From the beginning, cryptocurrency was about trust. The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
Now, that power is in Facebook’s hands. This morning, Facebook announced an ambitious new cryptocurrency called Libra, to be managed by a group of tech and financial companies including Facebook alongside more conventional banking companies like Visa and Mastercard. It’s a hugely ambitious project, basically Facebook’s take on bitcoin. On a technical level, Libra is broadly similar to bitcoin and Ethereum: it has the same semi anonymous transacting, wallets, digital addressing, and the same support for smart contracts and independent apps. In theory, it’s everything good about cryptocurrency, only bigger and faster.
But while Libra plays at decentralization, it’s still a Facebook project. Facebook employees designed it. Libra wallets will be embedded in Facebook apps like Messenger and WhatsApp, which means Facebook products will be the primary way people experience it. Using Libra means trusting Facebook, which is a hard sell in 2019. In the most basic terms, using Libra means trusting Facebook. If the project succeeds, it could mean the end of the decentralized era of cryptocurrency.
While many of the technical aspects are similar to bitcoin, Libra breaks from the model in important ways. The currency runs on a permissioned blockchain, which means that only companies in the Libra Association can mine it. It’s a necessary concession to stability, allowing Libra to avoid the power use and transaction lag problems that have plagued bitcoin. But it also makes the Libra Association a de facto central bank, actively managing the currency for stability backed by a reserve of bonds and liquid currency.
Works Cited
Brandom, R. (2019, June 18). Facebook’s cryptocurrency has a trust problem. Retrieved from https://www.theverge.com/2019/6/18/18683867/facebook-cryptocurrency-libra-calibra-trust-banking