Tom Arran, Monday 1st July 2019, 1:17 PM CEST
crypto coins

Bitcoin Vs Libra

Cryptocurrencies have become the subject of popularity in the financial market over the last month. This is primarily the result of Facebook announcing Project Libra, their cryptocurrency blockchain service. There hasn’t been this much excitement relating to cryptocurrency in its decade long history. The continual news stories on Libra is allowing for the public to be educated on crypto and blockchain trading. This will prove to be beneficial for not just Facebook’s Project Libra but all other crypto coins.

There is still a fair bit of uncertainty on Project Libra & how it will affect prior crypto leaders like Bitcoin. There have been numerous analysts that have already claimed that Libra will be the final blow to Bitcoin. However, these claims are unsubstantiated as Libra and Bitcoin are primarily different in five different ways. Furthermore, Libra won’t be launched until 2020, giving BTC plenty of time to prepare for the upcoming onslaught of competition from the social media giant.

Institutionally, the two crypto coins are operating differently from one another. Calibra, the company that is maintaining Libra, is working with large corporations like Visa, PayPal, MasterCard, Uber and eBay. These five companies will work with Calibra to manage the daily operations of Libra. These companies will also have reserve investment opportunities and participate in board meetings. The profits are distributed between these companies and their level of investment, with PayPal being the most significant investor.

Facebook Libra Coin

The main reason as to why Facebook has partnered up with these large corporations is to avoid potential backlash from regulators. Visa and MasterCard have already fought against regulators for control of client privacy. These lawyers are working pre-expletively with the “Libra Association” to ensure that Project Libra is successfully regulated and integrated into worldwide financial markets. Three issues await the association, which include:

  • The main issue that plagues Facebook & the companies that have partnered with them is trust. Recently, Facebook has had numerous problems with the public and the government over the fact that customer data was sold for corporate profit.
  • Potential lawsuits from banking institutions, which will result in significant amounts of time being spent in the courtroom and substantial expenses being paid on lawyers. This is why Calibra is acting as a separate management group to avoid these unsubstantiated attacks.
  • Lastly, Facebook could undergo severe valuation changes, as the companies value is based on future profit streams and balance sheet ratios. Their valuation could be reduced if Calibra, their new banking entity, is included in the company’s overall yearly profits. This is because significant amounts of money will have to be spent by Calibra to educate the public.

There’s also severe concern between partnered companies with profit distribution. Facebook will earn the highest percentage of profit from the revenue obtained, with PayPal being second in life. All other investors on Project Libra are unaware as to what percentage they will receive of the revenues earned.

The Five Differences between Bitcoin & Libra

Reviewing through the announcement report for Project Libra and there are five significant differences between the two crypto coins. However, the information released in this report might not be accurate by the first quarter of 2020. These critical differences could be altered by Calibra, Facebook or any of the other companies a part of the Libra Association. The five crucial differences between the two crypto coins are as follows:

Recording & Tracking Transactions

Bitcoin has remained an anonymous form of transacting money worldwide. However, Facebook won’t allow for this level of anonymity to be a reality with Libra. Calibra & Facebook will be working with Government Regulators to guarantee that their compliant with all forms of regulation. They’ll work together to introduce a new innovative way to defeat money laundering, tax invasion or any other financial white-collar crimes. Mainly, Calibra is working with law enforcement and government regulators to ensure them that they’re complicit. This is the only hope for Libra, as Facebook has faced significant backlash from government officials recently. Due to these obstacles and hurdles, analysts believe that the 2020 Scheduled Launch Date in unrealistic. This is proven by other cross-border payment services like Western Union & Money Gram, who have faced a militia of regulators.

Ignore the Recent Bitcoin Surge

Encrypted Tracking & Recording Programs will work with each other to stop money laundering and tax invasion criminals. No longer will these thieves be able to avoid detection, cover their tracks or hide within the confines of a blockchain network. This technology is rare in the blockchain and crypto industries, but will soon become the mainstream. This is primarily different than Bitcoin, which has connected to criminal enterprises worldwide.

Node Verification

Node Verification, this is where things start to become technical. Blockchains have been described as permission or permissionless in correlation with a Validated Note. The permission blockchain allows for Validated Nodes to be maintained immediately. However, with permissionless blockchain, there are a set of technical requirements on the Validated Node, which must be met before it can be run. The Libra Coin will be a centralized system that will use Validated Nodes, which will allow for transactions to be verified consistently. However, with Bitcoin, it’s a decentralized network, which means everything tends to be anonymous.

The Libra Reserve & StableCoin

Facebook’s new cryptocurrency project has been listed as a StableCoin that’s backed by the Federal Reserve. This means that the value will remain stable for prolonged periods. However, there won’t be a need to invest in Libra, as the cost is pegged with fiat currencies. This presents a scenario where there’ll be no hedging against the central banks or their monetary policies. Project Libra is being protected by the Federal Reserve, which holds the most significant sum of money worldwide. The Libra Reserve itself will be composed of short-term government securities, and long-term bank deposits, which will grow with every Libra Coin manufactured online. In turn, this will allow for a network that is competitive with selling and buying. The exchange network is maintained through Messenger & WhatsApp.


Minting & Burning Libra Coins

Bitcoins are built and maintained by restricting the supply of BTC available. This is done on purpose to ensure that the decentralized coin doesn’t enter the hands of central banks, which have created significant inflation on fiat currencies in the past. Libra will be entirely different, by charging for burning and minting tokens. This will be based around the authorized buying and selling from a middle man broker. The capital earned for charging of the minting and burning of tokens will flow through the Libra Reserve. This is an essential part of the business for any brokerage maintaining a StableCoin, as every crypto coins crated must be backed by another asset in reserve. These design elements will also give Facebook’s blockchain network complete control over the tracking of all new coins created. The data obtained through this tracking isn’t processed by Facebook, but instead by Calibra& the Libra Association. The data analytics collected by Libra won’t be sold to other corporations. This has been a guarantee from the association since day-one.

Reserve Interest

Project Libra is different in one final way, the way it maintains the interest funds obtained through the reserve as a StableCoin. Since Bitcoin isn’t a StableCoin, they don’t have any form of a reserve. Libra will use these reserve funds towards the cost of maintenance, towards lowered transaction fees and towards capital investors who helped jumpstart the Libra Coin. The rules on the allocation of the reserves interest will be determined by the association and enacted in advance of opening day in 2020. Predicting that by 2021, Libra has obtained $1 Trillion in their reserves and that the association had obtained 2.4% a year in government securities. This would result in $24 Billion to split between the corporations in the Libra Association. Additional funds earned outside of the securities are put towards lowered transaction fees.

Concluding Remarks

At this moment, Project Libra is appearing to be the first cryptocurrency that Government Officials & Regulators can get behind. The design of Libra caters to the financial systems already used worldwide by central banks.

A Consultant for the Chartered Financial Analyst Group, Per Daniel Amerman commented on the future of Libra and Bitcoin by stating: “Libra could be seen as the first real-world example of the “Federal Coin” crypto alternative that is being researched by the Federal Reserve and other central banks. Like Libra, a national blockchain currency could be verified not by independent computers, but by the central bank’s computers. This would give the central bank or government an unparalleled degree of knowledge and control over its currency – and its citizens.”

He finished his statements with: “Bitcoin was to some extent an exercise in monetary idealism that has given rise to its direct opposite, Libra. What Libra could give rise to, how it could be used, or what could replace it – can’t be known with certainty now, but fundamental change does seem to be on the horizon.”

Author: Tom Arran

Tom has over 10 years experience on crypto currencies, first mining bitcoin on an old university computer for 20 cents a coin to now day trading bitcoin in between helping to start Tom has previously held roles at a leading EU brokerage and provided insight and consultancy work for number of UK banks in Crypto. Tom Arran can be contacted at [email protected], View all posts by Tom Arran

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