Analysis: Libra's imagination and realistic resistance from the core mechanism

The OK Research team conducts long-term follow-up on Libra's official developments, researches Libra white papers and conducts technical testing of Libra Network, comprehensively interprets Libra's core mechanisms and key innovations, and analyzes Libra's impact, development opportunities and resistance.


01 LibraNetwork's underlying technology – better balance of transaction performance and openness

LibraNetwork, the underlying system of Facebook's stable currency Libra, is an asset issuance and smart contract development platform. Although the Libra Network implements open source, it is still a chain of alliances from the point of view of whether or not the access to the consensus node requires authorization. It can also be called a license chain. The consensus algorithm is based on the PBFT algorithm HotStaff.

System technical indicators:

– System throughput is 1000TPS

– Trading delay: 10 seconds

– 100 validators will be extended to 500~1000 in the long run.

– Consensus algorithm PBFT

– Support for Turing Complete Smart Contracts similar to Ethereum

Compared with the Ethereum version of the alliance chain version, the two are similar:

– The address is still anonymous and is not bound to the user's real identity. A user can create as many accounts as you want. Therefore, it has certain anti-regulatory characteristics.

– The account model is non-UTXO and supports the Turing Complete Smart Contract of Ethereum.

– The execution of the transaction requires payment of Gas, and the price of the Gas fluctuates according to the load of the network.

– The data storage on the chain requires a certain deposit, which is similar to EOS.

The main differences are:

– The account can be replaced with a public and private key. When the user suspects that the private key is incomplete, the account's private key can be changed without transferring the asset to a new account.

– Users cannot deploy their own smart contracts, and all current intelligence can only be deployed by the Libra Foundation.

– The new smart contract language is called Move, which is similar to Solidity. It is also a stack-based language with no heap concept. The difference is in enhancing security and modularity.

– Transaction processing is done in batch mode, but there is no block concept. Every transaction exists independently.

– Storage also has no block concept, and the entire storage is organized in the form of a Merkle tree.

– Dual currency mechanism: In addition to the stable currency Libra Token, there will be Libra Investment Token, representing the income right of reserve assets. The Libra Association's revenue comes from reserve assets and Gas. Since the reserve assets are low-risk and low-yielding, they only pay dividends when they reach a certain scale.

– The current consensus algorithm is PBFT, and the long-term goal is to migrate to POS.

– A large amount of micropayments are done under the chain, either through the lightning network to trust the clearing system, or through the traditional clearing center.

It is worth noting that Libra Network can support 100 consensus nodes under the PBFT consensus algorithm, with outstanding technical progress. In the early days of the public chain using the PBFT consensus algorithm, such as NEO, the number of consensus nodes was only seven, and the degree of decentralization was seriously insufficient. In addition, considering that the first nodes of Libra Network are members of Libra Association, their members are well-known companies or academic organizations. The risk of partnership cheating or server collective being compromised is small, and the degree of decentralization and network reliability are more secure. it is good. The Libra Network technology solution better balances transaction performance and openness.

02 Libra Network Eco-Building – A strong lineup of eco-partners, it is expected to provide rich payment scenarios for Libra

LibraNetwork is managed by the Libra Association (non-profit organization), which includes well-known companies, non-profit organizations and academic institutions from all over the world. Facebook is a member of the association and is responsible for the construction and operation services before the official network release. Its leadership position will be Until the end of 2019, Libra will be managed by the association after the official web release.

The Libra Association has 28 initial members and plans to reach 100 in the future. The members of the initial association cover a number of industry giants such as payment, e-commerce, TMT, telecommunications, and some of the leading forces in the blockchain industry and venture capital industry and well-known academic research institutions. It is worth noting that Internet companies such as eBay, Lyft, and Uber have the opportunity to provide rich payment scenarios for Libra. Master Card, PayPal, Visa and other payment giants have the opportunity to become a “compliant currency exchange service provider” in the libra network. Or act as a clearing center in a chain expansion scheme.

At present, the incentive mechanism for members of the associations is not clear. Libra's reserve assets will be used to invest in low-risk assets, which will be used first for the association's operating expenses, including: investing in ecosystem growth and development, funding NGOs, and funding engineering research, etc. . In addition to meeting these spending needs, other benefits will be used to pay Libra's early investors a dividend on the initial investment.

03 Libra 's pricing mechanism – similar to the SDR (Special Drawing Rights) basket of currency pricing, reducing the risk of single currency fluctuations

The Libra Association calls it the global dimension of Libra's future, and its pricing is not anchored in a single currency, but in a basket of currencies. This is similar to the pricing method for the SDR SDR.

Referring to SDR, it is speculated that Libra's pricing method is that it is initially denominated in 1SDR=1 USD, selects multiple currencies including US dollars, and determines the weight of different currencies in the basket, and then obtains 1 according to the exchange rate of different currencies and US dollars. The specific composition of Libra, that is, the number of different currencies. Such as 1Libra=1.0174CNY+0.38671EUR+11.900JPY+0.085946GBP+0.58252USD

Under a basket of currency pricing systems, the risk of fluctuations in a single currency can be reduced to some extent. As the exchange rate of various currencies in the basket changes, the price of Libra changes in dollar terms, and it does not always equal one dollar.

04 Libra issuance mechanism – similar to the currency board system, 100% reserve issuance; authorized dealers practice currency channels, pledge funds are decentralized

The Libra Association stated that Libra's issuance is similar to the currency board system, guaranteeing sufficient asset reserves. Under the currency board system, currency issuers use 100% foreign exchange reserves as a guaranteed issue currency at a fixed exchange rate. It can be understood that the Libra Association is committed to releasing Libra with a 100% asset reserve.

Libra Reserve Assets is a series of low volatility assets, including cash and government currency securities provided by a stable and reputable central bank.

The reserve includes two sources: Libra's investors and Libra users. Users need to purchase Libra in French currency at a 1:1 ratio, which will be transferred to the pool of reserve assets. It should be noted that since Libra is priced according to a basket of currencies, the 1:1 here does not mean 1 dollar.

It is worth noting that Libra will authorize a large number of dealers to exchange French and Libra. Moreover, its reserve assets will be decentralized and kept, and the risk of centralized storage of reserve assets will be reduced.

The specific asset audit rules, Libra Association has not been disclosed, only indicates that it will achieve better auditability.


05 Libra Application Scenario – Or have the opportunity to pay for cross-border transfers and a large number of Internet applications

Libra application scenarios can be divided into three categories:

1. Transfer remittance. According to Bloomberg, Facebook's WhatsApp users can use Libra to send money to India.

2. Facebook products and services are paid. According to the New York Times, Facebook plans to use Libra to pay for Facebook advertising.

3. Payment of products and services of Facebook Eco Partner. According to the Wall Street Journal, the first partners of Facebook include e-commerce (Ebay, Farfetch, etc.), shared travel (Lyft, Uber), telecommunications (Vodafone and Illiad, telecommunications service providers in Britain and France). These cooperative companies will provide Libra with a rich application scenario in the future.

The above application scenarios have not been confirmed by the Libra Association. And considering that there are no small compliance issues in the above applications, it is expected that it will be difficult to implement smoothly.


06 Libra 's Significance and Influence

1. From Facebook and its partners themselves

Behind Facebook's Libra release is the concept of “self-finance” for Internet giants. It is conducive to the opening of Facebook's business lines and between Facebook and its eco-cooperatives. The core value lies in improving the efficiency of inter-enterprise financial communication and reducing the efficiency. The dependence of traditional financial institutions such as banks.

2. From the impact on the digital currency industry

1) Facebook has 2.7 billion users worldwide, more than a quarter of the world's population. This time, Facebook released Libra based on the blockchain network, at least able to promote the blockchain concept to the majority of Internet users and expand the awareness of digital currency.

2) Further, if Facebook can successfully expand a large number of application scenarios to achieve Libra payment, it will greatly promote the application of blockchain digital currency in traditional business scenarios, and increase the popularity of digital currency wallet and merchant acquiring system. The overall improvement in infrastructure integrity of blockchain digital currency payments.

3) Libra is a stable currency priced as a basket of currencies, and its combination with BTC and other digital currency underlying assets can provide more dollar currency financial products and more arbitrage opportunities.

4) Also, due to the openness of Libra, major exchanges may accept Libra, which is expected to introduce new funds and users to the encrypted digital currency market.

3. Challenges to traditional finance

Libra is different from JP Morgan Chase Stabilizer JPM Coin. JPMCoin is essentially the application of blockchain payment systems between financial institutions such as JP Morgan Chase and other banks. Funds flow through the banking system and will strictly comply with the banking currency transfer. Regulation requirements, such as KYC, anti-money laundering, etc.

But Libra is committed to providing new money payment services to its customers. Imagine that, ideally, Facebook has built a very strong ecological alliance, and the consumption scenarios of a large number of Internet giants around the world support Libra payments, and Libra can also use Libra to complete remittance transfers. That means that there are a large number of monetary capital activities in the world that are separated from the bank's monitoring system, and there is a prominent risk of money laundering. This is something that the government and the banking industry cannot tolerate.

We have optimistic expectations that the Libra Network blockchain system can be prepared for some compliance from a technical perspective. But unfortunately, we didn't see Libra showing its regulatory design in terms of compliance. At least Libra blockchain doesn't have a PKI mechanism, which means Libra accounts are not tied to the user's true identity. KYC is not required to open a Libra account. . It is also impossible to technically meet the most basic KYC and anti-money laundering requirements.

So it is not difficult to understand that in less than a day after the release of the Libra white paper, many governments have expressed their views on the project. Currently, the US Senate Banking, Housing and Urban Affairs Committee has decided to hold a hearing on Libra on July 16.

Under the pressure of regulatory compliance, Libra has chosen to further transform its blockchain network to provide basic functionality to meet compliance requirements and to work with licensed financial institutions to ensure traceable auditability of legal currency access; or, Extremely cautiously expanding Libra's application scenarios, such as one-way payment in a single consumer scenario, but this greatly reduces the value of the blockchain network and undermines Libra's imagination.

As for the competition with sovereign currencies, it is still too early to talk about. Libra can achieve liquidity close to sovereign currency only under the premise of satisfying enough application scenarios and a large enough user base. And Libra is different from BTC in that its asset pricing is determined by a basket of French currency assets such as the US dollar, which has a highly consistent positive correlation with sovereign currency fluctuations. Ideally, Libra has become one of the pricing units in many Internet products – it's very rare – because we have to consider the competition and game between the various Internet giants' ecosystems; let alone be the global pricing unit for cross-border trade.