Coin Security Institute: Analyze the long-awaited stable currency Libra

What is the important impact of Facebook's entry into the cryptocurrency sector?

Key points

1. Libra is a cryptocurrency coined on the Libra Network, a blockchain developed by a Swiss-based and Facebook-led alliance. 2. The cryptocurrency will be supported by a package of financial assets (Libra Reserve) provided by the node operator. Libra plans to be initially released in 2020 and will be supported by four currency-denominated assets: US Dollar, Euro, Japanese Yen and British Pound. 3. This new financial infrastructure operating on the POS (Profits) blockchain using a dual token system will rely on the BFT consensus algorithm and will be completed from the “licensed blockchain” to the “unlicensed blockchain”. Support for smart contracts after the transition. 4. Over the next 18 months, Libra will be included in the Facebook ecosystem consisting of Messenger, WhatsApp and Facebook.com (using the Calibra Wallet interface). The move is likely to further expand its existing 2.4 billion user base, enabling them to use Libra tokens globally and use them to trade. 5. In the medium to long term, the program is expected to have a significant impact on local and international markets , and is significant for the crypted assets, financial and economic landscape .

In the medium term:

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– Facebook will have the opportunity to further enhance its position as a provider of digital apps, digital websites and e-commerce open source tools. – As more institutional participants and daily FIT users can use Libra, this may result in additional crypto asset transactions.

In the long term:

– Reinventing the payment industry: A new series of "gatekeepers" may appear in the digital world, threatening the bank's existing status as a "payment assistant." – Providing new financial services: New service providers may emerge, creating innovative decentralized applications on the Libra network that will ultimately provide new financial services to end users worldwide. – Make global capital flows more free and reduce global capital constraints. Central banks may become more difficult to prevent “capital flight” and maintain monetary policy through strong capital restrictions. – Promoting global de-dollarization: Once Libra is adopted globally, a new transaction unit may emerge, reducing the reliance on single currency in global goods and services offers. – The Libra project has the opportunity to be the first project to implement the concept of Special Drawing Rights (SDR) and IMF/World Bank and other international initiatives in “Daily Life”, which is reflected in the fact that it is a And cryptocurrencies that are used on a large scale by individuals.

On June 18, 2019, Facebook disclosed details about Libra. Libra is a stable currency supported by a basket of financial assets and runs on Facebook's own blockchain. In this article, we'll start with a detailed look at this highly anticipated new cryptocurrency, followed by an in-depth analysis of the technical details. Finally, we will explore its impact from different time horizons and from both local and international perspectives.

1. Libra Overview The Project Libra project disclosed by Facebook earlier this year was officially released on June 18, 2019.

Libra is a new global cryptocurrency based on the open source blockchain Libra Blockchain with its own equity certification agreement.

According to its white paper, Libra is supported by the non-profit organization Libra , which has two main functions: • Manage and supervise the Libra network • Manage Libra's reserves to ensure that its value is supported by real assets.

Libra is backed by its reserves (Libra Reserve), which contains a basket of low-volatility assets that maintain its value relatively stable.

However, Libra is not designed to be a traditional “ stabilized currency ” (as defined in the current cryptographic asset field), and its value is not tied to a single legal currency. Specifically, Libra will initially be supported by a basket of four currency-denominated assets: US Dollar, British Pound, Euro and Japanese Yen. These fiat currencies are the first assets to be included in the Libra Reserve. We believe that for any asset (whether or not it is a legal currency), three key criteria should be met in order to be included in the reserve in the long run:

– There is no correlation between them: for example, for legal currency assets, only freely circulated French currency is eligible, Libra reserves do not need to be bound or softly linked to each other (such as the Hong Kong dollar and the US dollar).

– The decision-making process must be linked to public organizations (ie central banks) or freely available assets (eg commodities).

– Quotability: Assets must be widely recognized in all jurisdictions and have the value of programmatic quotes. For example, Apple's stock (AAPL) can only be traded with a single quote currency: US dollars. Therefore, the stock lacks additional quotations and cannot serve as a way to value other assets in various jurisdictions. Alternative assets, such as gold or bitcoin, can better serve as a tool because they are traded across multiple markets around the world and can therefore be included in a basket of assets to determine the Libra value of end users worldwide.

2. Technical Overview In this section, we will explore the consensus algorithm and the smart contract support and dual token system of the blockchain.

Consensus algorithm

Libra will run on its native blockchain Libra Blockchain . The blockchain is supported by a POS (Equity Proof) algorithm, which is run by alliance participants with highly geographically dispersed and highly technical requirements.

These nodes will rely on the new consensus algorithm, Byzantine Fault Tolerance (BFT). This consensus algorithm, called LibraBFT , is a variant of the HotStuff framework, which was released in 2018 by Maofan Yin and Dahlia Malkhi of VMware Research. The framework may allow future interoperability with other blockchains supported by the BFT consensus algorithm, such as Tendermint-based blockchains (eg, currency chain).

We have previously discussed in depth the licensed blockchain Quorum created by JPMorgan Chase, another large-scale cryptographic asset plan taken by a traditional (non-encrypted asset) company. The table below shows the similarities and differences between Morgan Coin/Quorum and Libra/Libra Network.

Table 1 – Comparison of Jorge Chase's Quorum and Facebook's Libra

Smart contract and language

Smart contracts will be written in the programming language Move created for the Libra blockchain

According to the language white paper, Move is an "executable bytecode language used to implement custom transactions and smart contracts."

One of the characteristics of a licensed blockchain is the ability to run pre-approved "out of the box" smart contracts on the network. However, this smart contract will be the only contract that can be executed when the network is online. Although this setup has limited the way companies and individuals using the blockchain are expected to use from the outset, this limitation also reduces the possibility of errors in the chain, such as Ethereum Parity Wallet events, because the only feature allowed for this setup is peer review by the federation and open source communities.

To try out the Libra test network and read more, developers can access the Libra Developer Portal .

In addition, for alliances of up to 100 participants, the number of use cases, the requirements, and the willingness to pre-create will be complex, as the necessary smart contracts and tools required by the business participants can be obtained and queried directly from the alliance itself.

Double token system

Just as in MakerDao's MKR (governance token) and DAI (stable currency) systems and other dual token systems in the crypto asset industry, Libra will also have a token to govern, called Libra Investment Token (LIT), which will Allow people to participate in their network governance. The value of this token comes from the value of participation in governance, or any potential income or reward paid to the network maintainer, and is isolated from the daily value of the payment token. The value of managing tokens depends on the time and utility of the payment tokens provided by the alliance.

However, it should be noted that non-profit organizations, NGOs, and other influence-oriented organizations may be involved in governance without having to hold a minimum of $10 million in LIT. As many “impact-oriented” organizations are engaged in international payments and transactions, Libra's lower entry barriers for such institutions may have a significant incentive to promote the adoption of this token. This is fully illustrated by the fact that three major social influence organizations, Kiva, Mercy Corps, and World Women's Bank, have officially announced their participation.

For a regular, non-impact-oriented entity, it must be clear whether the threshold for participation is measured in US dollars or in the total network (ie, assuming at most 100 verifiers, the ratio is 1%) to measure.

3. International and local influence In this section, we will explore its local and international influence from three different time horizons, namely, short, medium and long term.

short term

In 2019, Libra will open the test, and this "sandbox" environment will allow third-party developers and any existing organizations to experience writing contracts and become familiar with the new blockchain and its smart contract interface. One of the most intriguing exceptions from the current list of initial participants is the absence of financial institutions. As discussed in our previous report on Stabilizing Coins, non-financial companies are less averse to risk than traditional financial companies, and have more incentive to subvert the payment industry, and they have the ability to Implement faster and more scalable.

Financial institutions like banks are currently experimenting with blockchain networks through Ripple/Rippo services and Morgan Coin/Quorum.

For Facebook, Whatsapp, and Instagram users, Libra might find a way to get into the apps they use every day, starting with the Calibra wallet interface.

Although the main online line is expected to be 2020, at this stage it is not expected that there will be significant competitors that can be compared with Libra, as most large companies in the financial technology industry are involved.

This incremental transition from a licensed network to an unlicensed network encourages stakeholders to start creating now, with a first-mover advantage in the Libra ecosystem, compared to the licensed infrastructure design features of JPMorgan Quorum. Capitalization.

Medium term

In the medium term, we expect Libra to have a positive impact on Facebook and the entire crypto asset industry.

Let Facebook stand on the next digital frontier

In the past, Facebook has been investing a lot of resources to provide the world with infrastructure.

1. Website Certification : Facebook first provided the “Log on with Facebook” authentication toolkit on its developer portal, reducing initial barriers to creating social applications, games, websites and platforms. Today, despite data and privacy concerns, many users are ubiquitously "logging in with Facebook" to save a few clicks in the process of logging into any new website.

2. Mobile development : Over the past few years, Facebook has built, opened up and supported its React Native framework, helping to drive app development for responsive mobile and web platforms, again reducing the need to create mobile/all-in-one interfaces to improve the user experience. Obstacles. Many apps and interfaces are now built and maintained using the React framework, helping to consolidate Facebook's position as a player in the mobile space.

3. Digital Payments : The most valuable industry that provides tools in this open source environment? The economic framework, such as the Libra Blockchain & Move language open source tool, will once again stand at the forefront of open technology to the world. If the company, platform and market use the token as its default currency, this will allow Facebook to become an important player in future e-commerce while reducing the cost of creating and running business for companies and individuals.

Enhance accessibility in the field of encrypted assets

Today, although the total market capitalization of the crypto-asset world has exceeded $283 billion (at the time of this writing), it still faces challenges in expanding the scope of global adoption. However, the Libra ecosystem seems to have a unique advantage in increasing the availability and participation of the world of cryptographic assets, thereby expanding its scope of use and influence, mainly because:

1. New channel options : Currently, access to encrypted assets requires access to a legal currency channel or an over-the-counter counter that has been properly licensed and can operate as a “transaction assistant”. In the Libra environment, the initial entry into the world of cryptocurrency and digital assets may not require access to fiat money at all. For example, eBay or other markets (such as Mercado Libre) participating in the initial alliance can help Libra flow into millions of people's wallets by allowing individuals to sell or provide resources and items directly in exchange for cryptocurrencies. The initial custodian and network partner can mimic the BitTorrent token ecosystem, which allows individuals with network connections to provide resources to earn encrypted assets, and “atomic exchange” between physical, real resources, and digital values. This network effect, which allows participants to achieve better value propositions, connects users and consumers to producers through more channels of use and acceptable platforms.

2. Additional Arbitrage Opportunities : Libra will trade with mainstream cryptocurrencies such as Bitcoin, which will result in arbitrage opportunities, which are only available through the quote currency (here referred to as Bitcoin) and the Libra Reserve Assets basket. Assets can be traded to complete. This “multi-legged” arbitrage strategy may increase global cryptocurrency trading volume and liquidity. It may also attract new institutional parties to participate in trading encrypted assets, but only if they are able to trade with the legal currency assets in the Libra Reserve.

3. Stabilized currency issuers face more intense competition : Libra may be able to catch up with certain stable currency issuers because it has access to local hosting partners in multiple jurisdictions that allow entry and exit of encrypted asset transactions worldwide. Because the latter is limited to issuing a single stable currency linked to a single currency. Existing stable currency issuers will be forced to maintain a level of transparency and easy access to the level to remain competitive.

4. Large-scale digital adoption : Finally, Libra tokens are uniquely positioned to gain large-scale digital adoption because of the many potentials on the trading platform for trading with legal currency, cryptocurrencies and other market assets. In the process, it can smooth the learning curve of the daily participants of the crypto-equity ecosystem by familiarizing more people with blockchain technology and smoothing the way for more end users.

long

In the long run, Libra's economic impact and financial impact will be very different. Some potential macroeconomic impacts include the following:  Reinventing the payment industry : A new batch of gatekeepers will build a new arena in the digital world. There is a long-standing debate that is “who will eventually become a key financial service provider in the mobile industry?” and the Libra ecosystem may lead to “financial disintermediation”.

 Increasing financial services products: This modular blockchain may, like decentralized finance, lead to the creation of new decentralized services for cryptographic assets, which will ultimately strengthen more intense competition by lowering individual entry barriers. Bring more efficient and competitive products to end users.

 Make global capital flows more free and reduce global capital restrictions. As a basket of international currency and financial assets, the cryptocurrency Libra has the potential to increase risk-averse channels for individuals. Some channels and markets will use Libra as the currency of the currency, which may bypass the central bank's capital controls. Stabilizing coins and crypto assets also play this role in some countries, as evidenced by the premium of domestic exchanges in countries with capital restrictions.

推动 Promoting “de-dollarization” around the world, introducing a new set of books for global transactions : If Libra is widely used globally, this may (preliminary) lead to new global trading standards. “This global digital tool” can be viewed as a functional and tradable version of the SDR (Special Drawing Rights) recommended by the IMF. However, Libra is now more conservative (because it does not include the renminbi), but its governance has become more decentralized. But this will also lead to the shift of monetary policy from public officials to private companies, which may ultimately jeopardize consumer rights and lead to a new monopoly environment in the global import and export industry.

These features can serve individuals and consumers around the world in the long run, but Libra, as an ecosystem and cryptocurrency, can also benefit large global stakeholders and financial institutions. Potential applications include:

筹 Raising funds through a single unit of account : For global companies that want to raise funds by issuing bonds in the primary market, they can raise funds in a “neutral currency” like Libra without having to do it multiple times in local currency. Bond issuance.

结算 Settlement currency for global transactions : In cross-border transactions, global (neutral) currency can be used to reduce the difficulty of litigation between parties using different domestic currencies in different jurisdictions.

Ultimately, in the long run, this move may prevent more end users from using blockchain payments, such as Bitcoin's Lightning Network, unless Bitcoin is included in Libra's official asset basket's reserve assets. However, from a value storage perspective, Libra (and other similar products) will add new channels for funds to enter crypto assets/digital assets, and these assets will continue to take on a number of features that can coexist with Libra. All in all, in the long run, Libra can further help increase the link between crypto assets and the under-chain economy.

4 Conclusion

In the medium and long term, Facebook's initiative to focus on Libra's encrypted assets will have a major impact on the financial industry and the global economy. Libra will initially be supported by a basket of French-denominated assets, the first attempt to create a world currency (chain or chain) that is used daily by billions of individuals and institutional users around the world.

However, how successful it can be depends, to a large extent, on whether Libra can persuade regulators and financial institutions to work with the alliance to build a flexible framework that meets decentralized governance needs and meets existing domestic and international regulatory requirements. .

Other key factors include the ability to expand the Libra user base, the ability to build a trusted financial institution alliance to keep the mortgage reserve in custody, and the ability to quickly enter/exit encrypted assets (ie, a legal currency deposit account). In addition, whether the Libra Foundation can operate independently of Facebook in a way that is similar to the existing monetary and fiscal policies of developed countries, will be a key factor in gaining public trust.

Whether Libra can be one of the biggest success stories in the crypto-asset industry, it could help narrow the gap in access to basic financial services and narrow the gap between individuals who have access to digital connections but have yet to open bank accounts. . But there are still some questions to be answered by Libra, including: – What financial institutions will participate in the alliance – more details about mortgage rewards and participation costs / rewards – how Facebook may advance the project while implementing the Internet.org program, This allows access to the Libra network without a network connection. – What "Layer 2" decentralized applications or tools are likely to be or are encouraged to be created on Libra – considering how there may be a "dust attack" in a short period of time, how does the network give priority to point-to-point transactions generated by humans? Level settlement

Despite the above uncertainties, Libra has laid a good and mature foundation for the promotion of blockchain technology and cryptocurrency. It is expected that related technologies and models will soon be adopted by traditional enterprises and individuals.

Reference links: 1. https://libra.org/en-US/white-paper/#introduction ↩ 2. Abraham, Gueta, Malkhi. Hot-Stuff the Linear, Optimal-Resilience, One-Message BFT Devil (2018) Https://dahliamalkhi.files.wordpress.com/2018/03/hot-stuff-arxiv2018.pdf ↩ 3. https://blog.zeppelin.solutions/on-the-parity-wallet-multisig-hack-405a8c12e8f7 ↩ 4. For the full list of initial backers. https://www.theblockcrypto.com/2019/06/14/facebooks-cryptocurrency-partners-revealed-we-obtained-the-entire-list-of-inaugural-backers / ↩ 5. Read our report about JPM Coin and the implications about the cryptocurrency and blockchain created by JP Morgan. https://info.binance.com/en/research/marketresearch/jpmcoin.html

Article from: Coin Security Institute – June 18, 2019

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