Bitcoin (BTCUSD-Bitfinex) closed around 9095.90 in the U.S. session Tuesday, slips almost -2.78% despite the much awaited crypto launch by Facebook (NASDAQ:FB) as Libra, the new FB crypto Blockchain technology may emerge superior and accepted as a low cost/free medium for the exchange of real currency. Facebook’s Libra may also distance itself from Bitcoin and will share information with banks and other regulatory authorities. As per reports, Libra’s data will be shared with authorities for crime prevention and to ensure compliance with the regulation.
The report also suggested that Facebook does initially not plan to profit off of Libra transaction fees and intends to keep the costs associated with transactions as low as possible. Facebook also intends to provide financial services through the new Calibra wallet associated with Libra and may also offer credit services, while traditional banks may also join the Libra project later. The market is also expecting that Facebook’s Libra stable coin and Blockchain tech could cause additional cryptocurrency volume.
In June BTCUSD jumped almost +6.66%, while soared almost +96.4% YTD (Jan’19-May’19). Apart from FB optimism and increasing adaption with the real economy for its tech appeal (Blockchain and distribution ledger), another factor may have greatly helped the BTC and that is a report of BTC derivative discontinuation after June’19 by CBOE, although CME will continue and is experiencing record high volumes. The report of CBOE discontinuation of BTC future was published first in March and BTCUSD started to recover from record low of around 3200 from February’19 itself, may be due to huge short covering.
Also, Fed’s sudden flip-flops early 2019 and hints of neutral stance (no more rate hikes in 2019) have boosted the BTC/crypto just like Gold (safe haven and inflation hedge asset). BTC was also buoyed by hopes and hypes of U.S.-China trade war/truce.
As a reminder, the CBOE was the 1st U.S. exchange to introduce BTC future back in late 2017 and soon after that BTCUSD made the lifetime high of around 19900 on optimism about increasing regulatory approval and then plummeted to a low of around 3200, a massive fall of around 84% in 12-months on short selling through derivatives, fading hopes of such regulatory approval coupled with various scams and cheating, enough to destabilize the market confidence.
On Tuesday (17th June) BTCUSD jumped almost +4.12% and made a 13-months high of around 9489.90 on FB optimism coupled with hopes of greater regulatory approval. The market was convinced that Chinese investors will invest in such FB crypto Libra as safe haven assets amid intensifying Trump trade war and Yuan devaluation. In any way, at around 9500, BTCUSD now recovered almost 50% from the huge fall to 3200 from around 19900.
On Tuesday, Facebook released the much-awaited white paper of its Libra Blockchain project, where Facebook is leading a consortium creating the new open source digital currency (Libra) along with other partners/stakeholders like payments processing companies Visa (NYSE:V), Stripe, PayPal and Mercado Pago, which will help merchants accept Libra. Some tech companies are also on the Libra project, including eBay (NASDAQ:EBAY), Lyft (NASDAQ:LYFT), Uber, Spotify (NYSE:SPOT), and Latin American payments platform Mercado Pago. Two European telecom companies are also involved, Iliad and Vodafone (LON:VOD).
Overall, the 28 soon-to-be founding members of the Libra association are:
Payments: Mastercard (NYSE:MA), PayPal, PayU (Naspers’ Fintech arm), Stripe, Visa. Technology and marketplaces: Booking (NASDAQ:BKNG) Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies (NYSE:UBER). Telecommunications: Iliad, Vodafone. Blockchain: Anchorage, Bison Trails, Coinbase, and Xapo. Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square (NYSE:SQ) Ventures. Nonprofit and multilateral organizations and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking.
Facebook said it hopes to reach 100 founding members before the official Libra launch and it’s open to anyone that meets the requirements, including direct competitors like Google (NASDAQ:GOOGL) or Twitter. The Libra Association is based in Geneva, Switzerland and will meet biannually. The country was chosen for its neutral status and strong support for financial innovation including Blockchain technology.
To join the association, members must have sufficient server space, a 100Mbps or above dedicated internet connection, a full-time site reliability engineer and enterprise-grade security. Businesses must hit two of three thresholds of a $1 billion market value or $500 million in customer balances, reach 20 million people a year and/or be recognized as a top 100 industry leader by a group like Interbrand Global or the S&P.
As per the White Paper, Libra is a stable digital coin and a medium of money/FX exchange:
A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line Unicode character ≋ like the dollar is represented by $. The value of a Libra is meant to stay largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the USD, GBP, EUR, CHF, and JPY. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.
The name Libra comes from the word for a Roman unit of weight measure. It’s trying to invoke a sense of financial freedom by playing on the French stem “Lib,” meaning “free”. The Libra Association is still hammering out the exact start value for the Libra, but it’s meant to be somewhere close to the value of a USD, EUR or GBP, so it’s easy to conceptualize. That way, a gallon of milk in the U.S. might cost 3 to 4 Libra, similar but not exactly the same as with dollars.
The idea is that you’ll cash in some money and keep a balance of Libra that you can spend at accepting merchants and online services. You’ll be able to trade in your local currency for Libra and vice versa through certain wallet apps, including Facebook’s Calibra, third-party wallet apps and local resellers like convenience or grocery stores where people already go recharge their mobile.
As per the Libra whitepaper, Facebook will also create a new subsidiary, Calibra, to build a digital wallet for people to store and exchange the currency using Facebook apps. As per reports, Facebook is planning to launch Libra by H1CY2020 and intends to transform the way money moves around the world, and not just on its own apps, but to create services for consumers to send money around the world easily and for free — with the same convenience as sending a photo or a message over WhatsApp or FB messenger.
The Libra whitepaper also suggested that the Libra project will not be run by Facebook alone, but rather by a nonprofit organization supported by various related companies. But Facebook does have a plan to profit from it with a new subsidiary, Calibra, which is building a digital wallet of the same name for storing and exchanging the currency. Moreover, the financial information from Calibra digital wallet will not be used for ad targeting on Facebook’s platforms because the two divisions will be kept totally separate.
Marcus, the head of Facebook’s Calibra division and a former PayPal executive, said: “We’ve seen the internet change the game for everything that could be digitized, except for money. The numbers really speak for themselves. There are 1.7 billion people around the world that are unbanked, the same number are underserved by financial services. Now, anyone with a cheap smartphone has access to all the info they want in the world for free with a basic data plan. Why doesn’t money work the same way?”
Marcus clarified: “It may sound super controversial but there’s no better way to demonstrate the evolution of our thinking, what we know we should control and what we should not and cannot control. A network that enables billions of people to move money around the world should not be something we can or should control”.
Marcus also clarified that Libra will be backed by relatively stable government-backed money and will be open sourced, unlike Bitcoin and other cryptocurrencies: “If you buy $50 of Libra, your $50 makes its way to the Libra Reserve. It’s designed to be stable and confers values on Libra that makes it more like a traditional currency than any of the digital currencies are now. This is the way paper money was created”.
Marcus also said: “Consumers will not interact with the Libra Association, but will only interact with Libra through a digital wallet or an operator. For people who don’t have the ability to digitally purchase Libra with a credit card or digitally linked account, I expect companies in emerging markets to create locations where people can exchange Libra for cash. The idea is that (Libra) has mass adoption — lots of trusted companies that want to join the journey, so there’s a chance of this becoming mainstream”.
As per Facebook, its Calibra is a digital wallet that will be accessible as a stand-alone app and integrated into Messenger and WhatsApp and it’s designed to enable anyone to securely store money for free on their phone and to allow people to securely send and receive Libra around the world, with no fees for consumers, although Facebook may charge “very low” fees for merchants.
Looking ahead, Marcus anticipates Facebook will offer other financial services, such as (sub-prime) loans, from which it could profit: “If the network is successful, it will be a big opportunity for us to provide lending to all these consumers”.
Marcus added: “Facebook’s larger goal is to get people to spend more time on its platforms. This launch will enable the 2.7 billion people who use its various apps every month to more easily make purchases from the 90 million businesses on its platform. The easier it is for these businesses to drive sales on Facebook, the more likely they are to buy ads. One key use case for Calibra is remittances”.
“Every year $25 billion is lost by migrants on payment processing fees from the likes of Western Union. Immigrants usually send a photo of their receipt from Western Union to family members via WhatsApp so they can collect the money, after deducting the remittance fee. Calibra would cut Western Union and other money-transfer services out of the equation. if people don’t want to trust Facebook’s Calibra, there will be other apps to access the currency”.
Marcus also explained the company’s motive and the tie-in with its core revenue source: “If more commerce happens, then more small businesses will sell more on and off the platform, and they’ll want to buy more ads on the platform so it will be good for our ads business”.
As per, Calibra’s VP of Product Kevin: A key for Calibra’s adoption is making it easy to understand exchange rate and transfer money in and out of the local/foreign currency. The easier it is to go back and forth (from the local currency to Libra) the more confidence people will have. If you’re banked you can imagine connecting your bank account, if you’re not banked then you can imagine a map that shows nearby money transfer experiences”.
Kevin clarified: “Launching a whole new system comes with its challenges. Every direction you look there’s stuff you have to figure out from scratch. Not everyone is familiar with exchange rates, and even the folks that are, aren’t necessarily familiar with digital currency. I’ll take a lot of time to educate people. There’s also the question of regulatory approval. We’re talking to regulators and are in the process of getting money-transfer licenses, which they expect to have secured for a launch next year. People will misunderstand and think this is a Facebook thing. We incubated it, but it’s designed to be run in a decentralized way”.
Monica, President of one of Libra’s founding partners, Anchorage, which acts as an institutional custodian for cryptos, said: Libra is the first new cryptocurrency that has a real opportunity to bring digital currency to the mainstream. It solves some of the underpinning issues that other cryptocurrencies have not been able to, to reach this promise. It’s based on a very scalable, highly efficient Blockchain that can do many thousands of transactions per second. And it’s backed by bank deposits and government securities like the U.S. dollar, so it will have low volatility. The association has so many big players that already have relationships, which solves the chicken-and-egg problem of (crypto) adoption”.
Monica clarified: “Anchorage will operate one of the many nodes to handle Libra transactions and could sell its services to other members of the association for safekeeping of their Libra assets”.
The Libra whitepaper also clarified that to boost its security; Calibra will have the same verification and anti-fraud processes that banks and credit cards use. To gain access users will have to have a valid government ID and use two-factor authentication, leveraging the likes of FaceID. The service will have built-in fraud production and dedicated live support. And if someone accesses a user’s account, Calibra promises to refund any lost assets.
As per reports, Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association, which have invested at least $10 million each into the project’s operations. The association will promote the open-sourced Libra Blockchain and developer platform with its own Move programming language, plus sign up businesses to accept Libra for payment and even give customers discounts or rewards. Facebook/Calibra and other founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable.
Overall, Libra is a new digital/crypto PayPal with both risk and rewards. In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or a startup built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing.
But existing cryptos like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of money exchange. Their huge volatility is making it tough for merchants to accept as payment. Facebook wants to make Libra the evolution of PayPal. The Libra White Paper said: “Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee”.
Each time someone cashes in a dollar or their respective local currency, that money goes into the Libra Reserve and an equivalent value of Libra is minted and doled out to that person. If someone cashes out from the Libra Association, the Libra they give back are destroyed/burned and they receive the equivalent value in their local currency back. That means there’s always 100% of the value of the Libra in circulation, collateralized with real-world assets in the Libra Reserve. It never runs fractionally. And unlike “pegged” stable coins that are tied to a single currency like the USD, Libra maintains its own value — though that should cash out to roughly the same amount of a given currency over time.
The Libra Blockchain — built for speed, much faster than Bitcoin or other traditional cryptos:
Every Libra payment is permanently written into the Libra Blockchain — a cryptographically authenticated database that acts as a public online ledger designed to handle 1000 transactions per second. That would be much faster than Bitcoin’s 7 transactions per second or Ethereum’s 15. The Blockchain is operated and constantly verified by founding members of the Libra Association, which each invested $10 million or more for a say in the cryptocurrency’s governance and the ability to operate a validator node.
When a transaction is submitted, each of the nodes runs a calculation based on the existing ledger of all transactions. Thanks to a Byzantine Fault Tolerance system, just two-thirds of the nodes must come to a consensus that the transaction is legitimate for it to be executed and written to the Blockchain. A structure of Merkle Trees in the code makes it simple to recognize changes made to the Libra Blockchain. With 5KB transactions, 1000 verifications per second on commodity CPUs and up to 4 billion accounts, the Libra Blockchain should be able to operate at 1,000 transactions per second if nodes use at least 40Mbps connections and 16TB SSD hard drives.
Transactions on Libra cannot be reversed. If an attack compromises over one-third of the validator nodes causing a fork in the Blockchain, the Libra Association says it will temporarily halt transactions, figure out the extent of the damage and recommend software updates to resolve the fork.
Transactions aren’t entirely free. They incur a tiny fraction of a cent fee to pay for “gas” that covers the cost of processing the transfer of funds similar to with Ethereum. This fee will be negligible to most consumers, but when they add up, the gas charges will deter bad actors from creating millions of transactions to power spam and denial-of-service attacks. Marcus said: “We’ve purposely tried not to innovate massively on the Blockchain itself because we want it to be scalable and secure”.
Currently, the Libra Blockchain is what’s known as “permissioned,” where only entities that fulfill certain requirements are admitted to a special in-group that defines consensus and controls the governance of the Blockchain. The problem is this structure is more vulnerable to attacks and censorship because it’s not truly decentralized. But during Facebook’s research, it couldn’t find a reliable permission less structure that could securely scale to the number of transactions Libra will need to handle. Adding more nodes slows things down, and no one has proven a way to avoid that without compromising security. Thus, the Libra Association’s goal is to move to a permission less system based on proof-of-stake that will protect against attacks by distributing control, encourage competition and lower the barrier to entry.
Move coding language — for moving Libra
The Libra Blockchain is open source with an Apache (NYSE:APA) 2.0 license, and any developer can build apps that work with it using the Move coding language. The Libra Association is working with HackerOne to launch a bug bounty system later this year that will pay security researchers for safely identifying flaws and glitches. In the meantime, the Libra Association is implementing the Libra Core using the Rust programming language because it’s designed to prevent security vulnerabilities, and the Move language isn’t fully ready yet.
Risks of Libra Project:
Apart from regulatory approval, especially from central banks, there could be some technological challenges as if Libra gets hacked or proves unreliable; it could cost lots of people around the world money while souring them on cryptocurrencies. And by offering an open Libra platform, shady developers could build apps that snatch not just people’s personal info like Cambridge Analytics, but their hard-earned digital cash too. But these are all normal risks associated with crypto.
Technically, whatever may be the narrative, BTCUSD has to sustain above 9500 for a further rally to 10000*/10700-11500/12130* and further surge to 12900/13500*-14900/16200* in the near term (under bullish case scenario).
On the flip side, sustaining below 9450, BTCUSD may fall to 8700/8500*-8000/7300* and further plunge to 6500*/6000-5600/5300* in the near term (under bear case scenario).
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