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Just recently Facebook made an announcement about their new cryptocurrency called Libra. It is expected for it to launch in the beginning of 2020 and already now the intense and fierce debates have started.

Latest discussions involve not only Libra, but of course also cryptocurrencies and what economic or even political influence it can create, but about this whole new article could be written. Today we are going to overlook and concentrate on Facebook’s newest technology itself by comparing it with Bitcoin.

Can Libra be compared to a blockchain?

Libra could be easily compared to blockchain but it is still quite different. To start of, blockchain is a growing list of records, called blocks. They are linked using cryptography and each block contains a cryptographic hash of the previous block a timestamp, also transaction data.

Blockchain’s design is resistant to modification of the data, so it is an open and distributed ledger that is capable to record transactions between two parties efficiently, in a verifiable and permanent way.

Permission and premisionless based blockchains

There are some fundamental differences between how Libra’s and Bitcoin’s blockchain work. To begin with, there are two different types of blockchains: permission based blockchain and permissionless blockchain. In a permissionless blockchain anybody can act as a validator to add transactions to the ledger.

For Bitcoin, you basically have to solve a puzzle that is a proof-of-work and when it is done, it can be transmitted to other people and they can verify it. When finally the mining is being done, it is possible to actually earn some bitcoins.

Facebook libra uses permission base blockchain

Moving forward, Libra is different system. It is permission based, so it is only possible to be validator if you are let into the system by the Libra Foundation. There is big possibility that around a hundred validators, including payment companies like Visa or PayPal and other known names, are going to be in the system.

They will be able to do validation process. Even the Liberal Foundation has said it wants to move to a permissionless based blockchain within five years. However, because it works so differently to how Bitcoin works, a technology does not exist today for that to actually happen, but it is starting with a permission based blockchain.

The idea of it, is that it will develope within the next five years.

How does transaction works

To explain the transaction process, it is supposed to work like this: if anyone wants to send the digital currency over to somebody, they need to create a transaction and then sign it with their private key.

After that, when the transaction is submitted to the network’s public key, sender’s public key is included with the transaction, so that it can be verified at any moment.

Then a valid data, in this case permission-based valid data from the network of proven validators that are part of the Libra Foundation, will validate that transaction and it will get added to the ledger.

How transactions are being verified

The main problematic question is: how do you verify that everybody agrees that this particular transaction is valid? For example, if somebody has different army generals around a city that they are going to attack and they can only talk to each other via messenger.

how to ensure that all the armies behave in the same way? Either to attack or to withdraw? What if along the way messenger can loose a message? Or can get destroyed? Or even worse: one of the messages senders is actually a traitor and wants to send the wrong information?

The bitcoin solution for transaction validation

Bitcoin solves it with the idea of proof-of-work, so you have to do something that is hard and then it is very easy to verify it.

The problem of the proof-of-work idea is that it costs a lot of money in terms of energy.

The amount of money spent on electricity for Bitcoin mining is actually the equivalent per year to what a small European country spends on its energy bill.

In the end, we probably do not need this amount of energy to be spent just to be able to do our banking, so Libra is a way of different approach. Though, what is interesting is that if two-thirds of the validators agree and even up to one-third disagree, the system can still go forward knowing that the transaction is valid.

Conclusion

To summarise, almost nothing happens for free. All this processing has a cost attached to it.

Smart contracts can actually do things you do not expect them to do and suddenly more money has gone out of your account or the conditions are not as you were expecting them to be. For now, we can only guess, if Libra could in any way become new blockchain, but we for sure know, that it will give new knowledge about it to many people.