Facebook Libra: All you need to know. AND more.

Facebook logo

Some time in May 2019, Facebook made a huge announcement.

Regarding digital transactions.

To be made public in 2020,

Facebook will introduce a new cryptocurrency.

Called Libra.

And India will be the first target.

Facebook Libra logo

It will join the ranks of Bitcoin, Ether and others.

Facebook will start the usage on its messaging platforms.

Whatsapp and Messenger.

To be made available to all its users.

So why is Facebook entering this cryptocurrency domain?

Who is it really aimed at?

Is it worth it?

Is it safe?

What is cryptocurrency?

We’ll take a look at all the above and more.

Before coming to Libra, it is better to gaze upon a few background concepts.

This will help understand Libra better.

There are many concepts that might sound confusing.

Don’t worry about them, as I’ll be explaining the concepts on simple terms.

Without getting much into tech stuff.

I’ll start with…

What is Cryptocurrency?

It is a digital medium to transfer assets.

It uses Crypto – in other words, is encrypted.

So it is secure.

Cryptocurrency uses decentralised method of control.

Unlike our regular centralised digital currency.

Meaning there is no moderator in between transactions.

What’s so special here?

All our online transactions are carried out by a moderator.

Usually it is a bank.

Online transaction example

But during transactions, there are things that can go wrong.

Like…

– The bank server could be down.

– You would have reached your limit.

– Your account could be hacked.

So, is there an alternate method that goes around the above issues?

Enter Cryptocurrency.

Why use it?

1. It is decentralised – no bank or moderator involved.

2. Little or no transaction cost.

3. Available 24/7.

4. No transaction limit.

5. Anyone can use.

6. Faster global transactions.

Famous Cryptocurrencies:

Bitcoin

Bitcoin logo

Litecoin

Litecoin logo

Ether

Ethereum logo

Z-Cash

Zcash logo

Bitcoin is arguably the most famous one and is generally considered as the first global cryptocurrency.

Since 2009.

Cryptocurrency is currently poised to be the next global virtual currency.

Over 32 million Bitcoin wallets have been set up till date.

About 5% Americans use it.

Over 6 million active global users.

Although it avoids the current issues, it (Bitcoin) is also criticized for its usage over illegal transactions and frequent high volatility (rapid unpredictable changes).

Before checking on Libra,

Let us find out how Bitcoin works.

I’m sure you’ve heard of Blockchain.

What is Blockchain?

It is a chain of blocks 😊.

Bitcoin single block

It is.

The blocks are places which store the transaction details.

Called as a digital ledger.

Don’t panic, basically these are just records.

These records are stored in block formats.

Hence the title.

There are many such blocks.

Bitcoin blockchain

Linked to each other through secure cryptography (encoded or secure code).

The secure part here is that the data can only be added.

It cannot be altered or deleted.

And  it is available for all to access.

If someone decides to alter the data, they can change the data in a block.

But everyone in that network already has the earlier block.

So it will be very easy to find the “odd” or tampered block.

And have it deleted.

Who creates these blocks?

To add data to the blocks or to create a block, a mathematical puzzle needs to be solved.

Called “proof of work”.

To be solved by the people who maintain the network.

They are called miners.

Bitcoin miners

Miners create and work on the blocks and make them public.

Thereby making the payment secure and trustworthy.

And by doing so, they also get paid.

In Bitcoins.

Currently,

1 Bitcoin = 8,05,758 INR (Approx)

1 Bitcoin = $11,783 (Approx)

Quite enticing right?

Once the solution is presented, it has to be approved by all the participants  in that network.

As I mentioned earlier, this is protected by cryptography.

And has no central authority.

Bitcoin uses Blockchain technology.

To add on, Blockchain uses crptography to secure data.

Famous among peers, it uses the SHA-256 encryption algorithm.

A brief on SHA-256:

SHA-256 belongs to the parent SHA-2.

That stands for:

Secure Hash Algorithm 2.

This was developed by none other than the United States National Security Agency (NSA).

So you can guess the level of crptography involved.

So what is it?

SHA-256 is a cryptographic hash function.

Damn, that looks complicated.

Not to worry, I ll explain in simple words.

What is a hash function?

In computers, Hash function or Hash algorithm is a program that creates a unique data.

A “hash ” is a 64-digit hexadecimal number.

This data is irreversible.

Irrespective of the source data, the final hashed data will always have the same bit size.

Note:

It is used for comparison not encryption.

Hash algorithm example:

When you login to say, Twitter, you enter your username and password.

Once you press enter, these two records will be sent to Twitter database.

But before it reaches the database, it is “hashed”.

The hashed data then produces the same-size bit result.

This is then compared to the one in the database.

I’m sure you’ve come across situations where your password is not strong enough and needs to be changed.

This is also run on hash algorithm.

So SHA-256 is a cryptographic hash algorithm.

That is, it is suitable for cryptograhy usage.

The miners need to arrive at the right hash as soon as possible.

Because mining works on first-come-first serve basis.

Bitcoin mining, is basically guesswork.

Arriving at the right number just tells you how fast that computer can produce hashes.

Earlier, normal computers were used for mining.

But today computers designed specifically for mining are used.

They are called Application-Specific Integrated Circuits (ASIC).

Coming to Bitcoins,

It also makes use of Digital Signatures.

What is a Digital Signature?

It is just like a handwritten signature.

But in the digital medium, verified electronically.

Using passcodes.

As part of security, there are also digital keys used.

There are two.

Public and private key.

What are they?

Every individual will a single unique Private Key.

The Public Key is shared with everyone.

Only when the data in both the keys match will the transaction take place.

How do these keys work?

To give a non-tech answer…

The message from the sender is first hashed.

The output of that is passed through an algorithm with the private key.

A digital signature is then obtained.

Then, the message, the signature and the public key are transmitted.

To obtain another hash value.

This value is then compared with a hash output through a verification process.

This is the validation procedure.

I know, it is a little complicated.

But it reveals how secure this is.

Bitcoin blocks contain the following:

Previous hash

Transaction details

Nonce

Hash address

A nonce is a random number that can be used only once.

As part of security, it cannot be repeated.

All the above are the unique identifiers of each block.

Now coming to the topic in hand…

What is Facebook Libra?

Facebook Libra logo

To explain simply,

Libra is a cash living inside your phone.

Once you register, you can use Libra (previously called Facebook coin) for

1. Online shopping

2. Online subscriptions (like Spotify)

3.Transfer money to other users

Over 25 firms have already backed this move.

In its backend, Libra consists of sets of computers that support the functionality.

You can buy Libra coins with your actual currency.

Currency logos

Using regular service providers like MasterCard, Visa etc.

Like Bitcoin, there is no central authority.

According to Facebook, Libra is aimed at the 1.5 billion unbanked population.

Meaning, the people who do not have a bank account.

So they transact in cash.

Libra will target India first, as it has the largest unbanked population of over 150 million.

Facebook plans to have over 100 members in its Libra Association before the launch.

Libra association members

Libra means…

Weight – derived form the ancient Roman scale.

The “lb” symbol for pounds is from Libra.

How can you store Libra?

Facebook has created a wallet for that too.

Called Calibra.

Calibra is a Libra storage space and also the app to transfer amounts.

Unlike Bitcoin, Libra is a Stablecoin.

What are stablecoins?

As the name implies, they are not volatile like other cryptos.

The Libra Blockchain:

Facebook intends to create the chain from scratch.

So that it will have the potential to handle enormous data, storage capacity.

Blockkchain can be of two types:

1. Permissioned

2. Permissionless

Bitcoin is a permissionless chain.

Anybody who has ASIC can join and mine.

Libra would be a permissioned chain.

More secure and easier to operate.


Conclusion

Cyrptocurrencies and transactions across the globe are on the rise.

Facebook aims to streamline this process by positioning their Libra as a “global coin”.

2 Comments

  1. Avatar Shona said:

    Very good explanation of Facebook’s Libra. I don’t know how I feel about it though especially after reading US lawmakers asking Facebook to pause on the development of Libra as they are concerned about how this type of currency can bypass existing laws and financial frameworks set in each country.

    July 5, 2019
    Reply
    • Avatar digiDomain said:

      Thanks Shona. Yes, you’re right. Tough luck for Facebook. Let’s wait and watch.

      July 9, 2019
      Reply

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