This post is a summary of the Facebook Libra Coin Whitepaper and an attempt to condense and explain the terms and new direction of this project in simple, plain English.
The Facebook Libra coin is arguably the most controversial cryptocurrency project yet.
The first whitepaper for the project was published sometime in June 2019 and was revised in April 2020 to reflect the concerns of governments around the world in regards to safety, regulatory compliance, and the protection of sovereign national currencies.
Summary of the Facebook Libra Coin Whitepaper
The Libra Association –an independent membership organization, headquartered in Geneva, Switzerland is saddled with the responsibility of governing the Libra network and the development of the Libra project. Libra is a 21-member association that includes Coinbase, Andreessen Horowitz, Shopify, Spotify, Uber, Xapo, Facebook (Calibra) among others.
According to the Facebook Libra Coin Whitepaper, “The Libra Association’s mission is to enable a simple global payment system and financial infrastructure that empowers billions of people”.
The association began its journey into the world of cryptocurrency in June 2019 when the Libra project was first announced.
However, since then the project has been called to question by various governments of the world which has caused delays and even lead to some members of the association withdrawing their continued support for and participation in the project.
Haven worked and dialogued with regulators, central bankers, elected officials, and various stakeholders around the world to determine the best way to marry blockchain technology with accepted regulatory frameworks, the Libra cryptocurrency seems to be entering the next phase of its actual development and launch.
The association claims that the main objectives of the project are to integrate seamlessly with the national monetary and economic systems and policies of nation-states; complement existing currencies by, enabling new payment functionalities, reducing transactional costs, and fostering financial inclusion.
Taking into account the discussions had with governments all around the world The Association has made changes to its initial approach and design.
Rather than simply emulate other blockchain and cryptocurrency systems, The Libra Association aims to leverage the innovative approach of using distributed governance (blockchain technology) with Association Members serving as the trusted “nodes” to create an open and ‘trustworthy’ payment system.
This summary of the Facebook Libra Coin Whitepaper is based on the updated document and focuses on the four key changes that have been made to address regulatory concerns that deserve specific attention:
- The Libra Stablecoin will fuse with the Stablecoin (CBDCs) of nation-states as they become available. For example, there will be LibraUSD or ≋USD, LibraEUR or ≋EUR, LibraGBP or ≋GBP, LibraSGD or ≋SGD, etc. This will allow people and businesses in the regions and countries that have their own CBDC Stablecoins on the Libra network to directly access and transact with their local currency on Libra. The associated Stablecoin of each region or country will be fully backed by the Reserve, which will consist of cash or cash equivalents and very short-term government securities denominated in that currency.
- The Libra payment system will be fully compliant with all applicable laws and regulations while supporting the objectives of openness and financial inclusion. To ensure people and businesses can trust the security and integrity of the Libra payment system, the project will integrate strict safety measures and a comprehensive framework for financial compliance and network-wide risk management as well as strong standards for Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), sanctions compliance, and the prevention of the financing illicit activities within the Libra system.
- In order to guard against unknown participants taking control of the system and removing key compliance provisions –otherwise known as the 51% attack; Libra will work to replicate the key economic properties of a permissionless or decentralized blockchain system through an open, transparent, and competitive market for network services and governance, all while operating as a centralized (members only validators) blockchain network who are trusted to incentivized to protect the network. In a nutshell, Libra will be 100% centralized and permission-based forever.
- Building strong protections into the design of the Libra Reserve. “We have had constructive discussions with regulators on how to handle extreme situations — in particular, how the Reserve would function in stressed scenarios and what claims and protections are in place for Libra Coin holders. We have incorporated strategies in the design and structure of the Reserve that is based on approaches in other systems. The Reserve will hold assets with very short-term maturity, low credit risk, and high liquidity”.
One thing that is very clear is that the Libra coin will be a stablecoin of some sort that will merge with the central banking digital currencies (CBDCs) of each region or country and backed with fiat.
However, the Libra payment system is expected to be fully transparent with a regular, independent audit to be made available to the public to see that each Libra Coin is backed by a physical bill or liquid asset.