Everything You Need to Know About Libra, Facebook’s New Cryptocurrency

Siamak Masnavi

On Tuesday (June 18), Facebook announced that it is creating a new "low-volatility" cryptocurrency (a fully fiat-collateralized stablecoin) called Libra (LBR), built-on top of a permissioned but public blockchain called Libra Blockchain. It also said that one of its subsidiaries (called Calibra) is building a wallet (called Calibra) that will let you "save, send and spend Libra". This article aims to answer all the questions that you may have about Libra and Calibra.

Q: What is Libra?

Libra (LBR) is a cryptocurrency built on top of the Libra Blockchain. It is fully collateralized by the Libra Reserve, which is a basket of cash deposits (corresponding to several fiat currencies) and low-volatility cash-equivalent assets such as "government securities in currencies from stable and reputable central banks."

Libra is available to anyone who has a basic smartphone and internet connectivity, and the aim is to make it be available all over the world.

Libra will be listed "on multiple regulated electronic exchanges throughout the world," which will "offer both web portals and mobile apps for users to buy and sell Libra." There are also ongoing talks with "principal cryptocurrency trading firms and top banking institutions as authorized resellers to allow people the opportunity to exchange their local currencies for Libra as easily as possible. "

Q: What is the Libra Blockchain?

The Libra Blockchain is "a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world." It is implemented by the Libra protocol.

According to the official Libra white paper, initially, this will be a permissioned blockchain that uses LibraBFT, a Byzantine Fault Tolerant consensus protocol, which makes it "extraordinarily difficult for an attacker to compromise 33 separately run nodes that would be required to launch an attack against the system."

At the mainnet launch, the Libra Blockchain will be secured by 100 validating nodes.

The white paper also notes that as with other major blockchains, transactions will be pseudonymous:

“Transactions do not contain links to a user’s real-world identity... This approach follows the norm of pseudonymous transactions adopted by other major blockchains. This approach is familiar to many users, developers and regulators.”

Q: What is the Libra Association?

The Libra Association is an independent not-for-profit membership organization headquartered in Geneva, Switzerland. Its role is "to evolve and scale the network and reserve and leads a social impact grant-making program that supports financial inclusion efforts worldwide." 

Its members are "a group of diverse organizations from around the world." The Founding Members "each run one of the validator nodes that form the network that operates the Libra Blockchain." One of the goals of the Libra Association is "to work with the community to research and implement the transition to a permissionless network over time."

Here are some of the 28 Founding Members:

  • Payments: Mastercard; PayPal; Visa
  • Technology and Marketplaces: eBay; Calibra; Spotify; Uber; Lyft
  • Telecommunications: Vodafone
  • Blockchain: Coinbase; Xapo
  • Venture Capital: Andressen Horowitz; Thrive Capital

And here's Facebook's Kevin Weil, VP Product for Blockchain, with the full list:

Each member has invested at least $10 million to be part of this governing consortium.

Ben Maurer, Facebook’s blockchain technical lead, told CoinDesk that although initially only those founding members can run a validator node, Facebook is hoping that eventually node participation will be open to everyone, i.e. a lot more decentralized:

“In the initial version of the system, only founding members will be able to be a node that participates in the consensus algorithm... Over time, it’s designed to transition the node membership from these founding members who have a stake in the creation of the ecosystem to people who hold Libra and have a stake in the ecosystem as a whole.”

Each investment of $10 million gets a member one vote (no member is allowed to have more than 1% of total votes).

Calibra, which is a subsidiary of Facebook, will be allowed to run only one validating node (just like the other members of the Libra Association).

Q: How does the Libra Reserve Work?

In case you are wondering where the money in the Libra Reserve comes from, Facebook says:

"The money in the reserve will come from two sources: investors in the separate Investment Token, and users of Libra. The association will pay out incentives in Libra coin to Founding Members to encourage adoption by users, merchants, and developers. The funds for the coins that will be distributed as incentives will come from a private placement to investors. On the user side, for new Libra coins to be created, there must be an equivalent purchase of Libra for fiat and transfer of that fiat to the reserve. Hence, the reserve will grow as users’ demand for Libra increases. In short, on both the investor and user side, there is only one way to create more Libra — by purchasing more Libra for fiat and growing the reserve."

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

  • "to support the operating expenses of the association", such as "investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research"; and
  • "to pay dividends to early investors in the Libra Investment Token for their initial contributions." 

Note that since the Libra Investment Token is a security, it will only be available as a security token offering (STO) to Founding members of the Libra Association and to accredited investors.

Q: What is Calibra?

Calibra is a wallet for Libra. It is available both as a standalone mobile app (which means you do not need a Facebook account) and also from within Facebook's Messenger and Whatsapp. It will allow you to send/receive money (Libra) to/from other people; top up (which means converting your local currency into Libra); and withdraw local currency (which requires conversion from your Libra to fiat).

Calibra Interface Screenshot 1 - 18 June 2019.png

Later on, Calibra should also allow you "to pay for everyday transactions, like buying a coffee, buying groceries, or taking public transportation."

Once Calibra becomes available, you can sign up for an account; this will require using a government-issued ID for the know-your-customer (KYC) process. 

Calibra has already registered as a money service business (MSB) with FinCEN, and it is now trying to get money transmitter licenses in various U.S. states. It will also be following the guidelines of the Financial Action Task Force and other financial regulators around the world (which means, for example, that it will not be available in jurisdictions where use of cryptocurrencies is illegal).

Dante Disparte, Head of Policy and Communications for the Libra Association, told CoinDesk:

“Implied in this project is that wherever the Visa or Mastercard logo are accepted, Libra would follow suit. In so many ways it’s a great leap forward for cryptocurrencies and, in many respects, a mainstreaming of this asset class.”

And in case you are worried about Calibra sharing data with Facebook, Calibra would like to put your fears to rest:

"Calibra will not share account information or financial data with Facebook, Inc. or any third party without customer consent."

Facebook’s blockchain lead David Marcus, who is also the co-creator of Libra, told Decrypt:

“We don’t want financial data and social data to be commingled. We heard people loud and clear. If we want to compete on the network with the other wallets that will be there, the only way we can do that is by making strong commitments that even Facebook Inc. will not have access to your financial data on your Calibra wallet.”

Q: When Will Libra and Calibra Become Available?

The testnet for the Libra Blockchain is being launched today, but Libra and Calibra are only expected to publicly launch sometime in 2020.

Q: Do People Who Want to Use Libra Have to Use the Calibra Wallet?

Although at the time of the launch, only Calibra (which is a custodial wallet) may be available, third-party developers are expected to announce their own Libra wallets at some point shortly after the launch.

Featured Image Credit: Photo via Pexels.com. Screenshot image courtesy of Calibra.