Shikko Nijland
Shikko Nijland | INNOPAY
Shikko Nijland
Douwe Lycklama
Douwe Lycklama | INNOPAY
Douwe Lycklama

Libra - A simple currency? Or a first manifestation of the transactional Internet?


This article is based on an excerpt from our award-winning book Everything Transaction, that was published in 2019. In view of the recently updated white paper on Libra and the renaming of Calibra as Novi, this part of the book is now more relevant than ever.

On June 18, 2019, Facebook along with 27 founding members of the Libra Association announced their intention to introduce Libra—a simple global currency and financial infrastructure that will empower billions of people in 2020[1]. For those wondering if Libra is something to take seriously: within seven days Libra made it onto the agenda of the G7[2], another week later several US congressmen sent a letter to Facebook urging them to stop Libra[3] and within a month, Facebook was called to a congressional hearing about Libra[4]. And all that just for intending to introduce a solution. Last month Libra published the second version of its white paper, which notably reflects the result of the intensive dialog with regulators worldwide.

Libra is much more than what it appears to be

At first glance, we can now clearly recognise Libra as a middleman with a network model platform strategy, addressing a multi two-sided market with global peer-to-peer payment as a first symmetrical proposition based on institutional trust. Digging a little deeper, we could come to the conclusion that Libra addresses the two big fixes and is perhaps a first manifestation of the transactional Internet with the infrastructural trust that we so clearly foresee. So, let’s take a closer look at Libra.

Libra, Novi. What is all this exactly?

Like in many initiatives of this magnitude, Libra is many things at once. To get clarity, we first have to understand the different components of Libra. To begin, there is the global digital currency Libra (abbreviation: LBR) that is backed by the Libra Reserve assets (fiat currency) to give it a stable intrinsic value. Libra is exchanged in transactions initiated through wallets, or Libra Clients. The Libra Blockchain—a programmable distributed database—stores the Libra transactions. It is powered by the Libra Protocol and the Move programming language in a first open-source implementation called Libra Core that is run by a network of permissioned participants that collectively constitute the Libra Network. Database entries are under control of end users through cryptographic keys, as used in cryptocurrencies.

A distributed database based on blockchain technology

Next, there is the independent Libra Association based in Switzerland that publishes the Libra Core, permissions the participants and will govern the Libra Network and Libra Reserve through the Libra Association Council as its governing body. Then there is the Libra Ecosystem made up of the Libra Clients (wallets), Validator Nodes (network), and Libra Developers contributing to the ecosystem in multiple ways. And finally, there is Novi (formerly known as Calibra), a Facebook subsidiary that is set up to operate independently from Facebook, that will provide the Novi Wallet app—a Libra Client to make payments in Libra[5].

How does Libra plan to break the chicken-and-egg dilemma?

Like any platform addressing a two-sided market, Libra also faces the challenge of breaking the chicken-and-egg dilemma in order to ensure mass adoption. As part of the initial announcement, Facebook mentioned 28 parties that will act as founding members of the Libra Association, some of which will also be validators within the Libra Network. These initial 28 parties consist of a mix of investment firms, technology enablers, and payment service providers, and both consumer demand and supply side service providers. Visa, Mastercard, PayPal, Uber,, Vodafone, eBay, Spotify, Novi, and Facebook are among them. In Q4 of 2019 the ones being under financial regulation (i.a. Mastercard, PayPal, Visa) pulled out of the initiative, while the Libra initiative is being scrutinised by regulators worldwide.

With this group alone, the global distribution of Libra wallets—Novi being the most important one—to consumers for peer-to-peer payments is instantly feasible, as is the subsequent creation of acceptance points with the supply side service providers in the group. This might create the desired network effects. The incentive for tech enablers and payment service providers to be a part of this initiative is quite obvious, while the investment firms could—apart from the obvious—also be in it for the simple reason that many of their (fintech) investments would benefit hugely from Libra coming available worldwide.

Impressive founding members, with Apple, Google, Amazon, and Microsoft notably absent

It is also notable that the other big US tech platforms are not in the group. Google, Apple, Amazon, and Microsoft are likely to be fully informed, but may simply have opted to take a wait-and-see approach. However, their collective omission from this initial group could also have a more strategic angle to it: deliberately staying out for now creates the option to sway the discussion by each putting in their considerable weight at later stages, depending on the developments in regulatory response and market sentiment.

What could be the business rationale and platform strategy behind Libra?

In our book Everything Transaction we discussed the hub model and network model as the two strategic options for platform design. We also noted that big tech in the US typically opt for the hub model in combination with amassing large amounts of data. They master the scaling of single-value proposition platforms in its homogenous market to become dominant players, to then extend the value propositions and scale such platforms globally. We briefly touched on envelopment as a risk that every middleman faces, especially with single-value proposition platforms. Regardless of its size, when the core added value of a platform becomes “just a part” of an even broader proposition of a competitor, the platform becomes exposed to the risk of negative network effects. And this may just be what triggered Facebook to develop Libra.

An answer to competition on a next level

With the advent of Chinese app platforms such as WeChat that offer ultimate all-in-one convenience to consumers, including peer-to-peer, e-commerce, and in-store payments, the more specialised US-based platforms are faced with a direct threat that none of them may be able to counter individually. It is hard to imagine that any one of the US platforms—including Facebook—would allow or be allowed by others to develop an answer individually, while all of them doing this at the same time would be an obvious redundant effort and most likely be an inadequate response to such a threat.

Libra is clearly a network model platform answer to the hub model platform competition from China. It is interesting to see the US tech sector capable of such collaboration, and it may just be this jump over their own shadows that will secure their individual leading market positions in the future.

In Libra we T.R.U.S.T.?

The platform design of Libra is—knowingly or not—set up as a T.R.U.S.T. Framework as referenced in Everything Transaction. The different dimensions being clearly distinguishable. Within the Trade dimension, the Libra brand, initial value proposition, asset backing, and business model are clearly set out. The recent white paper update changed the asset backing into regular fiat currency, making Libra a (full reserve) stable coin denominated in the major currencies. In the Rules dimension, the independent Libra Association that will govern the network and reserve still has to set its final rules and criteria, but the foundation is there, and a future transition from permissioned to permission less participation has been defined. The latter has been revoked in the updated white paper of April 2020. Within the Use dimension, the initial peer-to-peer payment use case is clear while the technical specifications are clearly designed to accommodate multiple applications. In the Standards dimension, the Libra Reserve, Libra Protocol, transaction specs, Libra Blockchain specs, and Move programming language have been described, while for the Technology dimension the Internet provides the technology stack. Libra Core provides an initial implementation.

A first step toward infrastructural trust

With the Move language, developers can create Libra Clients that deploy Move modules (logic) to invoke Move resources (data) and execute transaction scripts of which the results are stored on the Libra Blockchain. With this platform design, an additional infrastructure layer is created on top of the Internet where user-controlled data is embedded and that is governed by a trust framework to create data sovereignty. These are all signs of what we refer to as infrastructural trust.

If it’s just peer-to-peer payments, why are regulators and banks so concerned?

Digging into the documentation and technical specifications of Libra, there are some clear indications that Libra has been designed with a bigger play in mind. With payment as the initial application, we are inclined to view “transactions” as “payments” and consider Libra to be a payment platform, but this is misleading. There is a mention of identity as a future application, and the design of the Move language and the transaction specs allow a transaction to be any kind of exchange of data between Libra Clients that is logged on the Libra Blockchain. In addition, the Libra Protocol has a built-in charging mechanism for transactions called “gas.” With gas, any data exchange within the Libra Network can be monetised. This platform design allows for a multitude of applications to be facilitated on the Libra Network in the future and makes Libra a multi two-sided platform by design.

Peer-to-peer payment is just the beginning

Libra will operate on a global scale. This implies that in order to regulate it, regulators will have to collaborate worldwide on a very short timeline to create a unified regulatory financial framework. Until now this has proven to be unattainable on any monetary topic, as the many currencies, monetary policies, banking systems, payment methods, and compliance regulations illustrate. Regulators are justly worried that they will not be able to keep up with this development (and that it may actually work), making it nearly impossible to control its roll-out and impact[6]. The Central Bank of China announced its own cryptocurrency in Q3 2019 and licenses the main financial players in its market for it[7]. Regulators and banks in the US and Europe therefore need to be particularly diligent in their response toward Libra—or the likes. This will be quite challenging, as the existing monetary system is under pressure already.

The multi-tiered bank model under pressure

As described in our book, the banking franchise and payment stack is constructed as a multi-tiered model to make the administration of the money supply scalable and manageable on behalf of the governments issuing the money. Transactions need to be authorised, cleared, and settled across all tiers. At the highest level are international banking organisations such as the Bank of International Settlements, where supra-regional and national central banks hold accounts, where in turn local banks hold accounts, where finally individuals and organisations hold accounts, where transactions are administered, and balances added up. Obviously, with the technological capabilities of the time, this was the only way to do it.

How this has changed in the last decade! Facebook proves every day that it is technically feasible to seamlessly operate a platform with over 7 billion end user accounts, held by its 2.4 billion users[8]. WeChat proves it can seamlessly process payments for its more than 1 billion active end users on a daily basis. These examples indicate that it is now technically feasible to have a single platform where every person or organisation on Earth could hold a (payment) account and make payments frictionless in a single currency—as a basic service to all of humanity.

The end of fractional reserve banking?

Another thing to consider is the amount of money involved in Libra in relation to the total amount of money in circulation. According to The Money Project[9], all money in the world totals approximately 81 trillion in US Dollar value. Of this, 28 trillion is money that can be used as a medium of exchange. All coinage and banknotes in circulation globally equal 5 trillion in US Dollar, of which 1.5 trillion is US Dollar.

In the fractional reserve banking model, not all money that is issued by a bank is backed by deposits at the bank. As a result, there is always the risk of a banking run by its customers to topple a bank. However, for individuals to create that impact is quite hard. But the balance sheets of the tech sector in the US are becoming so cash heavy, that added up this could be in the order of magnitude of a couple of trillion US Dollar. With the Libra currency, a further concentration of liquidity will result from the asset backing. If all the world’s current 4.1 billion Internet users where to hold 1,000 US Dollar in Libra, this would concentrate 4.1 trillion in US Dollar value. Almost the equivalent of all coinage and banknotes in circulation worldwide.

This concentration of liquidity could give this sector a lever of some kind on the banks. Imagine a banking run of tech firms instead of consumers; this might actually be a real risk and raises the question of the effect of Libra on the global monetary system. Already, several articles point out that countries with weak currencies may be at risk in this respect[10]. Local consumers may prefer to use Libra as a currency with a stable value instead of the inflationary local currency, and further weaken the local currency.

A first manifestation of the transactional Internet?

In conclusion, we have to consider that with Libra, we are witnessing the first manifestation of the transactional Internet that we so clearly see as an inevitability. In theory, the Libra platform design could provide the big fixes of breaking the trust paradox and restoring the data benefit balance that are essential to making the transactional Internet a reality.

Libra delivers on the two big fixes

Libra has clear indications of a first deliberate attempt to transition from institutional trust to infrastructural trust, embedding user-controlled data and trust in the Internet by deploying distributed ledger technology for multiple applications. It enjoys the support of an impressive group of founding members that have access to billions of consumers that stand to gain control over their data on the Libra Blockchain while they can also choose to share it with select counterparties and benefit from it in other Libra or Move applications.

There is, of course, the big reservation that the final launch implementation has yet to prove the extent to which all of this will actually be the case.


Disclaimer: Since this article was written in 2019, certain statements, claims or information may have been superseded by subsequent events or insights.




[1] Libra Association. Introducing Libra: a simple global currency and financial infrastructure that can empower billions of people. (Libra Association,, June 18, 2019).
[2] Reuters. France creates G7 cryptocurrency task force as Facebook’s Libra unsettles governments. (Reuters,, June 22, 2019).
[3] Kelly, M. House lawmakers officially ask Facebook to put Libra cryptocurrency project on hold. (TheVerge,, July 2, 2019).
[4] Kelly, J. Facebook’s Libra Comes Under Fire In Senate Hearing – Here’s Why Congress Is Terrified. (Forbes,, July 16, 2019).
[5] Calibra. Intro. (Calibra,, accessed in July 2019).
[6] Mourdoukoutas, P. Why Big Governments And Central Banks Want To Kill Libra And Bitcoin. (Forbes,, July 16, 2019).
[7] Castillo, M. del. Alibaba, Tencent, Five Others To Receive First Chinese Government Cryptocurrency. (Forbes,, August 27, 2019).
[8] Statista. Number of monthly active Facebook users worldwide as of 2nd quarter 2019 (in millions). (Statista,, accessed in August 2019).
[9] Desjardins, J. All of the World’s Money and Markets in One Visualization. (The Money Project,, December 17, 2015).
[10] Business Standard. Former Japan central banker warns FB’s Libra may undermine monetary policy. (Business Standard,, August 2, 2019).

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