No, Facebook's cryptocurrency Libra is not taking on Bitcoin

No, Facebook's cryptocurrency Libra is not taking on Bitcoin

Today the internet is full of news about Facebook's cryptocurrency Libra. FOX Business titles a video "Facebook's cryptocurrency Libra takes on bitcoin" tells us that they have absolutely no idea what Facebook is actually doing and why it is not "taking on Bitcoin". Facebook is not taking on Bitcoin, Facebook is taking on banks.

The key reason that Libra is not comparable to Bitcoin is that Libra is intended to be a stablecoin. This means that the intention of Libra is that the value does not fluctuate, unlike Bitcoin. Libra is meant to be a currency that people can send to each other quickly and easily, utilising blockchain technology, thus, it is a cryptocurrency - but it won't fluctuate in price. Blockchains have many purposes and one of those purposes could be to simplify the job of a bank, globally. By being able to send a stable currency across the world, instantly, with almost no cost, would effectively take away a large portion of the job of a bank.

Libra is not decentralised like Bitcoin. It will be run by the "Founding Members" and people that these founding members elect to be part of the charter that governs Libra. The whitepaper states "We hope to have approximately 100 members of the Libra Association by the target launch in the first half of 2020.". This is a far stretch from the currently decentralised nature of Bitcoin.

The whitepaper also mentions that Libra will be using a BFT protocol that they call LibreBFT. BFT is Byzantine Fault Tolerance which is a lot different to Bitcoin's PoW (proof-of-work) protocol. Flavours of BFT exist already in other cryptocurrencies, like Cosmos.

Similar to Bitcoin, Libra claims that it will be pseudonymous, meaning that while every transaction is tracked and logged on the blockchain for all to see, there is no identifiable information about the individual who owns a particular address. Libra will also allow someone to own many different addresses. However, with Facebook running Libra, the idea of anonymity being part of their cryptocurrency is of course somewhat controversial. Anonymity is generally not even a totally accepted concept in Bitcoin. Many argue that Bitcoin is far from anonymous in practice as it leaves a trail, unlike a true privacy oriented coin such as Monero.

Libra is also not intended to have any profit mechanism built into it. Bitcoin has the PoW protocol which incentivises miners to make money by securing the network and processing transactions. Libra has nothing of the sort and intentionally so according to the whitepaper. Libra will have interest on reserve assets but not to provide profit to users of the token, only early investors, i.e, the "Libra Association".

Association members can also "burn" and "mint" (read; print) new Libra in some situations, as well as when they reach a supermajority vote. This is completely different from Bitcoin. The Bitcoin protocol is set in stone. Every 4 years the reward for miners is cut in half and there are a finite amount of Bitcoins that will ever exist. No Bitcoin will be intentionally "burned" by any authority (although it often happens by accident) and nobody can choose to create more Bitcoins. The maximum supply of Bitcoin is mathematically fixed at around 21 million Bitcoins. This is why Bitcoin organically rises in value over time - supply and demand. More people want Bitcoin as time goes on but yet there's nowhere near enough full Bitcoins to go around for everyone.

Libra's whitepaper claims that its objective is to become fully decentralised over time. Whether this ever actually happens remains to be seen and many people are skeptical as to why Facebook would create something that they eventually would have no control over and would not further benefit them. Bitcoin on the other hand is already decentralised and has been that way since the beginning.

So Libra is not coming after Bitcoin. It's clear that from the whitepaper, Facebook is not even intending for Libra to be anything like Bitcoin, it's almost the complete opposite. The only thing that they have in common is that they use a blockchain but the function and purpose is completely different.

I'm not sure what the purpose of Libra would be compared to another stablecoin such as DAI for example. Perhaps since it will integrate into Facebook and its many companies such as WhatsApp, it will be able to penetrate into the market and every device with relative ease and maybe this is what their special flavour is intended to be.

One thing is for certain though, I'm sticking with decentralised cryptocurrencies, stablecoin or otherwise.