Congress recently has developed an interest on Libra– the new digital currency. Policymakers and the media have been quite inquisitive about Libra and its comparisons to bitcoin and other cryptocurrencies.
Different Projects, Different Challenges
First of all, bitcoin and Libra are quite different projects using different technologies. It is natural for such different projects to experience different challenges and legal hurdles. That’s why it’s essential for policy makers to understand the differences so that they may tailor appropriate policy responses to the same.
But making these policies requires a little bit of care. Overlooking the differences between the two currencies risks the adoption of a one size fits all response, which would end up in unintended consequences detrimental to the public. Hence we are trying to make sure policymakers don’t confuse the two. Let’s explore the design goals and technology differences.
Design Goals And Priorities
Let’s begin with the first sentence that defines the two technologies according to each’s white paper.
Bitcoin is defined as a peer to peer electronic cash version that allows online payments to be sent from one party to the next without going through a financial institution.
Bitcoin insists that the money is transferred without a third party being involved. Bitcoin’s design goal is prioritizing building a payment network without the need of trusted intermediaries over the networks stability, ease of use and scalability. According to the whitepaper, bitcoin insists on an efficient and fast system without government interference.
It is a response to public distrust in corporations and was designed to work for the citizens even if the government is tyrannical and corporations untrustworthy.
Now, Libra, as per its whitepaper, has a goal of serving as a solid foundation for financial services. It also aims at being a global currency that meets daily financial needs for billions of people.
By meeting the needs of the billions exposes its objective of scaling and access. The definition also mentions a solid foundation and the fact that it should be global.
The difference? Bitcoin seeks to address the problem of consolidated power intermediaries possess. Libra on the other hand addresses the inefficiencies of these intermediaries and their lack of providing services to the insignificant persons in the bottom of the chain.
Different Technologies Employed
Both Libra and Bitcoin use the distributed ledger technology for the recording of payment transactions between users and both make profits from sharing data over the internet.
Bitcoin, the first of cryptocurrencies. It is essentially money based on economic scarcity. Transactions are recorded on a censorship resistant ledger that anyone can read and write. Bitcoin is basically public and permission less.
Libra on the other hand is the latest of digital currencies. Money is based on trust in an issuer and transactions are recorded on a ledger that anyone can access. However only a set of authorized corporations can amen. Libra is basically public and permissioned.
While cryptocurrencies are defined by their lack of reliance on trusted intermediaries, it is unlikely that Libra can be defined on the same terms. This is because it uses a permissioned ledger and relies on an issuer to manage funds and assets.