Random Observation/Comment #622: Approach any investment or new technology with skepticism. Also, don’t be afraid to get your hands dirty.
Why this List?
After the announcement of Facebook’s Libra project, I did a lot of reading and digging to see what this was all about. I didn’t realize that in the back of my head, I was checking off this list of requirements and attributes I’d criticize either from an end user, developer, IT, business partner, or management perspective. Seeing how they’ve executed on their documentation and marketing, I think they’ve covered a lot of these bases.
Note: These answers only represent my interpretation of the platform and not that of Facebook or ConsenSys.
1. Who is planning to adopt it on the B2B and B2C side?
First phases, Libra looks like a B2C and C2C play based on international payments embedded into messaging and social network platforms. 2.4 billion users is pretty massive for financial inclusion use cases. The adoption across the ecosystem which worries banks is the B2B play for merchants and supply chain payments prior to bank-based settlement. It looks like a v2 of PayPal and traditional payment processing.
2. How is the foundation governed?
Libra Association has a $10mm joining fee with a select membership threshold based on market share and invitation. There’s a distinct lack of financial services here. One interesting note is the promise that each founding member will not own more than 1% of influence.
3. Why would a foundation member want to join?
If you can’t beat them, join them? I assume founding members also receive some Libra Investment Tokens (LIT) which in the 2-token economic system will be traded on centralized exchanges. Having Visa, Mastercard, and PayPal on this list is a very interesting play.
4. What are the tokens and what do they do?
LIT is the investment and voting/staking set of tokens for corporate governance. Libra coin is a stablecoin that will directly be used for payments.
5. How are the tokens classified (or would like to be classified — interaction with which regulators)?
Libra wants to be treated as a currency (not a security or a commodity). LIT will want to be a security connected to a foundation (non-profit).
6. If there’s a stablecoin, what collateral is backing it?
Libra Association has real asset reserves backed in multiple currencies. They are speaking with the FED and other global central banks to get access to the proper markets to ensure the collateral is properly balanced.
7. If there’s a stablecoin, where will it be listed or traded for FIAT? On-ramp/off-ramp?
This is still unclear, but out of the crypto craze, the big winners have been the exchanges. I think most exchanges have enough capital to backwards into becoming decentralized financial market infrastructure by being those centralized gatekeepers. I can also see FB or other third parties creating these on-ramps direct deposit or lending/credit lines from banks, PayPal, or Visa.
8. What happens in an extreme bear or bull market (of the underlying asset or the leveraged assets)? Does it cause an erosion of those assets or if the assets themselves erode?
I think banks will still play a role providing credit lines to these marketplaces on the collateral end. I do think that that the growth of new digital assets will start to disrupt this view in the DeFi space.
9. How decentralized is this system?
Decentralization is a spectrum that depends on levels of control and censorship. Libra is currently not permissionless, but has plans to be. The validators and full nodes are not open for anyone to join, and purposefully behind a foundation controlled paywall to disincentivize transaction favoritism or blocking.
10. What centralized entities will play a role in the target state?
This is still up for speculation, but I see a harsher review of companies joining the foundation and more “steward”-type partnerships based on the network-of-networks effects of PayPal, Visa, and Mastercard. I don’t expect merchants or even banks will need to run their own full nodes. I think the addition of more major Telecom companies will very closely tie this to ISPs and the 5G play.
11. Who’s running the validators?
Members of the foundation will likely opt in to dedicate hardware and bandwidth. I think this looks like the beginning of a Blockchain Service Provider (coining the term BSP).
12. How are all nodes synchronized with latest information?
Transactions are batched by the selected leads to validate, execute, and distribute to known full nodes that have the full ledger history.
13. What type of blockchain is it? UTXO? Replicated VM/account based?
Less blockchain-y and more distributed immutable append-only ledger. There are accounts like in Ethereum and the transaction model is very similar, but also concepts of states that can only move (and cannot be edited)
14. What’s the coding language and capabilities (e.g. smart contracts)?
The Libra platform is written in Rust and the business logic coded by developers for top of stack applications is in Move.
15. What’s the structure of the transaction?
The transactions look a lot like Ethereum even with a sequence number that resembles a nonce. I noticed that they have a separate field for the account identity and the public address. This is probably to provide a space to include another identifier (e.g. FB User ID or Corporate ID) to the transaction.
16. What’s the finality of the network? How long does it take to reach finality?
Documentation says that there would be a 10 second finality time, but it doesn’t really talk about forks if there are disagreements between validators or valid reasons to change history. Will there be a Libra Coin Classic in the future?
17. What encryption is used for their wallets and transactions?
Mostly asking because of compatibility with other wallet addresses. 256-bit addresses does not prohibit inteorperability, but there will need to be some mappings.
18. What’s the transaction throughput and how does it handle burst usage?
1000 tx/sec has been put into the spec, which doesn’t seem out of reach for 100 validators and 10 second finality without real blocks. I am not sure how they’ll scale properly with burst usage or scale to cover the multiple use cases they likely want to include with merchants. Maybe they’ll pay extra to Visa and Mastercard for other TXs while these are just net movement on the C2C space?
19. What’s the expected end-user experience?
Calibra is a separate entity and set of wallet components that will handle the integration with FB, messenger, and whatsapp. I suspect payments will look at lot like Venmo, but add an extra view for selected dapps. There will also be its own mobile experience, which is probably there access to all banking features for managing balances and historical transactions for the future Facebook Bank. The user experience here is likely going to be the same as with a Bank, which will likely include guarantees on lost passwords and lost money.
20. What’s the expected retail market experience?
There will probably be a play with retail payments for cups of coffee or small <$100/day purchases. Perhaps they will integrate directly with restaurants and then you just scan/check-in/pay for meals through the same app experience. I think this could be a game changer that Reserve/Resy has been trying to do for a few years now.
21. How is individual, corporate, and asset identities taken into account?
Individual identities already existing with Facebook and Corporate identities have Facebook Business pages, which can be extended. Specific assets like the non-fungible crypto-collectibles will likely be represented as those generic Resource Types in the data model. I’d love to see a digital assets marketplace, but I’ve personally seen how these can get out of control from the Diablo3 days where people arbitrage across OTC bulletin board and in-game trading markets.
22. How is custody and taxes handled?
Since this is meant to be a pure currency with payment processing, the tax ownership of the currency should not incur regular taxes for a threshold amount. The taxes will likely be paid at the edges with reporting back to the proper authorities. I think there will be threshold amounts on what cash movements will be audited. Since it’s supposed to be distributed, there would be a huge leap in real-time reporting and AML for any direct payments to known entities.
23. Is the platform interoperable with other platforms? Will identities cross platforms?
If you have 2.4b users, you’re likely able to ask different platforms to interoperate with you. I still think there’s a big business with oracles (trusted third party) and guaranteed deterministic reference and market data results fed into blockchains.
24. What’s the licensing of the protocol or platform? Open source?
It looks like the Libra network will be open source, but they might keep some special sauce in the wallet Calibra and the exchange/marketplaces.
25. How will the platform make money?
This is a standard question for any blockchain platform valuation, but in this case, I think there are definitely more opportunities around ads, digital assets, financial offerings, and services that will support the growth of this ecosystem.
26. Does building on the platform lead to vendor lock-in?
Yes, but if they build enough standards and open the protocol, there will be sufficient competition from a variety of vendors.
27. How large is the developer ecosystem?
Probably very small because Move Source hasn’t even been written yet, but Move Intermediate Representation (IR) is getting there. I’m sure this will pick up from the opportunist entrepreneurs out there. Maybe there will be an easy way to convert the FB apps into this space.
28. What type of security is expected?
Security is a big question and currently unclear. To prevent DDOS attacks, there will still be a gas payment/fee for sending transactions. It looks like the user-based access will be restricted to payment-based transactions. The support and operational infrastructure behind this will be a fairly large effort.
29. What’s the regulatory impact for this token and their investors or users?
Whatever happens, the doors have been open for a lot of regulatory scrutiny and lobbying. The educational sessions will now likely be less focused on the technology, and more on the ecosystem impact and implications. I guarantee you there will be additional talks around anti-trust related to Calibra and the network of partnering members in the Libra Association.
30. How is privacy addressed in the architecture?
The answer will ultimately be “very carefully.” It’s said that addresses will not be linked directly to the identity and they can be created separately (e.g. creating new email addresses). I think there will be an easy way to create a new wallet with your known domain or extending an existing email/username like mywallet:firstname.lastname@example.org. Similar to sending emails and messages, I can direct instructions to wallet subaccounts.
Overall, if someone were to ask me what FB is doing from a business side, I’d say that they’re trying to compete and catch up to WeChat in the short term while entering into the payments space for adoption in the medium term. Long term, probably take over the world. I’m excited to see this fully remove all these paper receipts and even physical cards, although security threats with SIM swaps will likely be a bigger problem.
The hurdles in regulation, security, and privacy will shake out over the next year of development. Overall, this is great for cryptocurrency and blockchain (even if Libra doesn’t have blocks or a self referencing chain and it’s not permissionless). I suspect business for consulting companies and system integrators will still be on the rise.
~ See Lemons Research Libra