Facebook has declared its new Libra coin which is Facebook’s new cryptocurrency and with this announcement, Bitcoin market has gone crazy. It is a cryptocurrency and there is no central bank involved. Talking about Bitcoin which is a permission less system in which you get engage with proof of work by contending to solve a puzzle that allows you to add a block to its chain. In short, anyone can participate and conclusion is that Bitcoin requires harmony, not trust.
It is a myth that a blockchain will allow Libra to function. Libra is meant to be sustained by Libra blockchain which is a decentralized programmable database. But Libra blockchain is not a blockchain as some of the characteristics are missing. In a normal blockchain, blocks of transactions are smashed down and added to the chain of other blocks, therefore it is believed that Libra not uses block or chain. Alternatively, it will be a single data structure that records history of transactions and it does not need a blockchain for what is trying to accomplish.
What is Libra Coin?
Facebook’s Libra coin is a resolute push for a new type of decentralized platform. Libra unlike Bitcoin is permissioned which means only a few trusted bodies are allowed to keep track of the ledger. It resembles a digital currency rather than cryptocurrency. Libra is assigned to assumed wallets and the transfers are done through public key operations. A permissioned model means less computing power, thus Bitcoin wastes a lot of energy preventing attacks. There is another myth about Libra that it is decentralized, while it is not. Unlike cryptocurrency like Bitcoin, Libra would not use the proof of work mechanism that allows the miners to keep the network growing. The partners of Libra association will run their own nodes that justify transactions of Libra.
Is Libra a stablecoin?
While cryptocurrency is attached to either a flat currency or a kind of government-backed security is considered as a stablecoin. Like the name, there is more stability and less volatility. But Libra is not attached to one specific currency instead it is attached to grouped low volatility assets which includes bank deposits and government securities in multiple currencies. Libra does not seem like it is urgently attached to its value. The goal of Libra is to be more useful than any other natural currency.
The classic cryptocurrency, Bitcoin, its fiscal policy is scant. There is a finite number of Bitcoin that can exist and the Bitcoin released by mining gets reduced with time. But in Libra, is not based on monetary policy. Originally, the reserve will come from Facebook and its partners but later, if you buy Libra for cash, it will be a part of the reserve. The partners are Uber, Paypal, Mastercard and Facebook has declared that Libra will move to more decentralized permissionless system but this in uncertain. It is also a myth that Libra can diminish the cross-border fees. This is quite high fee not only because of the technological problems, but political and managing ones linked with complex procedure of money transfer between one another. There are many companies working on making the fee lesser. It is hard to believe that Libra can reduce the costs to next level. If people keep using central bank money as primary means of payment, they have to exchange that money into Libra which will come with a cost.
Data on the Libra blockchain is protected by Merkle transactions to make safe transactions. This is a data structure which is used by blockchain to enable the detection of any changes to existing data. Libra blockchain is a single data structure that records history of transactions. But Libra does not mean to help the unbanked. Facebook wish to increase the financial incorporation but it is still unclear that how unbanked will be able to purchase Libra who does not have any bank account. Libra is unlikely to help people in countries with quick dwindling currencies. Those countries lean to put in capital controls to forbid a run on their banks. It is very confusing that why Facebook is so much interested in unbanked unlike earlier.
It is believed that Libra decriminalizes Bitcoin which is not true. Libra considers itself a low volatility cryptocurrency but the blockchain of Libra is not really a blockchain and it is not a real cryptocurrency either. It is issued by a centralized entity, does not run on a real blockchain and it is attached to basket of authorized currencies. The first version of Libra is controlled by the founding coiners. Cryptocurrency does everything like a regular currency but at a slower rate because of blockchain. Libra’s setup makes the transaction at a bit faster rate but not fast as compared to traditional payment processors.