A common misconception about Libra is that it is managed exclusively by Facebook. Although the currency was actually developed and published by the social media giant, Facebook has no extraordinary control over it even in the later stages of the project. Libra is run by the “Libra Association”, a charitable foundation in Switzerland, made up of many different financial and technical companies. Not only VISA and Mastercard, but also companies like Lyft, Spotify, Vodafone and, of course, Facebook itself will participate as equal partners in the foundation.
Libra is a so-called stable currency, meaning that its value is tied to the value of various key currencies such as the euro, the dollar and the Swiss franc. This prevents sudden price movements. Users can buy Libra directly from association members or on authorized trading platforms. The scale has no upper limit on the number of coins in the system. Instead, each time a user exchanges their country’s currency for a balance, a corresponding number of new scales are created. After a user has reset his balance, the respective coins are “burned”, meaning that they are destroyed. User deposits are stored at various banks around the world and invested in low-risk assets such as government securities. Proceeds from these deposits will be used to cover operating costs, ecosystem growth and to pay dividends to early investors who have invested in the project.
The balance itself uses blockchain technology to facilitate transactions. Users can choose a portfolio of their choice to save money and generate as many addresses as they need. In addition, the scale will support smart contracts, potentially making them useful to many business activities.
Despite these promising features, Libra was criticized almost immediately after the first announcement by the crypto community. Although Facebook claims that Libra is a “decentralized blockchain, a cryptocurrency” (Source: Libra Whitepaper), this statement is, to say the least, highly controversial.
The main difference between Libra and a truly decentralized currency like Bitcoin is the way in which transactions are recorded in the blockchain. In the Bitcoin network, every user can participate in the process themselves and validate transactions. This process is referred to as mining. Because miners receive their rewards only when the rest of the network agrees with their actions, they have an intrinsic motivation to be neutral about all transactions. The fact that everyone can participate in this process further promotes decentralization.
The scale, on the other hand, relies exclusively on cooperating companies when validating transactions. The members themselves can collect transactions, create new blocks, and then have the validity of these blocks checked by the other members of the association. Once two thirds of all members agree, the block is added to the blockchain. This makes the scale, in contrast to Bitcoin very central, since the transaction authority is exclusively in the hands of the members of the scales Association. For example, governments could easily force member companies to adapt to their own idea of right or wrong by sanctions.
Another big problem is the large number of government bonds that the Libra Association could control. As soon as users can send and receive Libra directly in popular apps like WhatsApp and Spotify, the transaction volume increases rapidly. With the Libra Association intending to buy government bonds through its users, the foundation could quickly become one of the largest wealth management institutions in the world, making governments increasingly dependent on it.
And what about privacy? As the Libra Association wants to work in as many countries as possible, it has to comply with a large number of local laws and grant state institutions access to its users’ financial data. It is also unlikely that the parties will not touch the extremely valuable transactional data generated by Libra. For a company like Facebook, transaction data that might be associated with individual user accounts would be invaluable. Services such as Alipay and WeChat Pay use the financial transaction data