Facebook encryption project Libra is just around the corner? Need to cross 3 mountains

Facebook officially released the Libra white paper yesterday, and the rumored Facebook cryptocurrency project was finally announced.

This is a controversial project: analysts at Wall Street financial institutions, including JP Morgan Chase, RBC, and SunTrust, have all praised the Libra project. The beautiful rising curve also indicates market recognition. Or a group of legislators in Brussels, but they are full of prudence and even refutation of the Libra project.

From the perspective of Facebook itself, the development path of the Libra project is not only a short-time intensive call to the head resources, but also a variant of the undead payment dream.

The core points of the Libra project

Our goal is to have Libra coexist with existing currencies. Since Libra will be a global currency, the association decided not to develop its own monetary policy, but to follow the policy of the central bank represented by the basket.

As reported by the New York Times and the Wall Street Journal, the Libra project will use the same basket of currency pegs (US dollars, British pounds, Japanese yen, etc.) to ensure its stability, but what are the legal currency in the basket and the ratio between them is not Get disclosed. In terms of circulation, it does not set an upper or lower limit, and will adjust supply and demand according to market demand.

Libra is governed by the non-profit Libra Association behind it, which is registered in Geneva, Switzerland, and currently has 28 founding members including Uber, Paypal, Visa, Andreessen Horowitz, Coinbase, etc., and will then expand to 100 foundings. member.

There are very strict conditions to become Libra. For example, encrypted hedge funds must have more than $1 billion in Asset Under Management, while custodians that focus on serving encrypted assets need to hold at least $100 million in assets. For companies in the non-encryption field, they need to meet two of the following three: the balance of client funds with a market value of more than $100 million over $1 billion; serving more than 20 million people in multiple countries each year; Top100 was named by a third-party organization such as the Fortune 500/S&P Global 1200 Index.

According to the block, if you want to be a verification node, companies need to buy a $10 million Libra Investment Token, with an annual operating cost of about $280,000.

Currently, Libra uses a federated chain model and only founding members are eligible to participate in the network. These founding members rely on Libra Investment Token to complete governance, such as adjusting the supply of Libra tokens according to market demand, and determining whether the network introduces new verifiers.

In addition, Facebook has registered a new subsidiary, Calibra, which has registered for the Money Services Business (MSB) under FinCEN and is permitted to serve 50 US states. It will provide financial services to the Libra network. The first product is expected to be a digital wallet for storing Libra tokens and connecting to the Libra network. It is reported that the digital wallet will be built into two instant messaging softwares, Messenger and Whatsapp. Calibra is expected to go live in 2020.

Libra's prelude

Along with the process of the Libra project surfaced, Facebook is constantly recruiting talents and companies in the industry:

According to Wired, as early as 2017, Facebook asked its strategic planning staff, former A16Z partner Morgan Beller, to start researching the blockchain and report to Facebook executives.

In May 2018, Facebookl directly established the blockchain department, and David Marcus, the head of the department from which he led, has been the former chairman of Paypal, the former head of Messenger, and a member of the board of Coinbase. Looking up (now resigned), these are the conditions for Libra's production today – a direct example is that in March this year, Tencent Technology reported that Facebook's more than 40 blockchain team, mostly from Paypal, Messnger, and they all have various connections with Marcus.

In addition, other executives in the Facebook blockchain department have experience across social software, cryptocurrencies, and blockchains. For example, Evan Zhang, one of the main engineers in Facebok's blockchain division, has more than 10 years of engineering experience at Apple and is a consultant for the Zilliqa project (according to Zilliqa's official website); another principal, James AWurry ( James Evringham) is the former vice president of Instagram and has repeatedly expressed his enthusiasm and appreciation for the blockchain in public.

In addition to the amnesty on these countertops, the “think tank team” behind the Libra project is also very eye-catching. According to CoinDesk, the Libra white paper's signature list includes Christian Catalini, a professor of MIT who specializes in cryptocurrency economics, and Ben Maurer. Founded reCAPTCHA (later acquired by Google), engineer from Carnegie Mellon University, Ramnik Arora – former Goldman Sachs investment strategy analyst.

Among them, especially worth mentioning is George Danezis, the startup that he founded Chainspace, which was acquired by Facebook in February this year. The company's research direction includes fragmentation technology, consensus algorithms and privacy applications. It is worth noting that, according to the company's official website, the algorithm Blockmania created by Chainspace has now implemented a TPS of 350,000 to 500,000 in a single shard, relying on 16 nodes. In addition, the February acquisition also brought three blockchain researchers to Facebook, all of which were included in its blockchain division.

Our new leaderless consensus algorithm, Blockmania is based on a DAG structure is extremely fast, currently 350k-500k TPS on 16 nodes a single shard distributed across the internet. It does consensus transaction ordering within a single shard.

In addition to recruiting, Facebook also spent a lot of effort to negotiate with the community to gather more resources for the birth of Libra. According to the New York Times in March, Facebook was also in contact with the same exchange to discuss the sale of tokens to customers.

To understand more deeply why FB is determined to be a "stable currency" of its own, it is also a good idea to look for some reasons in history:

If you look at the long-term dimension, Facebook's enthusiasm for paying for this track is not a temporary rise. As early as 2010, it launched the digital payment solution of Facebook Credit: customers can use 1 dollar: 1FB Credit, the latter can be used. For the purchase of paid apps and game props, Facebook will draw 30% from the FB Credit the developer gets.

Since the iOS Appstore in the mobile era has not yet flourished and the support of a large number of Facebook users, FB Credit has been used in many scenarios, which has contributed a lot of revenue to Facebook. In 2012, revenue generated accounted for about 16% of the total revenue of the year ( Source: Barclays analyst Ross Sandler).

There is also pain behind the glamorous. FB Credit has indeed contributed a lot of revenue, but many of its profits will be intercepted by intermediaries such as Visa and MasterCard, making the profitability of the business not optimistic, which directly led to its closure in 2013.

In order not to repeat the same mistakes, to do a whole process can remove the intermediary's cryptocurrency, presumably one of the driving force for Libra.

Unfavorable factors in project realization

The Libra project has received a lot of love from Facebook, but its ultimate success still faces a lot of flaws:

1. Technical details that are difficult to finalize

Libra, a social project that spans more than 100 countries and has a population of more than one billion people, has a lot of technical details that are difficult to determine. The Libra white paper says it has not addressed the issue of data storage:

"We expect that with the use of the system, the ultimate storage-related storage growth may become an issue."

In addition, the white paper also describes some other issues that remain to be resolved:

How to maximize security while more certifiers join the network, how often the certifier pool can be adjusted, and how the module group can be upgraded securely.

In terms of consensus mechanism, the white paper looks forward to its future conversion to PoS, but how to realize the transformation, how to decentralize the existing founding members who have invested heavily, make Libra an ideal, unlicensed, decentralized chain There is no answer to the governance project.

2. Intense external competition

Libra is taking a slice of the cross-border payment market, but on the same battlefield, there are already many organizations fighting.

The World Wire network, such as IBM and Stellar, has gathered banks and financial institutions in 72 countries as of March this year, and supports 48 currencies and 46 “bank terminals” (including counters and remittances). Equipment) that allows people to send and receive cash at these service points. And a number of stable currency varieties have been launched on the network.

Another example is JPM Coin of JPMorgan Chase, relying on the global network branch of JP Morgan Chase and the support of massive mobile funds and high net worth customers, on its own Quorum network 1:! The token issued by the US dollar will also be a strong competitor to Libra.

In addition, JP Morgan Chase's project, which also operates on the Quorum network, and the Interbank Information Network have attracted 220 banks to join, and announced in April this year that they will also enter the payment field.

More worthy of Libra's attention is that in May of this year, JP Morgan Chase announced that it will cooperate with Microsoft Azure on the technical advancement of Quorum, and then consider the long-term cultivation of Microsoft in the blockchain industry, which is the value of the previous carbon chain. It is hard to deny that this is Microsoft. A prelude to admission encryption.

3. Pressure of supervision

Libra's data transmission, in addition to financial, also involves a large amount of private information, and it is almost a global service, then the EU's GDPR (General Data Protection Regulation), PSD2 (Payment Services Directive) these data supervision guidance / program How will it affect Libra?

Some politicians also expressed a diswelcoming attitude toward Libra: before Libra published a white paper, US Congressman Patrick Mchenry sent a letter to hold a hearing on the Libra project; another Congressman Maxine Waters shortly after the Libra white paper was published. And bluntly asked to suspend the project. Two European parliamentarians on the other side of the ocean also called for a regulatory review of Libra, warning that Facebook's massive users and Libra could cause "shadow banking."

Later, the Financial Times reported that the G7 statement will establish a high-level forum to assess the risk of the Libra cryptocurrency to the financial system. In a letter from French Finance Minister Bruno Le Maire and French Bank President François Villeroyde Galhau, the G7 Working Group will also consider how to ensure proper control over the potential risk of money laundering of Facebook Libra cryptocurrencies, in addition to several central Banks and the International Monetary Fund will also participate in the discussion.

In addition, as Calibra emphasizes, its digital currency wallet will not be online in jurisdictions where digital currency is currently banned. This may mean that Libra will lose to the two most populous countries in the world, India and China. (The latest attitude of the Indian government agency IEPFA is that the regulatory focus is on prohibiting the sale, purchase and distribution of cryptocurrencies, which the holder can waive.)

It is worth mentioning that Facebook has a considerable number of users in India, and only Whatsapp has reached 200 million users. In addition, India has huge cross-border demand for funds. In 2018, India's cross-border remittances amounted to $79 billion (about 15% of global cross-border remittances), while China's was $67 billion. So for Facebook, India is a market that cannot be ignored. For the Libra project, the Indian government's position will be crucial for the next period of time.

According to previous reports from Bloomberg, Facebook's stable currency project may be launched in India as soon as possible in the third quarter, but Libra can still be the current status of the Indian government's ban on digital currency and even the criminal responsibility of the purchaser. There is a lot of uncertainty in achieving the expected success.

Author: BIMONTHLY; Editor: Tang Han