[Part 1] Understanding Libra & Relavant Trends

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Understanding Libra & Relavant Trends

Korea Financial Services Commission

– Contents –

  1. Background Review
  2. Structure of Libra
  3. Future of Libra
  4. Difference between Bitcoin & Libra
  5. Evaluation & Contermeasures
  6. Recent Trends

[Note 1]
Countermeasure to FATF International Standards with regard to Virtual Asset

[Note 2]
Major Issues of Amendments of Particular Financial Transaction Report Law

※ This is only an arrangement of Libra White Book, Domestic Media Reports and Overseas Trends to help public understand, not an official opinion of Financial Services Commission

1. Background Review

▶ Facebook is planning to issue virtual currency Libra in 2020* to start transfer & payment service(18th June 2019)

* Originated from the weight unit of Ancient Rome, ‘Libra pondo’, similar to pound.

● Providing financial services to the financially neglected class(estimated as1.7 billion globally) having difficulties and limitation to access traditional financial system.

● securing ConvenienceㆍPrice Competitiveness* by providing financial services through Social Media**,

* In case of the U.S., around 5% commission is paid for overseas transfer, and more than 30 billion USD commission is paid to the big 3 credit card companies. Libra is trying to save these financial costs
** Facebook 2.4 billion users, Whatsapp 1.5 billion users, Instagram 1 billion users

● Act as a alternative currency in countries experiencing hyperinflation(ex: Venezuela etc.)

▶ The paper aims to Review possible influence of the launchㆍexpansion of Libra on Financial System by Analyzing the Charactersㆍ Structures of Libra

[Major Characteristics of Libra]

● (Guarantees value) It is a stable coin* that is linked to the underlying assets such as bank deposits of various currencies and U.S. bonds

* Generally the value of virtual currencies is determined by the demandㆍsupply whereas the stable coin is linked to traditional currencies or financial products to guarantee its price stability

● (Rapid Transaction) As a virtual currency based on permissioned(closed) blockchain, 1,000 transactions per second speed* available.

* In case of Bitcoin(public blockchain), the rate is less than 7 transactions per second
* However, some say that it is still the insufficient speed for common use, compare to the 24 thousand transactions per second speed of VISA

● (Universal use) Established Libra Association comprised of global corporations* in other fields such as payment gateway, IT, and telecommunication, to secure wide-use possibility.

* The members have equal voting rights and operate distributed nodes

 

2. Structure of Libra

* Announced in the Libra White Book (18th June 2019) the details will be specified with the project process.

▶ (Outline) Stable Coin based on Permissioned Blockchain, Specializing in Transfer & Payment

Structure of Libra

▶ (Customer) Customers will deposit public currency to purchase Libra, and saveㆍutilize it with electronic wallet.

* The details regarding exchange platform is not clearly specified. However, it is assumed that Libra may be purchased in the partner exchange paltformss, since it is in association with Coinbase.

▶ (Libra e-Wallet) The electronic wallet for saving Libra may be developed by anyone, and Facebook will use the Wallet Module developed by its subsidiary, Calibra*

* Facebook has established Calibra to separate financial data from social data.

● Libra purchased through applications such as FacebookㆍWhatsappㆍInstagram will be savedㆍused with the in-app wallet modules*

* App Store(Apple) ㆍGoogle Store(Google) have been refused to register some of the virtual currency related apps so far, however the refusal on apps with massive subscriber numbers such as Facebook may be troubled.

▶ (Libra Blockchain) The blockchain technology Libra is applying

● (Closed Type) The permissioned(closed) blockchain that only the partners may participate in its nodes

● (BFT) Libra is using BFT(Byzantine Fault Tolerant)* Agreement Algorithm to add new blocks without mining process, which is distinguished from other public blockchain with mining process such as BitcoinㆍEthereum

* One of the algorithms of adding new blocks that its agreement credibility is mathematically ensured when the hostile nodes(such as hackings) are under 33% of the entire nodes.

● (Move) It is available to develop Smart Contract & Other Applications that can be launched in Libra Blockchain through the independent programming language “Move”

▶ (Libra Association) Established as a Non-profit Organization(located in Geneve Switzerland), comprises of various Corporations of Geografical Variance and Non-profitㆍMultilateral Institutions*

* 28 companies such as Facebook, VISA, Master card, eBay, PayPal, Uber, Lift, Vodafone etc.

● The highest decision-making body will be the Association, and Facebook will only play the key role until the the association is stabilized.

▶ (Reserve) Libra is designed as a stable coin so that it can be e widely used in the market at the initial commercialization stage.

● Libra’s value is guaranteed by the reserve consisted of Assets with Low Volatility such as the Bank Deposits of major currencies or Short-term Securities

● The assets for the reserve shall be HeldㆍManaged by the Libra Association.

▶ (Partners) The Members of the Association are Planning to Procure 10 million USD Each, and the part of the procured amount will be used as the Support Fund for Libra Payment Partners to boost its Market Share

 

3. Future of Libra

▶ (Objective) It seems to be aming to become the Global Digital Currency as a substitution for Bitcoin, and the long-term objective is to issue the Digital Currency without any government regulation.

● In case of Stellar Lumen, it is Specialized in Overseas Transfer, whereas Libra is pursuing to be used in Overall Economic Life such as the tracsactions in on-offline commercial trades.

● In case of Tether, its Value is Linked to USD as 1:1 Ratio, whereas Libra is Indirectly Ensuring its Value* by the Reserve

* Similar to the USD, as it has ceased the gold standard when it became the key currency, there is a possibility for Libra to cease the value guarantee through the reserve if it becomes digital key currency.

▶ (Service Expansion) It is planned to be utilized from initial Overseas Transfer, gradually to On-offline Commercial Transactions.

▶ (Wide-use) It is available in any economic entity can Utilize Libra e-Wallet, and its boundary will not be limted to the transferㆍpayment through Facebook Platform.

● The Members of the Association is planned to be expand from 28 Corporations to 100, within the operation commencing in 2020

▶ (Type Switching) Libra aims to Switch its type from the current Permmitted(Closed) Blockchain to Public(Open) Blockchain after 5 years from the release.

● It seems to be a Countermeasure for the criticism that the Monopolized Structure of its minor members to decide is not Truly a Blockchain System.

▶ (Licensing) Planning to Pre-consult with the Regulation Bodies of major countries, and Acquire Financial Licenses When Required.

4. Difference between Bitcoin & Libra

▶ General Virtual Currencies such as Bitcoin are designed on the basis of Public(Open) Blockchain, whereas Libra is based on Private(Closed) Blockchain Technology.

▶ (Dispersion) Bitcoin* etc. aims for Perfect Dispersion, Libra** aims for Centralized Control (Only dispersed among the member of the association)

* For Bitcoin there are over 10,000 nodes, free to participate.
** For Libra, participation is only available through joining the association. Currently 28 nodes

▶ (Value) General virtual currencies such as Bitcoin have No Intrinsic Value, whereas Libra Guarantees the Value by its Reserve. (However, not clear on the specific mechanism yet)

▶ (Acquiring) It is assumed that Libra will be paid as the Rewards* for the Goods and Services provided through the Members of Libra Association. The rewards could be optional between legal tender and Libra.

* eBay sellers, Uber drivers etc.

● Libra is a Pricate Blockchain, and there will be No Mining Acquisition*

* However, the P2P trade and transactions through the partners are assumed to be available, similar to the other virtual currencies.

▶ (Usage) Libra Association is Systematically Trying to Add more Members, and the partnerships will like be Expanded.

● Individual economic entities recieves other virtual currencies such as Bitcoin as their Payment Method Voluntarily.

Class. Libra Bitcoin etc. Electronic Pre-Payment
Legal Ground Electronic Financial Transaction Law
Tech. Basis Private(Permitted)Blockchain Public(Open)Blockchain Tech-neutral(Centralized Control in general)
Nodes 28 → 100 About 10,000 1(Centralized Control in general)
Value Value Guaranteed by Reserve(Not clear on the mechanism) No intrinsic value,Determined by DemandㆍSupply 1:1 ratio value to the provided public currency(Given Refund Duty etc.)
Acquisition Method 1) P2P Trade
2) Purchased in exchange platforms
3) Presumed to be paid as remunerations for providing goods & services of partners
* eBay sellers, Uber drivers etc.
1) P2P Trade
2)  Purchase in exchange platofrms
3) Mining
Acquire from the Issuer(e-finance dealer)(Transfer may be possible in accordance with the contract)
Usage Planning to expand the usage through adding members to the Libra Association Partial on-offline commercial transactions(User Voluntary) Issuer( e-finance dealer) to recruit franchise to join

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