wallet, or spend them to
pay for goods and services
online. Eventually, you’ll
be able to tap and pay
with your phone for your
coffee, Uber ride, or
whatever you want. You
can also cash in your coins,
getting hard currency in
return. It’s not clear yet
whether this will involve
a fee, although it looks
likely. Libra is not meant to
be a vehicle you put money
into; it has been designed to
be used as money itself.
There are plans to make
it possible to buy Libra at
ATMs, too. Any fees will
be low, certainly
considerably lower than
using traditional financial
services, although we don’t
know exactly how low. The
Libra website talks of “low
or no” fees, and of potential
rewards and bonuses for
choosing to pay with Libra.
As the Libra website
says, “Libra’s mission is to
enable a simple global
currency and financial
infrastructure that
empowers billions of
people.” That’s big talk,
but then Facebook does
like to frame its projects
in grandiose language.
Buying in
When you buy a Libra coin,
what you buy into is the
Libra reserve fund, currently
backed by assets worth
around $1 billion. The
reserve fund is held in major
world currencies and US
Treasury bonds, which are
traditionally pretty stable.
By spreading the risk, the
value of a Libra coin should
remain fairly flat. And
because you are likely tobuy and then spend your
Libra coins quickly, any long-
term drift is relatively
unimportant. Initially, a
Libra coin will be worth
about one US dollar.
Libra will be much more
than hipsters tapping
phones to pay for skinny
lattes, however. All you need
is a smartphone, and youBlockchain who?
What is the blockchain? It is tempting to say it’s a mass of
complicated maths you don’t need to understand. Essentially,
it’s an electronic ledger that tracks the movements of digital
tokens between wallets – apps that store the tokens. The
tokens can represent anything: ownershipofa shareorproof
RILGHQWLW\IRUH[DPSOH(DFKWUDQVDFWLRQLV YHULÀHGDQG DGGHG
to the list, or chain. The wallets have twocryptographickeys,
one private and one public. A
transaction is encrypted using
your private key and the
recipient’s public key. At the other
end, the process is reversed, so it
can only be unscrambled by the
intended recipient, and they
know it’s from you. The
scrambling involves that
complicated maths we
mentioned. Each transaction
becomes part of the whole,
because it’s mathematically
linked to previous transactions, so it’s virtually tamper-proof.
It’s a neat system, which can run on a distributed network
(traditional cryptocurrencies) or private systems.
While Libra uses much of the same underlying technology
as bitcoin, it works differently. Coins are created as required,
and ‘burned’ (destroyed) when they leave the system. This is
quite unlike Bitcoin, which has a limited number of coins that,
in theory, never get burned, although an estimated quarter ofall Bitcoins have been irretrievably lost. Although it is called
the Libra Blockchain, it doesn’t use blocks of data, but rather
WUHDWVWKHGDWDDVDZKROH7KLVVLPSOLÀHVWKLQJVDQGVSHHGVLW
up. It is also the reason why any transition to a distributed
PRGHOZLOOEHYHU\ GLIÀFXOWGHVSLWHWKHLGHDWKDW/LEUDZLOOEH
opened outin thefuture. Facebook has termed Libra as a
“decentralisedprogrammable database,” although this hardly
helps make things clearer. It has
been widely reported as having
an initial transaction speed of
1,000 per second. If true, it looks
a little inadequate, unless there is
some batch-processing involved.
Visa runs an average of 150
million transactions per day,
which equates to around 1,700 a
second. Given Libra’s expected
use for multiple micro-
transactions, and the hoped-for
size of the user base, it’ll need to
expand capacity at some point.
The banking world has been employing blockchain
technology for years, but hidden away behind the scenes,
managing business-to-business transfers, clearing, and
settlement transactions between banks, for example. While
the adventures of Bzitcoin, with its crazy valuations, has
captured the headlines, back-room blockchain systems have
been working their way into the servers of big business.have access to banking-like
services. That’s something
that nearly two billion
people don’t currently have.
Libra can power the kind of
micro-transactions that
make all the difference in
developing countries. The
potential market is massive:
There are 100 million people
in Pakistan alone with no
access to a bank account.
The market for international
remittance is a target, too(see box, p63). Libra has
potential to do a bit of good,
as well as earn Facebook
and friends a lot of money.
Libra may appear
revolutionary for the
financial market, but the
technology really isn’t. The
widespread use of internet-
enabled devices and the
development of theblockchain ledger made it
inevitable that Libra, or
something similar, would
appear eventually. Using
money on the Internet
used to be an awkward
process – if you remember
a time before PayPal and
debit cards, you’ll know.
Libra is the logical next
step, where money is
converted into tracked,
transferable data, with the
blockchain keeping a record
of who has how much. Your
pounds are free to flash
across the world, along with
the endless text messages
and selfies.
Cryptocurrencies were
always a threat to Facebook,
as well as a huge
opportunity. Facebook’s
billions are made selling ads
to influence what people
buy. Any company that
developed a successful,
stable, cryptocurrency
would threaten that market
by building a valuable set of
data that tracks spending
habits – just what
advertisers want. If that
company had the reach and
power of, say, Google, it
could take a sizable bite out
of Facebook’s business. Libra
means Facebook can keepyp g p y p g© FACEBOOKGet used to these wavy lines; Libra introduces a new global currency.60 |^ |^ November 2019