The lid on the fabled "Facebook coin" project has been finally lifted in the middle of June. Libra, a name evoking an ancient unit of weight, scales of justice and a somewhat clever jab at Winklevoss' Gemini, has already been written about extensively. Though some commenters offer a dystopian vision of the future under an all-seeing corporate eye, I would like to offer a more uplifting view: Libra may actually serve as a tipping point in the general acceptance of the idea that we don't need governments to define and administer our currency.
Libra is similar to IMF's Special Drawing Rights (SDR). SDR is a unit of account for government members of IMF, and derives its value from underlying fiat currencies (USD, EUR, RMB, JPY, GBP). Similarly, Libra will be a unit of account for users and merchants, and its value will be derived from the underlying basket of assets. The assets will be held in Libra Reserve and will consist of low-volatility, low-risk instruments such as fiat deposits and government securities. The Libra Reserve will be managed by Libra Association, consisting of 100 global corporations and selected NGOs. Members of the Libra Association will also be acting as Libra Blockchain validators, confirming each transaction and deciding the technological roadmap. Libra Association will be a closed elite club, with commercial members needing at least 1B USD in yearly revenue and having to buy 10M USD worth of Libra Investment tokens, which will capture the interest rate on assets held in the Reserve.
General users won't get any interest on their Libra coins. While Libra itself will be quite stable in fiat terms, it will inevitably be copying the inflation rate of the underlying fiat currencies. USD, which will probably have the most weight in the basket, carries an annual inflation rate of around 2%, so holding Libras will basically be like holding a fiat currency in a zero-interest account. Still, if such currency was available to people in high-inflationary countries, it would serve them greatly. Currently, there are 16 countries globally where the annual price inflation is above 10 percent.
Of course, any solid stablecoin project such as DAI offers a similar value proposition. What such projects cannot offer, however, is a native integration with apps like Messenger or WhatsApp. This is the major upper hand Facebook has with its Calibra wallet. As the Libra documentation mentions, there are 1.7 billion people unbanked, while 1 billion of them have a smartphone. They probably already have one of the Facebook family apps installed, so utilizing Libra through those apps won't be as much of a mental leap as learning how to use crypto-native tools, such as Metamask.
What Libra is (Not)
It's hard to call Libra a cryptocurrency. It is a permissioned, closed, trust-based, mutable corporate project (despite the whitepaper claiming it will be the straight opposite "within five years"). Moreover, its "blockchain" is not a chain of timestamped blocks. Instead, it's more like a single Merkle tree structure. Thus, libra is probably not a cryptocurrency and does not carry any of the cypherpunk ideals on which Bitcoin is built.
All right, we know what it's not. But, then, what is Libra?
It is a digital currency. Though some have compared Libra to loyalty points or company credit, that's not an accurate comparison, as these do not aim to become a versatile global currency. It would be more appropriate to compare Libra with centralised Bitcoin predecessors, such as Liberty Reserve, e-gold, e-bullion, and the Liberty dollar. There is one major difference between Libra and these projects, however. While these projects were founded and run by libertarian anarchists, and in some cases straight-up money launderers, Libra is run by a swiss-based association consisting of reputable global corporations and NGOs. In other words, Libra is the first real contender for non-governmental global digital currency.
Even if it's only moderately successful and provides a seamless method of payment for the Western users of Facebook, Uber, Spotify, Lyft, or eBay (all of them are part of the Libra Association), it may act as a Trojan horse for a major mental shift.
Good ideas spread like a virus. World-renowned marketer Seth Godin coined the term ideavirus when describing the success of brand marketing. The term has much broader applications, however. In fact, the whole of human history could be summed up as various competing and locally dominating ideaviruses. But as any virus, the ideavirus has the largest impact when it has appropriate carriers to spread it.
Why was enlightenment, with its subversive ideas of separation of state and church and individual sovereignty, so successful, rather quickly replacing the old order which had been accepted globally for thousands of years? Because the spread of ideas became much cheaper and easier after the invention of the printing press. With much cheaper books, newspapers and pamphlets, the ideavirus had a strong carrier and planted itself in the minds of many. The American Revolution was in great part successful due to the wide circulation of Thomas Paine's Common Sense. His ideas were acute and easily transferred (around 500,000 copies were sold in the colonies in the first year of publication - 1776!).
Getting back to Libra, the ideavirus at hand is a concept of non-governmental currency. The very fact that the corporations are trying to pull such a thing off is already a strong indication that the ideavirus is already spreading. Sure, the underlying assets are still going to be fiat currencies and government securities, but for users, the message is clear: Here is a currency that is not defined or administered by any single government or central bank. This is quite revolutionary and unheard of since the era of free banking.
Separation of Money and State
If Libra carries the ideavirus of the separation of currency and the state, Bitcoin takes things even further: It is a separation of money itself from the state. Currency is just a representation of money. For example, dollar bills under a gold standard were a currency representing claims on underlying money in a form of gold. Under a current financial system based on a fiat currency, the distinction has become foggy and forgotten. The ideavirus can bring back this distinction. Already the "cryptosphere" is discussing the proper nature of money on a regular basis. The carriers are better than ever: Twitter, Medium, accessible books like Saifedean's The Bitcoin Standard or blogs such as this one.
Libra, with its huge corporate backing, may be the biggest unwitting carrier of the strongest ideavirus since the separation of church and state. It can bring the idea to billions of users. The mental leap to non-governmental money would be much shorter if Libra plants the seed of non-governmental currency. So, let's cheer for Libra and keep working on Bitcoin.
About the author:
Josef Tetek is an analyst at TopMonks Blockchain studio, based in the Czech Republic.