The Libra whitepaper was released on June 18th 2019 by the newly formed Libra Association – a collective of finance and technology firms who will serve as validators on the network. Originally spearheaded by Facebook and with 27 other validators on-board ranging from Uber to PayPal, the Libra Association aims to launch a global cryptocurrency backed by a basket of fiat reserves in the first half of 2020. The Libra Association believe they have created a cryptocurrency that is superior to existing ones like Ethereum for a number of reasons:
- Libra is a low-volaitility cryptocurrency
- The token is backed by a reserve of “real assets”
- The blockchain will feature smart contracts with a security-first programming language called Move
The goal of Libra is to launch in a semi-centralized state, something akin to the Delegated Proof of Stake consensus mechanism of EOS (which has 21 validating nodes). However unlike EOS, the Libra Association plans to increase the number of validating nodes to 100 in 2020, before moving towards a permissionless (decentralized) state within 5 years (many thousands of nodes). Facebook, who will take a leading role in the early stages, also plan to reduce their influence to equal any other node on the network.
Facebook will, however, play a key role in the broader ecosystem with its release of the Libra wallet, called Calibra (a subsiduary of Facebook). That said, the blockchain itself will indeed be open source, opening space for competing wallets to appear on the market. Competition may prove challenging though, as Calibra will be integrated into their Facebook’s line of closed source platforms like WhatsApp, Instagram and Messenger.
Zuckerberg’s goal, then, is ambitious. Not only is the company building a cryptocurrency and interface “from the ground up”, the Libra Association will be tasked with managing a fiat currency reserve with global regulatory hurdles at every turn. But the challenge may be well met. The resources that Facebook have at their disposal far outstrip any other blockchain platform, raising the question of how Libra might impact the world’s largest smart contract platform, Ethereum.
Libra vs Ethereum
Many in the mainstream press are dubbing Libra the “Bitcoin killer”, which mistakes the role that Libra has in the ecosystem. Libra is a stable currency (no speculative value) and it’s currently centralized (no guarantees of funds or privacy) with no security around their codebase and no 10 year track record of resisting attack. Furthermore, Libra is backed by “real assets” which sounds great to a mainstream audience, but this is a bug and not a feature – real world assets require real world people to do real world audits. More simply put, “real assets” are a chain of security holes. Bitcoin is the native asset of its public blockchain, which can be audited by anyone in the world at very little cost (or no cost at all if you’re willing to trust any one of the thousands of nodes already conducting these audits). Ethereum is similar to Bitcoin in this way, and so the short-term threat of Libra suddenly usurping Ethereum is also negligible.
The Case For Libra
However, things are not so clear in the long run. Libra is developing a smart contract platform with a custom programming language called Move. This new language has similar goals to Ethereum’s Vyper, in that it attempts to make writing contracts safe by design. It is possible that developers will be able to build decentralized finance (DeFi) applications that operate in the same way to those on Ethereum. It’s also possible that Libra will have token standards much like Ethereum’s ERC-20 tokens or crypto-collectables like ERC-721. The big differentiator here is the user-base. Developers building on Libra will have instant access to potentially billions of daily active users compared to Ethereum’s hundreds of thousands. That is one hell of a draw, particularly for those looking to create income-generating dApps with a mainstream audience.
The big question here – you may have noticed – is that these are very much just possibilities at this stage. Libra is targeting 1,000 transactions per second (about half the capacity of Visa) which requires (under current research) a large degree of centralization. The reason for this is that for nodes to reach consensus on such a large number of transactions per second, they require specialized hardware that the general public does not have access to.
Ethereum core developer, Nick Johnson, also identified a problem in Libra’s technical paper.
Libra promises apps can "read any data from any point in time and verify the integrity of that data using a unified framework". This is going to be a nightmare for nodes: every node will effectively have to be an archive node, with all the storage bloat that implies.
— Nick Johnson (📛 arachnid.eth) (@nicksdjohnson) June 18, 2019
If every node holds an entire history of the blockchain then those nodes are going to become very large very quickly. Reaching a permissionless state with 1,000 transactions per second is yet to be achieved, and Libra has not made it clear how they intend to fight these issues.
The Case For Ethereum
It was recently announced that the genesis block for Ethereum 2.0 will be created on January 3rd 2020. This will launch the Phase 0 of the new Ethereum blockchain which will improve security, scalability and decentralization, allowing for increased transactions per second by splitting the blockchain into “shards” (as well as other changes). Most notably, Ethereum 2.0 will introduce a new consensus mechanism, Proof of Stake, which will allow valdiators to earn an interest on ETH deposited in a validating smart contract. While nodes on Libra are expected to also earn interest on their fiat reserves, Ethereum staking rewards will be open to anyone in the world and staking pools will make the process even more accessible. This openness will likely attract a large volume of validators, increasing the level of decentralization in the process.
Furthermore, ETH is a speculative asset. As the value of the network grows, so too does the value of the underlying asset. This has a powerful effect for those with “skin in the game”. Developers who hold ETH are indirectly rewarded for their contributions to the network. Moreover, users who hold a blockchain’s asset, effectively become a marketing tool for the blockchain itself. While this may result in over-selling a blockchain’s capability, it does create a significant discussion around the project, leading to greater and greater levels of exposure.
It’s hard to imagine anyone holding Libra being particularly concerned with Libra’s success given the lack of upside, particularly as they will be able to move between assets without friction. Not only that, but Libra may find the corporate image too hard to shake, leading to further ambivalence from its users. The vision for Ethereum is a much more compelling one, with a potentially massive upside for those that get involved – the same simply cannot be said about Libra.
No Word From Microsoft and Google
Microsoft, Amazon, Google and Apple were conspicuously left out of the list of Libra Association members. These companies, who may see Facebook’s announcement as a threat, have so far remained quiet about their interest or future plans for a similar type of cryptocurrency. It’s possible that we’ll see multiple corporate-backed global currencies like Libra functioning in the next 10 years, however it’s equally possible that Ethereum’s established technology and developer base will be seen as the answer to competing with Libra. Google and Microsoft in particular, have already made significant contributions to the Ethereum ecosystem; they may well look to this public, censorship-resistant and transparent blockchain as a response to Libra’s mainstream entrance.