On June 18, 2019, Facebook released its white paper (the “White Paper”) revealing the details of its new cryptocurrency Libra. Libra is expected to be publicly launched in the first half of 2020. The White Paper states that Facebook’s mission is to seek to create a more inclusive financial system, accessible to everyone including the 1.7 billion ‘bank-less’ population.
According to the White Paper, Libra will not be controlled by Facebook. This role will instead be assigned to Calibra, a subsidiary of Facebook registered as a money services business. This seeks to ensure that customers’ social and financial data remain separated. Calibra will build and operate services on top of the Libra network, including its first product, a digital wallet for Libra. The wallet will be available in Messenger, WhatsApp and as a standalone app.
The Libra Association
According to the White Paper, the Libra currency will be governed by the independent Libra Association (the “Association”), a not-for-profit which will oversee the development of the token. The Association already counts 28 founding partners, including Facebook-Calibra, from numerous industries, namely payments, telecommunications, technology and marketplaces, venture capital, blockchain and non-profit. To join the Association, each of its partners, is required to pay a minimum of $10 million into its reserve of assets and will hold only up to one vote or 1% of the total vote (whichever is larger) in the Libra Association council. The reserve of assets will be maintained by the Association. The Association can alter the composition of the reserve to offset major price fluctuations in foreign currencies to ensure that the value of a Libra stays consistent.
According to the White Paper, “[a]n additional goal of the [Libra] association is to develop and promote an open identity standard” based on the premise that “decentralized and portable digital identity is a prerequisite to financial inclusion and competition”. Therefore, it appears that Libra could in the future be used in the context of digital identity services.
Security and Incident Response Readiness
According to the White Paper, the Association will be the entity primarily responsible for maintaining the security of the Libra network. The founding members of the Association will be responsible for running a validator node. This means that, unlike ‘permissionless’ cryptocurrencies like Bitcoin and Ethereum, where any participant can be a blockchain validator by running a full-node, the Libra Blockchain will allow only verified participants to define consensus and control governance of the blockchain.
To ensure network security, the Libra Blockchain will use a variant of the HotStuff consensus protocol, a recent Byzantine fault-tolerant (BFT) consensus protocol, called LibraBFT. The Libra Blockchain will also use a new smart contract language called Move, developed expressly for Libra, to manage Libra assets.
The Association will develop responses to potential attacks, including for instance, designing a strategy to address a scenario where one-third of the validator nodes behave maliciously and cause a fork. In this scenario, the Association will temporarily halt the processing of transactions from the Libra Reserve, to determine the extent of the damage from the attack, and the Association will publish a recommendation as to how software updates should be applied to resolve the fork. The Association will also prepare strategies to address software vulnerabilities.
According to the White Paper, to protect users’ privacy, Calibra, Facebook’s subsidiary, will handle its cryptocurrency dealings. Libra user payment information will be kept separate from Facebook social media data. While users will have to provide a government-issued photo ID and other verification information when they first sign up, as part of Libra’s “Know Your Customer” (KYC) process, their identity will not be tied to their publicly visible transactions. Data will only be shared in specific occasions in anonymized ways for research or adoption measurement, to address fraud or in response to a request from law enforcement.
Additionally, according to the White Paper, the Association will not be involved in processing transactions and will not store any personal data of Libra users. Users’ transactions will be processed and stored by validator nodes, without linking to a user's real-world identity. When stored on the Libra Blockchain, a transaction will be associated with metadata containing the time the transaction was committed to the blockchain and the validator node that added the transaction to the blockchain.
The Association will, however, oversee the evolution of the Libra Blockchain protocol and network, and will continue to evaluate new techniques that enhance privacy in the blockchain while addressing concerns of practicality, scalability, and regulatory impact.
The Libra Blockchain has already attracted some regulatory scrutiny. The United States Senate Committee on Banking, Housing and Urban Affairs (the “US Banking Committee”) addressed a number of questions to Facebook in a letter dated May 18, 2019. The US Banking Committee has scheduled a hearing on Facebook’s proposed digital currency and data privacy concerns on July 16, 2019. The UK's Financial Conduct Authority has also reportedly warned Facebook that it would not allow the social media company to use its digital currency without close scrutiny. France, on the other hand, is creating a G7 task force, to examine how central banks can regulate cryptocurrencies like Libra, taking into account anti-money-laundering laws and consumer-protection rules.