Facebook’s Libra vs Bitcoin – What you need to know

Facebook recently announced the launch of its new cryptocurrency, named Libra.

This announcement was met with praise by those excited about the adoption of blockchain technology in mainstream applications and concern by those wary of Facebook’s control over a blockchain designed to facilitate payments.

Libra is built on a secure, scalable, and reliable blockchain and is governed independently by the Libra Association, which is tasked with developing and evolving the platform.

This solution differs in a number of important ways from traditional cryptocurrencies like Ethereum and Bitcoin, including its consensus mechanism, data structure, governance, and application.

We have outlined the major differences between Libra, Bitcoin, and Ethereum below.


Consensus

The Libra blockchain differs from Ethereum and Bitcoin in the way transactions are validated.

The blockchain reaches consensus through a permissioned structure, which essentially comprises pre-defined validator nodes on the network voting on which set of transactions is correct.

This design relies on the familiarity and goodwill of its validator nodes (each of which is run by a Libra Association founding member) to prevent any attacks or fraud, although the Association said it would expand this validator node structure to provide further decentralisation in the future.

Bitcoin, on the other hand, uses Proof-of-Work (PoW) as its consensus mechanism, relying on miners to use powerful hardware and solve artificial difficulty problems to verify new blocks on the network.

This is a more decentralised approach which requires attackers to control more than 51% of the blockchain’s total computing power to manipulate transactions, as opposed to simply attempting to control votes.

Ethereum also uses the PoW consensus mechanism, although it eventually aims to switch to a Proof-of-Stake (PoS) system in order to improve scalability and reduce the physical resources needed to back up blockchain transactions.

PoS sees nodes on the blockchain staking the cryptocurrency in question to support their votes on the next block, essentially betting on the correct transaction.

Many argue that this system is not as resilient to attack as PoW, but it does require that an attacker stake an inordinately large amount of funds to influence transactions – and risk losing them if their attack is repelled.

Cryptocurrency mining rig power supply and cables

Development and control

The governance of Bitcoin and Ethereum is decentralised – meaning development direction and resources are sourced from various independent parties from around the world – with updates to the systems being voted on by way of the same consensus mechanisms outlined above.

Each of these blockchains is overseen by an independent organisation made up of interested developers which roughly sketches out the development direction of the cryptocurrency, but the final choice is made by the participants in the network.

Ethereum has a slightly more centralised and potentially better-directed development organisation called the Ethereum Foundation, which aims to further the potential applications and capabilities of the blockchain.

In this regard, Libra is an entirely different beast to cryptocurrencies like Bitcoin and Ethereum. While it is based on its own open-source blockchain, this distributed ledger is controlled by the Association itself.

This gives the network of validators which comprises all founding members of the Libra Association the ability to control transactions and development any way they want to, provided they reach consensus among themselves.

Unlike Ethereum and Bitcoin, Libra is run very much like a centralised bank ledger, albeit with improved technology which may eventually scale out to give the users a vote in the governance or control of the network.

After the initial launch of the cryptocurrency, Facebook will have a strong leadership role in the governance of the system, which essentially means that Facebook would have control over your transactions and identity on the blockchain.

Ethereum platform logo

Applications and functionality

Bitcoin, Ethereum, and Libra are all built to serve different purposes.

Bitcoin was the first cryptocurrency ever created and serves as both a means to transfer funds overseas as well as a “store of value” for some investors who hope to make a return on long-term cryptocurrency investments.

It has been likened to “digital gold”, and its community places great importance on its intrinsic value and the improvement of its technology with the objective of facilitating faster transactions and cheaper transaction fees.

Ethereum was created to implement “smart contract” technology, which began as a means to run secure, automated transactions on the blockchain without the need for a third party, but soon evolved into the framework to build decentralised applications.

Subsequently there are a large number of developers working on applications which run on the Ethereum blockchain, from decentralised video games to automated insurance policies.

Facebook’s cryptocurrency will also include smart contract functionality through its MOVE programming language, but its primary goal at launch will be to facilitate the accessible, cheap, and fast transfer of wealth between users regardless of their geographical location.

This will be accomplished through the launch of its Calibra wallet in 2020, which will allow users to sign up for free across multiple platforms and begin using the cryptocurrency.

It should also be noted that Libra is designed not to act as a speculative investment, and is backed by a reserve of stable assets to defend against volatility or manipulation.

Calibra wallet

Now read: Facebook’s Cryptocurrency Libra: Who’s In and Who’s Out

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Facebook’s Libra vs Bitcoin – What you need to know