Peter Van Valkenburgh, the Research Director at Washington, D.C.-based Coin Center, “the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies,” talked about some of the most differences between Bitcoin and Facebook’s Libra on Monday (July 8).
The Coin Center’s mission is “to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.” It does this by “producing and publishing policy research from respected academics and experts, educating policymakers and the media about blockchain technology, and by engaging in advocacy for sound public policy.”
The reason for Van Valkenburgh’s comprehensive blog post was to deal in one place with answers to questions asked of the Coin Center―by U.S. policymakers and members of the U.S. mainstream media―about how Libra compares with Bitcoin and other “traditional” cryptocurrencies.
Differences in Design Goals
Van Valkenburgh says that to understand the motivation behind Bitcoin and Liobra, it is very useful to compare the first sentence of the white paper for each of these two projects:
- Bitcoin: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
- Libra: “The goal of the Libra Blockchain is to serve as a solid foundation for financial services, including a new global currency, which could meet the daily financial needs of billions of people.”
He says that in the case of Bitcoin's white paper, the “key message is “money without trusted intermediaries,” and Bitcoin’s design goals “prioritize building a payments network without trusted intermediaries over the network’s ease of use, stability, or scalability.” He goes on to say that Bitcoin was designed to work even in the absence of trustworthy governments and/or corporations.
In contrast, he says, in the case of Libra's white paper, the first sentence is “all about scale and access,” and Libra’s design goals “prioritize scale and inclusivity over the need to avoid reliance on trusted intermediaries.”
Furthermore, he says that both projects are trying to fix what they perceive as the main problem with the current global financial system. In the case of Bitcoin, the problem being addressed is “the consolidated power of intermediaries in that system and the danger that such power poses”, whereas in the case of Libra, the problem it is hoping to address is “the inefficiency of intermediaries in that system and their disinterest in providing services to persons who are insignificant to their bottom line.”
Differences in Underlying Technologies
Bitcoin and Libra both use distributed ledger technology for registering payments between users.
Van Valkenburgh says that Bitcoin is a true cryptocurrency because it is “money based on economic scarcity with transactions recorded on a censorship-resistant ledger that any anyone can both access (read data from) and append to (write data to).” This means that it is both public and permissionless.
He says that Libra is not a cryptocurrency, but it can be called a digital currency since it is “money based on trust in an issuer with transactions recorded on a ledger that anyone can access and view, but only an authorized set of corporations can amend.” This means that the Libra ledger us public but permissioned. He goes on to say that what stops Libra from being a cryptocurrency is “its use of a permissioned ledger and its reliance on a trusted issuer to hold and manage a fund of assets that back the currency.”
That’s why he puts Libra in the same category as “airline miles, World of Warcraft gold, or Liberty Reserve Dollars.”
Here is a chart from Van Valkenburgh’s blog post that summarizes the main differences between the architectures of Bitcoin and Libra:
He points out that these “architectural choices are not arbitrary.” For instance, if you are ready to accept a permissioned set of validator nodes, then you are more likely to achieve a higher transaction throughout and greater scalability since you need fewer nodes for reaching consensus.
These choices also influence how each of these digital assets behaves:
These choices also have consequences for how each project’s asset functions:
Bitcoin ends up working like a bearer instrument: anyone who has the bitcoin automatically has the value. Libra ends up working like a registered instrument: the holder of a Libra really only has the value of that Libra if the official registrar, the Libra Association, says that they do and maintains the underlying reserve assets. Bitcoin, therefore, is censorship-resistant and functions like gold coins or any other valuable commodity. Libra transactions can be censored and the asset functions like a bank note or stock certificate.