rely on the Libra Association and its actions, in a way.
Different Types Of Blockchains
Facebook’s Libra initially will run on a permissioned blockchain, which means miners must seek approval before starting to mine. Bitcoin’s blockchain is permissionless, so miners can simply begin mining at their discretion.
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