On June 18, 2019, Facebook released the Libra white paper, proposing to build a simple, borderless currency and a financial infrastructure that serves billions of people. In view of the impact Libra may have on the monetary policies of various countries, the international financial system and the global payment system, and thus bring challenges to my country’s capital control, financial system, payment system, and network security.
Therefore, CCID Think Tank Institute of Cyber Security and CCID (Qingdao) Blockchain Research Institute released the report “Libra Impact Analysis and Countermeasures” (Q&A version).
No.1
General introduction to Libra
Q1
What is Libra?
Simply put, Libra (Libra) is an encrypted digital currency and its supporting financial infrastructure.
From a monetary perspective, Libra is an encrypted digital currency. It is led and developed by the American social company Facebook, uses blockchain as one of the basic technologies, and is managed and operated by the Libra Association.
From the perspective of financial infrastructure, Facebook plans to establish a global payment system based on encrypted digital currency for Libra, including the underlying blockchain system, digital currency wallet and other application-based software and hardware supporting facilities, which can support Libra digital currency transactions, transfers, etc.
Q2
The relationship between Libra and blockchain?
Libra is an innovative application of blockchain technology in the financial field, and blockchain is one of the basic technologies of Libra.
From a technical point of view, considering the performance bottleneck of the blockchain, Libra may also consider adopting other technical solutions in addition to the blockchain. For example, adopt a hybrid architecture of front-end centralized system + back-end blockchain; adopt a new data structure to replace the chain structure.
From an application point of view, Libra is the general term for the financial infrastructure built by Facebook based on blockchain and other technologies, including Libra encrypted digital currency and supporting digital currency wallets.
Q3
The difference between Libra and Bitcoin and fiat?
Libra and Bitcoin are essentially encrypted digital currencies issued based on blockchain technology, and legal currency is the sovereign credit currency issued by various countries. There are differences among the three in terms of issuers, issue mechanisms, and application scenarios.
Q4
In the context of the continued sharp fluctuations in the price of Bitcoin, how does Libra ensure the stability of its own price?
There are three main reasons for the sharp fluctuations in the price of Bitcoin.
First, there is no sovereign credit endorsement, and it is not linked to any legal currency or valuables such as gold and oil.
The second is the lack of a reasonable issuance adjustment mechanism. The total amount of bitcoins is preset by the algorithm and fixed at 21 million. This makes Bitcoin unable to meet the demand for money supply in the increasingly complex economic activities in the era of credit economy.
The third is excessive speculation. Capital hype has caused huge fluctuations in the price of Bitcoin.
Libra is designed to be 100% pegged to a basket of fiat assets to maintain currency stability, including the US dollar (50%), the euro (18%), the British pound (14%), the Japanese yen (11%) and the Singapore dollar (7%).
Q5
How is Libra different from other stablecoins?
Libra is a legal asset-backed stablecoin, which is different from encrypted asset-backed stablecoins and non-asset-backed stablecoins in the realization of the stability mechanism.
In addition, although Libra and USDT are both legal asset-backed stablecoins, there are differences in issuance methods, anchor objects and application scenarios:
Q6
Why did Facebook issue Libra?
Facebook issued Libra mainly for the following reasons:
First, global technology giants such as Facebook and mainstream financial institutions realize that the blockchain field has great market potential. Including JPMorgan Chase, Barclays Bank, Amazon, Microsoft, IBM, Nasdaq, Alibaba, Tencent, Visa, etc. have deployed blockchain.
Second, Facebook has been repeatedly exposed to security issues such as data privacy leaks, and there is an urgent need for business model transformation. Facebook’s core business model of profitable targeted advertising based on big data analysis faces severe regulation and huge fines under the Privacy and Data Protection Acts of the United States and the European Union.
Third, the blockchain will help Facebook expand new business areas and promote the transformation of Facebook’s business model. Facebook has multiple advantages such as a large number of users all over the world (nearly 27 users around the world), rich consumption and payment scenarios, and strong technical strength. Through Libra, it creates an ecological closed loop of “social + payment”, which will help it gain the right to speak in the future global digital economy market.
Q7
Besides Facebook, what other major corporations issue their “Libra”?
Q8
How does Libra work?
Libra is developed by Facebook and managed and operated by the non-profit, decentralized organization, the Libra Governance Association. The Libra Governance Association includes 28 member units around the world (the number of founding members of the association will reach about 100 in 2020; Paypal has announced its withdrawal at present), covering multiple industries and fields such as payment, telecommunications, and blockchain.
Libra achieves democracy, fairness and inclusiveness through a decentralized governance model. decision making. The Council of the Association is responsible for the formulation and release of all decisions, and major decisions require two-thirds of the members to vote for approval. governance power. Council members’ voting power is proportional to their stake to avoid concentration of power.
Q9
Is cross-border payment Libra’s biggest selling point?
Facebook has made cross-border payments one of Libra’s biggest selling points. The traditional centralized cross-border payment model represented by SWIFT (Society for Worldwide Interbank Financial Telecommunication) has complex processes, high costs and long settlement time. Libra bypasses the traditional bank payment and settlement system, builds a global payment network based on the Internet and blockchain technology, and develops and designs the digital wallet system Calibra specially for Libra, which can bring low-cost, real-time, and fast access to billions of Facebook users around the world. cross-border payment experience.
10
How does Libra plan to achieve low-cost, inclusive global payments?
The low cost is reflected in the global payment through Libra, which has lower handling fees and less time overhead. Libra can provide different solutions for different types of cross-border payment methods.
First, Libra acts as an intermediary for foreign exchange exchange, reducing exchange fees. Second, Libra realizes point-to-point cross-border micropayment, reducing the handling fee by 1% to 3% in the centralized payment mode. The third is that Libra replaces the costly and time-consuming SWIFT channel by building a global payment and remittance system.
Inclusiveness is reflected in the fact that Libra does not need to lay expensive infrastructure such as dedicated payment and clearing networks, and only needs to use the Calibra wallet and the Internet to complete global cross-border payment transfers just like using mobile phones to send messages to friends anytime, anywhere. This lowers the threshold for people in countries with underdeveloped financial infrastructure to enjoy modern financial services.
11
How does Libra make money?
According to the Libra white paper and related information, the profit of the Libra project may mainly come from interest income, handling fees, advertising business, etc.
interest income. The issuance of Libra requires the storage of legal assets such as US dollars of the same value in the bank, which can bring interest income to the issuer.
handling fee. Libra charges lower handling fees than traditional international remittances, cross-border payments and other services, but in the context of a large number of users, profits are still considerable.
Advertisement Income. Libra can cover billions of users, the scenarios are extremely rich, and the advertising business prospects are still broad.
Expand other financial businesses. In the follow-up, Facebook can provide global users with various financial services including lending, wealth management, derivatives, etc., and obtain profits through financial value-added services.
12
What innovations has Libra made on existing blockchain technology?
Technically, Libra is not significantly different from the mainstream blockchain framework at this stage, and does not show obvious advantages in performance and decentralization.
Libra’s enhanced security and robustness mainly involve the following three aspects: First, the design and use of a more reliable and secure Move programming language. The second is to adopt the BFT mechanism based on the LibraBFT consensus protocol. The third is to optimize some data structures to ensure the security of stored transaction data.
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No.2
The main problems facing Libra
Q1
Why has no country clearly expressed its support for Libra?
Libra faces many controversies in terms of currency issuance methods, cross-border asset transfer and flow, terrorist financing, and privacy data protection. Countries such as the United States, France, Germany, the United Kingdom, Japan, and China have shown temporary objections to Libra. in:
One is the financial compliance of Libra. Libra will have a substitution effect on the sovereign legal currencies of various countries, especially weak currencies will form depreciation pressure, challenge monetary policy, and have problems such as threatening the traditional banking system, breeding financial crimes and money laundering.
The second is the privacy protection of Libra transaction data. Facebook has a precedent for leaking user privacy data, and currently has not provided a satisfactory privacy data protection solution.
Q2
What problems does Libra face before it is widely accepted by the market?
One is the issue of currency stability. If the members of the Libra Association over-issue Libra out of thin air, it will lead to the devaluation of Libra; if the members of the Libra Association go bankrupt, it may cause panic, leading to large-scale Libra and legal asset exchanges, resulting in Libra value fluctuations.
The second is the issue of payment channels. If a stable payment channel cannot be provided, the issuance and withdrawal of Libra will not proceed normally, the balance of supply and demand of Libra in the market will be broken, and the price of Libra will fluctuate greatly.
The third is the problem of application scenarios. If a suitable application scenario cannot be found and a strong demand is formed, it will be difficult to popularize Libra applications. Otherwise, it will be difficult to surpass competitors such as Alipay, PayPal, and USDT.
Q3
What technical challenges does Libra face?
system security. Libra created its own smart contract language Move to enhance security, but it is doubtful whether it can guarantee security in practical applications.
performance. The current blockchain performance is difficult to support the commercial payment scenarios of billions of people. The Libra white paper also stated that the issue of storage growth associated with accounts has not been dealt with.
Decentralization. Libra is jointly governed by the 100 node members of the Libra Association, but there is still the possibility of collusion and the risk of centralization. If Libra reduces the number of nodes participating in the consensus to improve performance, the probability of node collusion and fraud will be increased.
privacy data security. The Libra Association needs to manage billions of accounts around the world, covering users’ cross-border payment, settlement and e-commerce and other multi-dimensional data security, and faces huge technical challenges.
Q4
Will the Libra Association be controlled by a certain country and organization?
In theory, it is difficult for the Libra Association to be directly controlled by a country or organization, but in practice, its future development and operations are likely to represent the interests of the United States.
Most of the currently announced initial members of the Libra Association are American entities or organizations. In addition, Libra cannot achieve the same degree of decentralization and “pure” benefits as Bitcoin. Under the supervision of the US government, it may even reach a certain tacit understanding and form an interest relationship with the US dollar.
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No.3
Analysis of the impact of Libra on the world
Q1
Is it possible for Libra to become a super-sovereign currency?
From the Libra white paper, Libra has the prototype of a super-sovereign currency.
First, Libra is a currency jointly issued by Facebook and other civil organizations that is decoupled from sovereign states. The issuance of Libra does not depend on a specific country or countries, but is based on the equal status of members of the Libra Governance Association.
Second, Libra builds a new global financial infrastructure and financial ecosystem, which will break the currency boundaries of sovereign countries.
Q2
What impact will Libra have on the payment system?
Libra’s primary target customers are mainly from the underdeveloped regions of Asia, Africa and Latin America, where the financial infrastructure is imperfect and it is difficult for people to obtain financial services. Libra can complete low-cost, simple and fast cross-border payments based on mobile phones, and will upgrade payments to less developed regions such as Asia, Africa and Latin America.
For most developed regions, since a relatively complete domestic transfer and payment system has been established, the average usage cost is not high and user habits have been formed, the impact of Libra may be limited.
Q3
Will Libra challenge my country’s WeChat Pay and Alipay?
It is difficult for Libra to shake the dominance of WeChat Pay and Alipay as third-party payment tools in my country, but it will mainly challenge the following aspects:
First, Libra builds a brand-new global cross-border payment system that is separated from the traditional banking system, opening up a new track for competition in the global cross-border payment industry. WeChat Pay and Alipay are not yet in place.
Second, Libra is a global, infrastructure-level financial tool, which will squeeze the market space of WeChat Pay and Alipay in the international payment business.
Third, as a programmable digital economy native digital currency, Libra can easily implement complex payment business logic. WeChat Pay and Alipay need to be equipped with more complex business systems.
Fourth, Libra can achieve lower fees.
Q4
What impact does Libra have on monetary policy?
The impact of Libra on the monetary policies of countries around the world is multifaceted.
For the United States, the promotion of Libra has more advantages than disadvantages. On the one hand, when Libra is widely circulated around the world, it will squeeze the use of US dollars and challenge the right to speak of the US dollar; on the other hand, 50% of Libra’s real asset reserves are US dollar assets, which will increase the world influence of the US dollar. force.
For less developed countries, Libra may seriously erode their sovereign currency functions, put pressure on weak currencies, or even replace them.
For my country, Libra may affect my country’s central bank to accurately measure the money supply, making my country’s macro-control policies complicated, and Libra’s hedging function may deepen the degree of capital flows and interfere with the implementation of my country’s monetary policy.
Q5
How does Libra inspire Internet companies?
Libra provides new ideas for the transformation of other Internet companies. Libra will subvert the promotion model of Internet products. The traditional Internet uses flat business promotion, which requires point-to-point links to accumulate traffic and build an ecosystem. Libra’s rich application scenarios and powerful financial attributes penetrate into various related usage scenarios in a top-to-bottom three-dimensional manner to achieve rapid conversion of traffic. At this stage, when the traffic growth of the Internet industry is slowing down and the internal traffic of enterprises is almost saturated, Libra will open up new expansion space for the development of the Internet industry.
Q6
Will Libra accelerate the development of the blockchain industry?
Libra “sells” blockchain technology and innovative application models to the world, deepening the society’s understanding of blockchain and improving social cognition. Many large Internet companies and financial institutions headed by Facebook continue to join the blockchain industry. The capital and technical advantages of traditional giants will gradually emerge, and the blockchain industry will accelerate the reshuffle.
Q7
What is the relationship between digital RMB and RMB digitization?
Digital RMB is the final result and manifestation of RMB digitization, and RMB digitization is the process of realizing digital legal currency. The digital renminbi is generally regarded as a legal digital currency (Digital Currency Electronic Payment, DCEP) issued by the central bank based on national credit. It is a new encrypted digital currency system that has a certain alternative to cash in circulation. The digitization of RMB is generally considered to refer to the process of changing the form (media) of the RMB from paper to digital through electronic information means. The products of this process include electronic currency and central bank digital currency DCEP. The former can exist in the bank card, online banking, and third-party payment tool account balances of commercial banks; the latter exists in the central bank’s digital currency DCEP account system.
Q8
Will the digital currency issued by my country’s central bank adopt the Libra model?
Judging from the relevant information disclosed by the central bank, my country’s legal digital currency will not adopt the Libra governance and operation model.
The operating framework of the central bank’s legal digital currency still continues the “central bank-commercial bank-user” model of traditional finance. The central bank issues or withdraws DCEP to commercial banks, and commercial banks are entrusted by the central bank to provide DCEP deposit and withdrawal services to individual/corporate users.
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