The last few days there is a fuss going around about Libra Coin, Facebook’s new “cryptocurrency“. People are still confused about what exactly Libra coin is, if they going to invest in it, etc. So I guess it is time to clarify a few things about Libra Coin in the most simple way. Note that a cryptocurrency has all the below characteristics of a blockchain that Libra Coin doesn’t.
The Five Pillars of Blockchain
It’s not censorship resistant. Libra coin cannot be censorship-resistant because they are legally required to prevent the transmission of funds to certain entities, including sanctioned countries (Iran, North Korea and Venezuela) or people on the OFAC list run by the U.S. Department of Treasury. So, Libra Networks is required by law to censor certain transactions.
It’s not borderless. Because Libra coin is not censorship-resistant, this also means that it cannot be borderless. If you are prohibited from sending money to certain countries, you must be able to identify who is receiving the money and where they are. In order to identify who and where they are, they must follow “Know your customer”(KYC), Anti-Money Laundering and counter-terrorism financing regulations. Essentially they would start behaving like a bank.
It’s not neutral. Anybody who implements a centralized payment system must follow the rules of a money transmitter or bank. At that point, they are no longer neutral. The protocol itself cannot be neutral, because “Neutrality” means any sender, any recipient, any value regardless and the protocol should not care where you are, who you are, what you are doing with that money or why.
It’s not public. They can’t make information publicly available because that would violate various laws.
It’s not open. Not anyone can run a node on their computer validating the transactions of the network. Libra Networks will run a private consortium blockchain that all transactions will be verified by the nodes run by their partners.
Essentially they will be a bank and a pretty powerful one, with around 2 billion users on 194 countries. That would create a real challenge for traditional banks.
I think traditional banks will start to modernize if they start losing the game and that might create competition in the banking sector and push slowly everyone to be more open and public.