The massive hype generated by Facebook’s official launch of Libra in mid-June refuses to decline. Indeed, this is arguably the biggest cryptocurrency endeavor the market has ever seen, and if things go as planned for Facebook and the Libra association, Libra will finally bring the turning point where cryptocurrencies really become mainstream. While Libra is due to launch in the first half of 2020 and many aspects are still not clear, the deep thought invested in it so far and the level of execution is genuinely impressive. This blog will provide a brief recap about Libra, along with a few thoughts and open questions that come to mind and will hopefully be addressed before the official launch.

So, what is Libra?

Libra is a cryptocurrency that is issued and governed by the Libra Association, which is comprised of almost 30 partner organizations from varied industries that govern the association and operate the Libra permissioned blockchain, with a target of 100 partners in the association prior to the official launch. Facebook has established it and will effectively lead the association during 2019; however, each partner will have equal voting rights, both in terms of stakes in decisions being made by the Association as well as in terms of running the validator nodes operating the Libra blockchain. In this sense, Libra is very different from most other cryptocurrencies (e.g. Bitcoin), as it is not truly decentralized but issued and controlled by the Libra association. Increasing the decentralization is a long-term vision of Libra, with an aim to start the transition towards a permissionless governance model around 2024.

In addition, it’s important to note that Libra is a stablecoin, fixed to a set of stable assets (e.g. banks deposits of multiple stable currencies, short-term government securities) and fully backed by the Libra Association.

How will it work practically?

Apparently, most users will be initially exposed to Libra through the Calibra wallet, which is developed by Calibra, a wholly-owned subsidiary of Facebook. Calibra is a custodial wallet that will be integrated with Facebook Messenger and WhatsApp, as well as within a dedicated mobile app. Registration is aimed to be simple and requires a government-issued ID for KYC purpose. Payments are designed to be as easy as an instant message, quick and with very low fees.

Where are your Libras and how safe are they?

This model is transformational for the majority of users, who are not familiar with cryptocurrency today: it means that by signing up, you essentially open a bank account in Calibra (again, which is owned by Facebook); with Calibra being a custodial wallet, it is imperative to understand that Calibra fully controls your money, and you have no direct access to your Libras on the blockchain. It does have many advantages on the usability side, as users don’t need to deal with backups, managing private keys, and have a guarantee from Calibra that they will be refunded in case of fraud.

The bottom line: you opened a bank account in Facebook, and Libra Association is the central bank governing the Libra currency you hold in that account.

This raises a heavyweight question about the level of trust users will put in Calibra/Facebook to be their bank. While Calibra is a separate entity from Facebook, it is crucial to highlight that the enormous amount of data held by WhatsApp and Facebook on their users will be leveraged for identity verification and fraud prevention. While being tremendously useful for fraud detection, controlling all this data provides a vast amount of power to Facebook on the Calibra user base — which shouldn’t be taken lightly. The balance between privacy, security and national security (in some cases, governments may involve and issue warrants) will be extremely delicate. Based on past events, maximum transparency approach should be taken in order to promote trust in the platform. Will we get to see such an approach?

What about anonymity (or lack thereof)?

Facebook has worked hard to create an open ecosystem that allows and encourages independent wallet developers, exchanges and other players to offer services using the Libra blockchain. We already see players in the cryptocurrency space adding early Libra support to their platforms, with an aim to provide their users with the ability to trade and hold Libras once it’s officially launched. This may enable full control of Libras held by the user, and also relative anonymity; both of these properties are very much appreciated by the more sophisticated users. As Libra is planned to be widely accepted by businesses, by far more than current cryptocurrencies, it is interesting to see how it will work out – will KYC be enforced on anyone trading Libra regardless of which wallet/app they use? Alternatively, will it be possible to trade Libra for other currency (be it fiat or crypto) without a KYC process?

What are the main goals behind Libra?

While the primary goal of Libra to “bank the unbanked” is a very inspiring vision to pursue, many are wondering about whether there are additional big goals to this move, and the massive investment and dedication from Facebook. Well, we believe that the answer may be buried deep within the Libra whitepaper: “An additional goal of the association is to develop and promote an open identity standard.”

This is a very significant undertaking, aiming at solving the (severe) digital identity problem. Facebook already has tremendous amount of user’s data; adding KYC to the mix will significantly solidify it. From there, the route for a global digital identity is rather short. Is this really the goal? Does it really make sense to have such concentration of power? How will regulators respond? For sure, very interesting and exciting times are ahead of us.