WEBVTT - What's up with Facebook Libra? 0:00:04.240 --> 0:00:07.240 Welcome to tech Stuff, a production of I Heart Radios, 0:00:07.320 --> 0:00:13.840 How Stuff Works. Hey there, and welcome to tech Stuff. 0:00:13.880 --> 0:00:16.919 I'm your host, Jonathan Strickland. I'm an executive producer with 0:00:16.960 --> 0:00:18.800 How Stuff Works and iHeart Radio and I love all 0:00:18.880 --> 0:00:22.479 things tech. And in the middle of June two thousand nineteen, 0:00:22.800 --> 0:00:26.160 Facebook released a white paper describing a planned digital currency 0:00:26.280 --> 0:00:30.320 called Libra, which has been described as a blockchain cryptocurrency, 0:00:30.800 --> 0:00:32.760 though there are a lot of people who object to 0:00:32.960 --> 0:00:36.600 one or both of those terms being used to describe Libra. 0:00:36.960 --> 0:00:39.240 So in this episode, I figured we talked about Libra, 0:00:39.760 --> 0:00:42.400 What is it, who is behind it? How is it 0:00:42.479 --> 0:00:46.159 similar to and different from currencies like bitcoin and and 0:00:46.200 --> 0:00:49.040 then fiat currencies, and and why should we even care 0:00:49.080 --> 0:00:51.839 about it? Well, let's get that last one out of 0:00:51.840 --> 0:00:55.360 the way first. Actually, we should care because Facebook is 0:00:55.480 --> 0:00:59.960 an enormous freaking company with billions of users. Moreover, at 0:01:00.000 --> 0:01:04.160 a company that purchased WhatsApp and runs Facebook Messenger, and 0:01:04.360 --> 0:01:08.600 has an incredible incentive to incorporate a proprietary currency system 0:01:08.640 --> 0:01:12.000 that can be fully integrated into those platforms. So we 0:01:12.040 --> 0:01:16.560 should care because this goes beyond big business. Also, as 0:01:16.600 --> 0:01:20.399 I record this on July three, two th nineteen. Facebook 0:01:20.440 --> 0:01:24.160 and its services like What's Happen Instagram are all having problems, 0:01:24.240 --> 0:01:27.840 particularly with showing photos. So that kind of thing can 0:01:27.920 --> 0:01:30.880 shake a person's confidence in a company. Though, I think 0:01:30.920 --> 0:01:34.960 it's unfair to judge a company on the occasional technological hiccup. 0:01:35.000 --> 0:01:38.040 But it's also fair to say Facebook has had a recent, 0:01:39.240 --> 0:01:45.040 let's say, troubling history. Next, while people are often referring 0:01:45.080 --> 0:01:50.600 to Libra as Facebook's approach to currency, that's not entirely accurate. 0:01:50.640 --> 0:01:54.240 I suppose I'm not being very helpful calling it Facebook Libra. 0:01:54.440 --> 0:01:57.680 Facebook is actually just a co founder of a group 0:01:57.760 --> 0:02:05.000 called the Libra Association, which also has members like Spotify, MasterCard, eBay, Uber, 0:02:05.160 --> 0:02:09.920 and a whole bunch more. It's an quote independent, not 0:02:10.160 --> 0:02:16.399 for profit membership organization headquartered in Geneva, Switzerland end quote Switzerland, 0:02:16.880 --> 0:02:21.360 known for its discretion with banking. That's not snark, It 0:02:21.440 --> 0:02:24.480 really is known for that. To be included in this 0:02:24.560 --> 0:02:31.000 August association, the organization has to meet some pretty steep criteria, 0:02:31.120 --> 0:02:34.360 and they also stand to benefit the most from the 0:02:34.440 --> 0:02:39.200 adoption of Libra. But let's work our way to that point. First, 0:02:39.560 --> 0:02:43.200 let's take a look at what was actually said. The 0:02:43.280 --> 0:02:47.800 first phrase in the white paper is quote Libra's mission 0:02:48.160 --> 0:02:53.000 is to enable a simple global currency and financial infrastructure 0:02:53.240 --> 0:02:58.959 that empowers billions of people end quote. Personal commentary aside, 0:02:59.440 --> 0:03:03.160 I think that's a phrase that should be evaluated critically 0:03:03.560 --> 0:03:09.400 with some skepticism. Does the proposed digital currency actually align 0:03:09.880 --> 0:03:13.280 with this stated mission? Now? I think from my tone 0:03:13.320 --> 0:03:16.200 you can tell it's pretty clear where I stand on this, 0:03:16.520 --> 0:03:19.240 but I am sincerely going to attempt to take an 0:03:19.240 --> 0:03:23.480 objective approach so that people can draw their own conclusions. Also, 0:03:23.760 --> 0:03:26.760 I highly recommend that if this is a very interesting 0:03:26.800 --> 0:03:29.600 topic to you, you seek out multiple sources to get 0:03:29.639 --> 0:03:32.760 a full picture of this. The white paper goes into 0:03:32.760 --> 0:03:37.000 detail with a problem statement. This describes what LIBRA is 0:03:37.040 --> 0:03:42.040 intended to address. Namely, quote, large swaths of the world's 0:03:42.080 --> 0:03:46.720 population are still left behind. One point seven billion adults 0:03:46.800 --> 0:03:50.720 globally remain outside of the financial system with no access 0:03:50.760 --> 0:03:54.000 to a traditional bank, even though one billion have a 0:03:54.040 --> 0:03:57.760 mobile phone and nearly half a billion have Internet access 0:03:57.880 --> 0:04:03.560 end quote. So presumably one of libra's main purposes is 0:04:03.560 --> 0:04:07.640 to empower people who otherwise would have no access to banks. 0:04:08.440 --> 0:04:11.440 That's a noble cause, and one that is really needed. 0:04:11.600 --> 0:04:15.400 In many parts of the world. Financial institutions can provide 0:04:15.440 --> 0:04:18.320 security and protect wealth, and a lot of people have 0:04:18.640 --> 0:04:21.440 little to no access to them, so changing that would 0:04:21.440 --> 0:04:25.320 be a good thing. The problem statement continues and describes 0:04:25.480 --> 0:04:29.680 some of the barriers that unbanked people face when attempting 0:04:29.680 --> 0:04:33.279 to change their financial situation, and it also addresses some 0:04:33.400 --> 0:04:39.280 of the issues of blockchain and cryptocurrency solutions and their limitations. Namely, 0:04:39.320 --> 0:04:43.039 the white paper rightfully points out that these cryptocurrencies and 0:04:43.080 --> 0:04:48.719 blockchain solutions have had some major issues with volatility and scalability. 0:04:48.839 --> 0:04:51.960 In other words, the value of these currencies can change 0:04:52.080 --> 0:04:56.080 dramatically and rapidly, and it's hard to get them scaled 0:04:56.200 --> 0:04:59.600 up to enough adoption that they can become legitimate currencies 0:04:59.640 --> 0:05:03.480 for the general public. If they aren't adopted as and 0:05:03.560 --> 0:05:07.279 if no one is using them, then really they're not currency. 0:05:07.960 --> 0:05:10.400 And now I think we need to talk a little 0:05:10.400 --> 0:05:14.120 bit about the concept of currency in general and how 0:05:14.160 --> 0:05:17.240 it works. Now, for a lot of you, this is 0:05:17.279 --> 0:05:20.400 all gonna be super basic, but you know, I like 0:05:20.520 --> 0:05:23.360 to start from the general and work towards the specific 0:05:23.560 --> 0:05:25.479 so that we can have a full understanding of what's 0:05:25.520 --> 0:05:29.880 going on? So way back when, before the invention of money, 0:05:30.080 --> 0:05:33.920 humans relied on bartering for trade. So essentially, person one 0:05:33.960 --> 0:05:37.520 would have something that person too wanted, and person too 0:05:37.680 --> 0:05:41.120 had something that person one wanted. They'd have to come 0:05:41.120 --> 0:05:44.880 to an agreement over how much of each something would 0:05:44.960 --> 0:05:48.520 be an equitable trade, and this could change from person 0:05:48.560 --> 0:05:52.400 to person based upon need. Supply and demand determined everything. 0:05:52.680 --> 0:05:54.960 So if you had a whole bunch of stuff that 0:05:55.040 --> 0:05:58.760 was plentiful in general in your region, chances are it 0:05:58.760 --> 0:06:00.840 wouldn't do you much good because as everyone had enough 0:06:00.880 --> 0:06:03.400 of it at their fingertips. But if you traveled to 0:06:03.440 --> 0:06:07.040 a place that didn't have access to that same stuff, 0:06:07.080 --> 0:06:08.680 you'd be in a good position to come back with 0:06:08.720 --> 0:06:11.520 a bunch of things you needed. That's basic bartering. One 0:06:11.520 --> 0:06:15.680 oh one. Now, sometime around six hundred b c E. 0:06:16.440 --> 0:06:20.120 A king of a region called Lydia which now is 0:06:20.120 --> 0:06:24.719 in modern day Turkey created a currency, the first recorded 0:06:24.800 --> 0:06:29.240 instance we have of an official currency. It was a 0:06:29.279 --> 0:06:32.600 form of coins, and the coins were made from electrum, 0:06:32.839 --> 0:06:37.479 which is an alloy of gold and silver. Uh The 0:06:37.600 --> 0:06:42.520 king's son Creases, would issue the first gold coins, and 0:06:42.560 --> 0:06:45.279 in fact he would amass an enormous amount of wealth, 0:06:45.760 --> 0:06:49.480 and today you can still hear people say rich as creases. 0:06:50.040 --> 0:06:53.160 This is the creases to whom they are referring. These 0:06:53.600 --> 0:06:57.880 kings of Lydia would later be connected with the the 0:06:58.000 --> 0:07:01.240 myth of King Midas and the Golden Touch. Now, the 0:07:01.279 --> 0:07:06.360 important concept here was one of standardization. The coins represented 0:07:06.400 --> 0:07:11.320 distinct units of wealth and value, so rather than bartering 0:07:11.360 --> 0:07:14.560 with physical goods, you can buy and sell with coins. 0:07:14.800 --> 0:07:17.320 Now you can still haggle to come to an agreement 0:07:17.480 --> 0:07:20.800 on the value of any particular good or service, but 0:07:20.880 --> 0:07:23.720 now payment could be exchanged with coins rather than with 0:07:23.800 --> 0:07:27.000 other physical things. So if you had a bunch of sheep, 0:07:27.240 --> 0:07:29.640 then you needed some grain, but the guy who had 0:07:29.640 --> 0:07:32.360 the grain didn't have any need for wool or for sheep. 0:07:32.800 --> 0:07:35.320 You could sell some of your stuff for coins at 0:07:35.360 --> 0:07:38.120 a market. Then you can use those coins to buy 0:07:38.120 --> 0:07:41.520 the stuff you needed. So far, so good. Right now, 0:07:41.560 --> 0:07:46.080 for currency to work, that standardized approach was really necessary. 0:07:46.160 --> 0:07:49.920 Everyone has to agree upon the actual value of the 0:07:49.960 --> 0:07:53.800 currency itself, and in the old days, this was partly 0:07:53.840 --> 0:07:57.920 determined by what the coins were made out of. Making 0:07:57.960 --> 0:08:02.280 coins from precious metals seemed to make total sense, but 0:08:02.400 --> 0:08:05.680 you know not sense if you catch my drift. The 0:08:05.800 --> 0:08:10.200 value was intrinsic in the coins themselves because of the 0:08:10.280 --> 0:08:12.960 material they were made out of, was already seen as 0:08:13.000 --> 0:08:17.400 being valuable gold and silver, for example, as for paper 0:08:17.400 --> 0:08:21.520 money that dates back to around eight hundred CE. In 0:08:21.720 --> 0:08:26.880 China during the Tang dynasty, the Tang government issued certificates 0:08:26.920 --> 0:08:31.360 that represented a certain number of metal coins. The certificates 0:08:31.360 --> 0:08:35.360 could be redeemed for those metal coins at the Chinese capital, 0:08:35.880 --> 0:08:38.439 and the government would issue these certificates when it needed 0:08:38.440 --> 0:08:41.480 to purchase goods that were from the further reaches of 0:08:41.520 --> 0:08:45.040 the empire. Because transporting large amounts of metal currency was 0:08:45.160 --> 0:08:49.160 difficult and dangerous, the certificates were much easier to carry 0:08:49.280 --> 0:08:52.840 and they were transferable, meaning you could trade a certificate 0:08:52.840 --> 0:08:56.040 to someone else and that person could then redeem that 0:08:56.080 --> 0:08:58.960 certificate for its value in coins if they were to 0:08:58.960 --> 0:09:01.679 travel to the Chinese opital. And so people on the 0:09:01.720 --> 0:09:05.720 outer regions of China would use these certificates as currency 0:09:05.760 --> 0:09:09.640 itself when making trades, never bothering to actually cash them 0:09:09.640 --> 0:09:12.679 in for any metal coins. The certificates and that cells 0:09:12.679 --> 0:09:16.320 were good enough. When Marco Polo traveled to China he 0:09:16.440 --> 0:09:19.160 learned of the paper currency. They brought that knowledge back 0:09:19.160 --> 0:09:22.160 to Europe. That was in the late thirteenth century, but 0:09:22.200 --> 0:09:25.520 it wouldn't be until the mid seventeenth century then the 0:09:25.559 --> 0:09:29.199 first bank notes would be issued in Europe, specifically in Sweden. 0:09:29.920 --> 0:09:32.679 For a long time, currencies were either made of precious 0:09:32.800 --> 0:09:37.000 materials or stood in representation of a fixed amount of 0:09:37.040 --> 0:09:41.680 those precious materials, so a silver standard or a gold standard. 0:09:42.160 --> 0:09:45.040 So in a country that used the gold standard, you 0:09:45.080 --> 0:09:47.960 could theoretically take your paper currency to a bank and 0:09:48.040 --> 0:09:50.840 exchange it for an amount of gold that was equal 0:09:50.960 --> 0:09:54.840 to the value of that currency. Now, in theory, this 0:09:54.880 --> 0:09:57.680 would mean that a country on the gold standard would 0:09:57.720 --> 0:10:01.440 automatically have some checks and balance is in place. Because 0:10:01.480 --> 0:10:05.880 of that limitation, the issuing government couldn't circulate more currency 0:10:06.080 --> 0:10:10.719 than what it's gold reserves contained. At least ethically, they 0:10:10.760 --> 0:10:13.800 couldn't do that. You could only issue as many bank 0:10:13.920 --> 0:10:17.120 notes as would reflect the total amount of gold you 0:10:17.240 --> 0:10:21.480 had on hand, since in theory, everyone holding those notes 0:10:21.840 --> 0:10:25.240 could demand their gold at any time, and based on 0:10:25.360 --> 0:10:27.960 the system, you should be able to hand it over, 0:10:28.440 --> 0:10:31.400 So you shouldn't have more notes available than you have gold. 0:10:31.480 --> 0:10:34.200 In your supply, but the United States and much of 0:10:34.240 --> 0:10:36.880 the rest of the world abandoned that standard in the 0:10:36.880 --> 0:10:41.800 twentieth century. During the Great Depression, President Franklin Delano Roosevelt 0:10:41.920 --> 0:10:46.160 chose to sever the US paper currencies relationship with gold. 0:10:46.400 --> 0:10:50.120 This allowed the government to issue more currency, which obviously 0:10:50.160 --> 0:10:52.840 they couldn't if they had to rely on just how 0:10:52.920 --> 0:10:55.360 much gold was in the reserves. But this allowed them 0:10:55.400 --> 0:10:58.880 to lower the interest rates and thus stimulate the economy. 0:10:59.080 --> 0:11:02.520 People could take out loans with lower interest, and interest 0:11:02.559 --> 0:11:05.959 is really how more wealth is generated. Because let's say 0:11:06.000 --> 0:11:07.719 you take a loan for a certain amount, Let's say 0:11:07.720 --> 0:11:11.320 it's a hundred dollars, and then there's interest on top 0:11:11.360 --> 0:11:14.079 of that loan. So you've taken out a hundred dollar loan. 0:11:14.160 --> 0:11:16.360 But when you're finished paying it off, you've paid out 0:11:16.400 --> 0:11:19.480 a hundred and twenty dollars For that hundred dollar loan. 0:11:19.720 --> 0:11:24.200 You've generated twenty more dollars of wealth there. But now 0:11:24.240 --> 0:11:28.720 the currency wasn't rooted on a specific commodity. This is 0:11:28.760 --> 0:11:32.760 what we would call a fiat currency, which depends upon 0:11:32.920 --> 0:11:37.040 supply and demand of the currency itself as well as 0:11:37.080 --> 0:11:40.760 the stability of the financial institution. Or government that issues 0:11:40.800 --> 0:11:43.200 the currency in the first place. This is also what 0:11:43.360 --> 0:11:46.000 makes it not a big deal when governments change the 0:11:46.040 --> 0:11:49.880 materials they use to mint coins. There have been times 0:11:49.880 --> 0:11:53.559 when shortages and precious metals have forced governments to change 0:11:53.600 --> 0:11:57.480 to less rare and therefore less valuable materials to make 0:11:57.520 --> 0:12:01.120 their coins, But fiat currency gets around that. The government 0:12:01.160 --> 0:12:04.800 ultimately determines how much of the currency should enter circulation. 0:12:05.520 --> 0:12:08.640 If a government was to create too much currency, it 0:12:08.679 --> 0:12:12.320 would risk triggering hyperinflation, in which the value of the 0:12:12.320 --> 0:12:17.640 currency decreases dramatically. Fiat essentially means let it be done, 0:12:18.120 --> 0:12:20.480 so that kind of tells you how it's meant to 0:12:20.559 --> 0:12:23.440 stand on its own. As long as people have confidence 0:12:23.520 --> 0:12:26.559 in the issuing body and there's not a sudden flood 0:12:26.600 --> 0:12:30.400 of currency, the value remains pretty stable day to day. 0:12:30.800 --> 0:12:33.880 I could do a whole episode about how currency gets 0:12:33.920 --> 0:12:37.680 into circulation, mostly through loans and banks and stuff, but 0:12:37.760 --> 0:12:40.320 that's kind of outside the realm of tech stuff. I 0:12:40.360 --> 0:12:45.640 explain fiat currency mostly because Librick sort of straddles a 0:12:45.720 --> 0:12:50.320 category and it dips its toe in fiat currency. It's 0:12:50.360 --> 0:12:53.440 not being issued by a government, however, but it is 0:12:53.520 --> 0:12:56.800 being issued by a centralized group. More on that in 0:12:56.800 --> 0:13:01.400 a bit Now, the literature around the Labor Association calls 0:13:01.400 --> 0:13:05.280 it decentralized, but I think that really just depends on 0:13:05.360 --> 0:13:09.199 your point of view. To quote Obi Wan Kenobi, because 0:13:09.559 --> 0:13:13.520 it's really a group of very large companies that are 0:13:14.080 --> 0:13:16.679 in charge of this. So to me, it is centralized. 0:13:16.760 --> 0:13:22.400 It's just centralized and distributed amongst a relatively small number 0:13:22.679 --> 0:13:27.840 of companies. Cryptocurrency then would refer to a group of 0:13:27.880 --> 0:13:32.040 digital currencies that are meant to be decentralized and global. 0:13:32.520 --> 0:13:36.240 With a cryptocurrency, there is no authority that ultimately issues 0:13:36.280 --> 0:13:40.280 more currency. Rather, you typically have an algorithm that dictates 0:13:40.360 --> 0:13:44.480 the supply of currency going into circulation. Cryptocurrency is like 0:13:44.520 --> 0:13:48.280 the famous bitcoin have a limited supply. There's only so 0:13:48.320 --> 0:13:53.480 many bitcoins that will ever exist. They will only enter 0:13:53.840 --> 0:13:56.440 the circulation once, and then once all the bitcoins are 0:13:56.480 --> 0:13:59.760 in circulation, that is it. Once all bitcoins are my 0:14:00.679 --> 0:14:04.120 that's all there ever will be. There will remain in circulation, 0:14:04.280 --> 0:14:08.160 but you won't generate new bitcoins. Now, in this sense, 0:14:08.800 --> 0:14:11.080 they are closer to one of the currencies that are 0:14:11.120 --> 0:14:14.320 based on a commodity, like gold, because there is a 0:14:14.360 --> 0:14:17.720 finite amount of gold on earth, So if everyone still 0:14:17.760 --> 0:14:20.960 had currencies that were tied to gold, eventually we would 0:14:21.000 --> 0:14:24.040 have to stop issuing currency because we would have covered 0:14:24.160 --> 0:14:28.280 all the gold available. But how do you assign actual 0:14:28.440 --> 0:14:33.160 value to something that is purely digital? A bitcoin or 0:14:33.200 --> 0:14:39.760 any other cryptocurrency is just some code. Well, here's the trick. 0:14:40.240 --> 0:14:43.760 It has value if people treat it as having value. 0:14:44.360 --> 0:14:47.960 If someone has something and you want it, then that's 0:14:47.960 --> 0:14:51.240 something they have has a value to you. How much 0:14:51.320 --> 0:14:55.440 value is up for discussion, obviously, so a bitcoin's value 0:14:55.480 --> 0:14:58.400 is dependent upon how much people want it and how 0:14:58.480 --> 0:15:01.000 much they'd be willing to pay for it, or how 0:15:01.080 --> 0:15:03.440 much they would be willing to accept for it. If 0:15:03.480 --> 0:15:07.280 they happen to own some Libra is a slightly different beast. 0:15:07.720 --> 0:15:10.680 I'll explain more in a second, but first let's take 0:15:10.760 --> 0:15:20.880 a quick break. Now, one other thing I should mention 0:15:20.920 --> 0:15:25.440 about bitcoin is that it is truly decentralized. There is 0:15:25.480 --> 0:15:29.920 no financial institution in charge of overseeing or regulating the currency. Now, 0:15:29.960 --> 0:15:32.600 on the one hand, that means that a government can't 0:15:32.640 --> 0:15:36.520 influence the value of the currency or interfere with fiat 0:15:36.560 --> 0:15:40.160 currencies or sovereign currencies. The whole concept behind them points 0:15:40.200 --> 0:15:43.600 back to how a government can exert influence over the 0:15:43.640 --> 0:15:47.920 financial system through supply and demand of currency, not necessarily 0:15:48.200 --> 0:15:50.920 in a malevolent way, but certainly in a way that 0:15:51.040 --> 0:15:55.480 is beyond the control of the people relying on that currency. Now, 0:15:55.480 --> 0:16:00.800 a downside of this, with bitcoin being so decentral is 0:16:00.800 --> 0:16:04.720 that it's value is incredibly volatile, so it changes rapidly 0:16:04.840 --> 0:16:07.960 and dramatically. In fact, it can change so quickly they 0:16:08.040 --> 0:16:12.400 can cause people to be averse to spending bitcoin once 0:16:12.440 --> 0:16:15.080 they get some. So think of it this way. Let's 0:16:15.080 --> 0:16:17.480 say you have a dollar bell and you go to 0:16:17.560 --> 0:16:20.560 the store, and based on the value of that dollar 0:16:20.720 --> 0:16:23.000 at that time, you're able to buy a loaf of bread. 0:16:23.240 --> 0:16:26.400 So you buy your loaf of bread and your feeling package. 0:16:27.240 --> 0:16:29.640 You go home and you make yourself a sandwich, and 0:16:29.640 --> 0:16:32.640 you're enjoying your sandwich. And then there's a sudden shift 0:16:33.000 --> 0:16:35.840 in the value of a dollar, and suddenly a dollar's 0:16:35.920 --> 0:16:40.440 value is much higher. Now you could buy let's say, 0:16:40.720 --> 0:16:45.200 ten loaves of bread with that single dollar. The value 0:16:45.240 --> 0:16:47.440 of the dollar dollar has increased, the value of the 0:16:47.480 --> 0:16:51.240 loaf of bread has remained the same. Fiat currency rarely 0:16:51.320 --> 0:16:54.560 experiences that sort of rapid change in value, but it 0:16:54.680 --> 0:16:59.640 can and does happen with some decentralized digital currencies like bitcoin. 0:17:00.680 --> 0:17:03.600 So that's a problem. You might be afraid to spend 0:17:03.640 --> 0:17:05.280 something because you have no idea how much it's going 0:17:05.320 --> 0:17:07.399 to be worth from moment to moment. In fact, you 0:17:07.440 --> 0:17:10.880 don't know if the value of your bitcoin is going 0:17:10.920 --> 0:17:15.199 to change in mid transaction. To avoid that problem, the 0:17:15.280 --> 0:17:21.520 Libra Association has anchored or pegged the Libra currency. This 0:17:21.680 --> 0:17:25.640 is a way of tying the value of a currency 0:17:25.960 --> 0:17:28.440 to the value of something else, in this case low 0:17:28.560 --> 0:17:33.920 volatile commodities, including several different currencies including the US dollar, 0:17:34.240 --> 0:17:38.080 the Euro, etcetera. So even as one currency might change, 0:17:38.200 --> 0:17:41.880 the fact that Libra's value is spread across numerous commodities 0:17:42.240 --> 0:17:45.760 means that its value won't change much unless we're talking 0:17:45.760 --> 0:17:48.920 about like a global financial crisis or something, in which 0:17:48.920 --> 0:17:53.600 case Libra's value would also change. The Libra Association effectively 0:17:53.920 --> 0:17:58.040 has a reserve like the old gold reserves during the 0:17:58.080 --> 0:18:02.040 Gold Standard, except this reserve is not filled with precious metals. 0:18:02.080 --> 0:18:06.800 It's filled with low volatility investments and currencies. So Libra 0:18:06.920 --> 0:18:10.440 is sort of like a commodity based currency, but since 0:18:10.480 --> 0:18:15.159 those commodities themselves are largely fiat currencies, it's kind of 0:18:15.200 --> 0:18:19.439 like a fiat currency once removed. The Libra Association refers 0:18:19.480 --> 0:18:22.040 to this as a stable coin approach. That's not just 0:18:22.160 --> 0:18:25.480 their term. It is a term for a digital coin 0:18:26.080 --> 0:18:30.080 that is tied to something that's more stable. It's a 0:18:30.119 --> 0:18:33.399 digital currency anchored in real world assets to provide that 0:18:33.440 --> 0:18:36.720 stability and encourage liquidity, in other words, to encourage people 0:18:36.720 --> 0:18:40.880 to actually spend it instead of just sitting on it. Okay, So, 0:18:40.960 --> 0:18:45.119 a cryptocurrency is a digital currency that uses cryptography for security, 0:18:45.200 --> 0:18:48.320 both to protect the people who possess the digital currency 0:18:48.720 --> 0:18:52.800 and to protect the actual transaction process made with that currency. 0:18:53.160 --> 0:18:58.480 Bitcoin fits that description. Bitcoin is also a blockchain cryptocurrency, 0:18:58.800 --> 0:19:01.879 and there are a lot of articles talking about Libra blockchain. 0:19:02.359 --> 0:19:06.080 But personally, I think that that term is misleading or 0:19:06.119 --> 0:19:09.000 in the words of in Ingo Montoya, you'll keep using 0:19:09.040 --> 0:19:11.080 that word. I do not think it means what you 0:19:11.119 --> 0:19:15.720 think it means. So, a block chain, simply put, is 0:19:15.720 --> 0:19:19.240 a chain of data grouped together in blocks of data. 0:19:19.400 --> 0:19:23.120 You can think of it as a chronological record of transactions, 0:19:23.160 --> 0:19:27.320 a chain of blocks future calculations all depend upon the 0:19:27.400 --> 0:19:31.040 previous ones made in the chain, and a community of 0:19:31.119 --> 0:19:36.199 users work to verify transactions and those verified transactions are 0:19:36.240 --> 0:19:40.639 codified into blocks, and then they join the chain with bitcoin. 0:19:41.080 --> 0:19:45.720 The blockchain is the ledger of all blockchain transactions, all 0:19:45.760 --> 0:19:48.600 of them. So if you want to spend or transfer 0:19:48.640 --> 0:19:52.400 a bitcoin, it goes through this process. This blockchain process, 0:19:52.760 --> 0:19:56.919 the community of bitcoin users verify the transactions in a 0:19:57.000 --> 0:20:01.040 process called mining. This is a computation sational problem of 0:20:01.240 --> 0:20:06.320 arbitrary difficulty. The overall bitcoin system sets that difficulty for 0:20:06.359 --> 0:20:10.159 the computational problem, and the more people, or rather the 0:20:10.200 --> 0:20:13.840 more computational power that is trying to solve the problems, 0:20:14.200 --> 0:20:18.480 the harder the problems become. This way, they meter out 0:20:18.880 --> 0:20:23.480 the release of new bitcoins, because solving the problem verifies 0:20:23.560 --> 0:20:25.720 the transactions for a block, which then goes to the 0:20:25.720 --> 0:20:29.600 rest of the community to essentially check the work and 0:20:29.640 --> 0:20:34.080 make certain that it's valid, and then the computer system 0:20:34.240 --> 0:20:40.439 that made that correct transaction verification first gets rewarded with 0:20:40.640 --> 0:20:44.800 a certain number of bitcoins or portions of bitcoin. That 0:20:44.920 --> 0:20:49.320 number changes over time. The number of bitcoins rewarded decreases 0:20:49.600 --> 0:20:53.000 in a steady predictable pattern, and it will do so 0:20:53.160 --> 0:20:56.720 until all bitcoins are in circulation, which will happen sometime 0:20:56.840 --> 0:20:58.880 in the middle of the twenty second century. I think 0:21:00.040 --> 0:21:02.800 think it's when it will all be in circulation. Now 0:21:02.840 --> 0:21:05.920 everyone can see the blockchain, and everyone can see this 0:21:06.040 --> 0:21:10.000 chain of transactions. This shared ledger means that no one 0:21:10.080 --> 0:21:14.280 can spend the same bitcoin twice. There's no double spending 0:21:14.400 --> 0:21:17.960 of bitcoin, as the first transaction will already be a 0:21:17.960 --> 0:21:20.920 matter of record and any secondary attempt will fail during 0:21:20.920 --> 0:21:24.600 this verification process. Now, one down downside to all of 0:21:24.640 --> 0:21:29.400 this is that transactions take longer to verify than traditional 0:21:29.960 --> 0:21:33.320 payment transactions, and that can be an issue when you're 0:21:33.359 --> 0:21:36.239 trying to buy something unless you're not in a hurry. So, 0:21:36.280 --> 0:21:37.880 to give you a sense for this, like how slow 0:21:37.880 --> 0:21:41.200 am I talking about? Bitcoin transactions happen at a rate 0:21:41.240 --> 0:21:45.080 of around seven transactions per second, which sounds pretty fast, 0:21:45.320 --> 0:21:48.960 except then you learned that a more traditional payment transaction 0:21:49.040 --> 0:21:53.880 service like Visa can process closer to three thousand transactions 0:21:53.880 --> 0:21:56.959 per second. So that's a big disparity. It shows a 0:21:57.040 --> 0:22:03.880 huge gap. Now, Facebook, Libra will not follow bitcoins methodology. Instead, 0:22:04.160 --> 0:22:09.439 there will be a somewhat centralized though not localized database 0:22:09.560 --> 0:22:14.560 of transactions cryptographically protected database. So you have a database, 0:22:14.600 --> 0:22:19.280 not a blockchain. Uh. It is not fully decentralized. In 0:22:19.280 --> 0:22:24.760 other words, you've got a group of companies that are 0:22:24.840 --> 0:22:28.360 in charge of the governance and verification of transactions. It's 0:22:28.400 --> 0:22:31.840 not open to a whole community. UH. The community using 0:22:31.840 --> 0:22:34.680 the currency are not the ones providing the computational work 0:22:34.720 --> 0:22:38.600 to verify those transactions. Instead, members of the Libra Association 0:22:38.720 --> 0:22:41.399 more on them in a bit. UH. Specifically, members that 0:22:41.400 --> 0:22:44.880 have coughed up ten million dollars for this privilege will 0:22:44.920 --> 0:22:49.400 act as validation nodes to validate those transactions. If at 0:22:49.480 --> 0:22:53.879 least two thirds of the validation nodes verified transaction, it 0:22:54.000 --> 0:22:57.080 is considered to be verified and it goes through. Because 0:22:57.160 --> 0:23:00.199 Libra will use a limited number of validation nodes by 0:23:00.200 --> 0:23:03.600 an elite few members of the Libra Association, it's what 0:23:03.720 --> 0:23:06.720 we would call a permissioned system. You have to be 0:23:06.800 --> 0:23:11.760 granted authority to validate transactions. That's in contrast with systems 0:23:11.800 --> 0:23:15.359 like Bitcoin, which are permission less, meaning you simply have 0:23:15.440 --> 0:23:17.520 to download the software and be part of the network 0:23:17.680 --> 0:23:20.679 and you're part of the community. Facebook has said the 0:23:20.720 --> 0:23:23.639 reason I went with the permissioned approach was that the 0:23:23.680 --> 0:23:28.359 alternative just doesn't scale, as illustrated by Bitcoin's painfully slow 0:23:28.440 --> 0:23:33.080 transaction verification process. According to Facebook, the Libra approach will 0:23:33.080 --> 0:23:37.119 allow for as many as one thousand transaction verifications per second, 0:23:37.520 --> 0:23:41.159 still not as fast as more traditional financial institutions like Visa, 0:23:41.440 --> 0:23:46.560 but loads faster than the permission less cryptocurrencies. The long 0:23:46.680 --> 0:23:50.080 term goal, Facebook says is to transition to a permission 0:23:50.160 --> 0:23:55.760 less system somehow. At some point, the Libra association will 0:23:55.760 --> 0:23:59.160 oversee the governance of the currency and verify the transactions, 0:23:59.200 --> 0:24:02.600 and in addition, they will profit from the use of Libra. 0:24:03.000 --> 0:24:06.960 So Libre transactions will include a small transaction fee. So 0:24:07.000 --> 0:24:09.639 when you buy something with Libra, there'll be a small 0:24:09.760 --> 0:24:13.240 percentage of that h purchase that will end up being 0:24:13.240 --> 0:24:16.320 a transaction fee, sometimes called a gas fee. It's meant 0:24:16.320 --> 0:24:19.040 to pay for the cost of doing business in general. Now, 0:24:19.080 --> 0:24:23.280 on individual transactions, it will look really small, like minuscule 0:24:23.359 --> 0:24:25.960 you maybe you won't even notice it, but at scale 0:24:26.359 --> 0:24:29.159 with a service that could potentially reach billions of people, 0:24:30.240 --> 0:24:33.240 you're talking some serious freaking money there. You know. If 0:24:33.240 --> 0:24:35.840 you're doing numerous purchases, a day, Even if they are 0:24:35.920 --> 0:24:38.840 small amounts, if billions of people are doing that, that 0:24:38.960 --> 0:24:42.359 racks up pretty fast. In addition, remember when I said 0:24:42.359 --> 0:24:45.360 that the value of Libra will be pegged or anchored 0:24:45.440 --> 0:24:48.280 to a collection of low volatility commodities such as fee 0:24:48.320 --> 0:24:52.040 out currencies. Well, the expectation is that those will slowly 0:24:52.240 --> 0:24:57.359 pay off. Those will earn money themselves, and in a bank, 0:24:58.359 --> 0:25:00.119 as a customer of a bank, if you have add 0:25:00.800 --> 0:25:05.600 money in their their accounts, then you would earn interest 0:25:05.800 --> 0:25:09.000 off that money, depending upon the type of account you have, 0:25:10.000 --> 0:25:12.879 and that's not gonna happen with Libra. You will not 0:25:13.040 --> 0:25:17.480 earn interest in Libra. Instead, all that money that comes 0:25:17.520 --> 0:25:20.240 from these investments and through these transaction fees are going 0:25:20.280 --> 0:25:23.000 to go to the members of the Libra Association, not 0:25:23.080 --> 0:25:25.359 the people using Libra, So it's going to go to 0:25:25.400 --> 0:25:30.000 these big companies. The ledger of transactions for Libra is public, 0:25:30.160 --> 0:25:32.879 just like with bitcoin. Uh. That could also raise a 0:25:32.880 --> 0:25:35.120