- Libra cryptocurrency marks a milestone in the history of cryptocurrency.
- Smart contracts of Libra are reusable.
- Libra Investment Tokens brings financial rewards to their owners.
Blockchain backed by Facebook and other big companies wants to be more reliable and mainstream than established cryptocurrencies. From technical points to governance, here is what Libra cryptocurrency proposes:
Libra cryptocurrency marks a milestone in the history of cryptocurrency: never before has such a currency been designed and supported, not by one, but by 28 companies, many of which are world-renowned. In a world fraught with frauds, bugs, and cyber fraud, some could see Libra as the first final “frequentable” cryptocurrency. It is true that it is built around stability as a mantra, even if it means sacrificing this decentralization that made the eyes of blockchain activists shine.
Bitcoin and its traditional blockchain are easily encrusted. First, because blocks are only created every 10 minutes, and then because their size is limited to 1 megabyte. In 2017, researchers found that Bitcoin could hardly handle more than 7 transactions per second. In the same period of time, Visa credit cards handle an average of 2,000 transactions, with peaks at 56,000.
The search for speed can explain the first aim of Libra blockchain, which is not a chain of blocks. There is no concept of block transaction in the registry history. The transactions are not transmitted by a group to the validating nodes, but one by one and sequentially. One thousand transactions per second could thus be managed for 100 nodes. With its “unified structure,” Libra is not the first cryptocurrency to try alternatives.
Libra Developers also had to look at the challenge of register size. For verification purposes, each Bitcoin validator must have all the history of blockchain, with all transactions that have been done. This register today weighs 210 GB.
To prevent the chain weight from becoming unreasonable, Libra works with a “disposable” register. Such an idea had previously been incorporated by the Coda protocol. In the latter, the nodes need only the last “block” of the chain to validate the following transactions. It is up to the companies behind each Libra node to decide individually whether they want to keep a registry or not – nothing forces them to throw it away if they think they will find value in all the financial data.
Most cryptocurrencies validate their transactions through a system called proof-of-work (“PoW”). Supercomputers compete to validate transactions, making cryptographic calculations ever more time-consuming and energy-consuming. This process, called “mining,” is technically and ecologically problematic on a large scale. This is why new currencies are moving more and more towards proof-of-stake (“PoS”), an alternative procedure for which Ethereum has long been interested.
In this consensus model, the creator of each new block is determined automatically by an algorithm, based on the total amount of tokens it holds. Only one node works, and it is rewarded with transaction fees. Validation is therefore explicitly reserved for the richest, and Libra restricts this role to large, handpicked companies serving on its board. This so-called permission version of the proof-of-stake, the delegated proof-of-stake (“DPoS”), is also used by the cryptocurrency EOS.
Smart contracts of Libra are reusable
Finally, like Ethereum, Libra blockchain allows integration of smart contracts. To enable their implementation, Libra has developed its programming language Move, which it boasts is ” safe” compared to other languages such as blockchains Solidity of Ethereum, who are known to exhibit flaws.
The intelligent contracts of Libra are called “modules”. While on Ethereum the same piece of code can only work on predetermined wallets, Libra’s modules can be reused on any asset in the blockchain. We also note that Libra will restrict, what programmers can code on the blockchain for stability reasons.
A big business council
The governance of Libra is “permission”: that is what offends a number of crypto militants, for which a true blockchain is decentralized and operable by all. With Bitcoin and Ethereum, any individual with enough equipment can have their own node and validate transactions. With Libra, validating nodes are (initially) reserved for the “Founding Members” of the Libra Association board. In this case, these are 28 major companies that Facebook has recruited for the project.
Today, to be admitted to the board, you must already be a large company (not a state!) belonging to the prestigious Fortune 500 list. Then you have to buy Libra Investment Tokens. These are special tokens, different Libras that the user can get on a crypto trading platform. For every $10 million invested, the company receives 1 vote, up to a maximum of 1% of all board votes. That’s probably why Libra’s board hopes to reach 100 founding members by the launch. The company also obtains the right to operate a validating node, even if it is not obliged to do so.
Libra Investment Tokens also bring financial rewards to their owners. Indeed, when many people buy a cryptocurrency, the law of supply and demand makes its price rise. Libra is a stable coin, which Libra reserve sells at a relatively fixed price. The difference is pocketed by board members, in proportion to the amount of Libra Investment Tokens they bought. There is no ceiling this time.
All this would be for the first years of Libra operation. One of the Libra Association’s roles will be to “work with the community” to begin the transition to a “no-license” system within five years of launching Libra, by 2025. In principle, large investors in normal Libra would gradually be allowed to operate their own validating nodes, as on most cryptocurrencies.
In 2025, Libra Association hopes that at least 20% of the board’s voting rights will be in the hands of such people. These would not be affected by the 1% voting rights ceiling – it is argued that votes will be diluted between players so that no one can reasonably grab too much power in the system.