Libra is not like Bitcoin despite both uses the blockchain technology. In the Libra vs Bitcoin complete comparison guide, we will see the technological difference between these along with regulating and insurance-related differences.
03 February, 2020 | AtoZ Markets – Facebook, the largest social network in the world that made the announcement of its own cryptocurrency, Libra. On the other hand, Bitcoin is the world's first and most dominant cryptocurrency.
The launch of Libra has raised questions about the difference between Libra and Bitcoin, as well as the implications of private companies in issuing currencies.
Unlike Bitcoin, Libra might govern by several members that are well-established brands, including Facebook, Uber, Visa, and PayPal.
Before proceeding to differences, let's have a look at what these actually are.
What is Libra?
Libra is a new digital currency that uses cryptography as a method of protecting information, to verify transactions. Facebook has taken the plan to launch Libra this year. After the successful launch of Libra people will be able to access through Messenger, WhatsApp, and other Facebook services through the digital wallet. Libra is basically an alternative to bitcoin that is powered by blockchain. However, Facebook hopes that it will work by a much wider base.
Digital coins are basically stable coins as these are pegged to government-issued currencies like USD, EUR, GBP, etc. Currently, most of the decentralized cryptocurrencies like Bitcoin or Ethereum, are very volatile in their valuation. Therefore, Facebook wants to create a more stable cryptocurrency to facilitate ordinary online consumer transactions.
In the present world, people have to go to banks or through online money transfers such as PayPal, Transferwise, and many more. However, the financial system today is of its own technology. Therefore, the specialty of the Libra is that blockchain is working behind this.
The Libra Association is made up of some reputed companies like MasterCard, Visa, PayPal, Uber, and others. These companies will work together to ensure the payment processor to work faster, accurate, and safer with the power of blockchain compared to the present financial technology.
What is Bitcoin?
Bitcoin is a digital currency that was created in January 2009. A mysterious and pseudonymous developer Satoshi Nakamoto created Bitcoin, and his true identity has yet to be verified. The unique feature of Bitcoin is lower transaction fees and decentralized operation. Unlike government-issued currencies, Bitcoin does not use any middleman to make any transaction.
However, there is no physical bitcoin in the world. Therefore, it keeps the balance on a public ledger in the cloud. Moreover, the transaction within the Bitcoin channel is verified by a massive amount of computing power. Bitcoins are not backed by any banks or governments, nor is considered as a commodity. Despite it not being legal, Bitcoin charts are popular and have launched hundreds of other virtual currencies, referred to as Altcoins.
Comparison of Libra vs Bitcoin
What is the major difference between Libra and Bitcoin? Are they the same in nature?
Let's have a look in detail
#1 Difference in Technology
Bitcoin and Libra both use distributed ledgers technology to record transactions. Both projects create money by sharing data over the internet. This is the only similarity between them.
- Bitcoin is the first innovation of cryptocurrency. Bitcoin is based on economic scarcity that records transactions on a censorship-resistant ledger. Therefore, anyone can both read and write to the data. In other words, the Bitcoin ledger is public that does not require any permission. On the other hand, Libra is the latest version of digital currencies. Libra is based on trust in an issuer where anyone can access and view. However, only the authorized set of people can change the information. In other words, the ledger of Libra is public and permissioned.
- As we know, cryptocurrencies are with a lack of reliance on trusted mediums. In that sense, Libra is not only the cryptocurrency as it uses a permissioned ledger. Moreover, the issuer relies on it to hold and manage a fund that is backed by the currency. Therefore, Libra is a part of the broader classification of digital currencies like Warcraft gold, or Liberty Reserve Dollars.
- The primary goal of Bitcoin is to remove the intermediaries in online payments. On the other hand, Libra’s goal is to make online payment easier, faster, more inclusive, and scalable.
- Bitcoin finishes up working sort of a bearer instrument. So anyone with a bitcoin automatically has the worth. However, Libra finishes up working sort of a registered instrument. The holder of a Libra really has the worth if the official registrar, the Libra Association, says that they are doing and maintains the underlying assets. Bitcoin, therefore, is censorship-resistant and functions like gold coins or other valuable commodities. Libra transactions are often censored and therefore the asset functions sort of a banknote or stock.
#2 Difference in Regulation
Financial regulations ensure that persons performing trusted roles within the system do not betray that trust. For example, if people trust you for managing someone’s wealth, you should honor that trust. However, Bitcoin and other cryptocurrencies do not intend to avoid regulation. However, the design of them is to minimize the number of trusted parties within the transaction. A system without intermediaries is without intermediary risk, and thus no need for a regulation to safeguard the risk presented by intermediaries.
- It is true that cryptocurrency will involve fewer regulating bodies than traditional financial services. People do not trust Miners and software developers as custodians of the value of people. However, Bitcoin users trust them and therefore, consumer protection and anti-money laundering regulation do apply to them.
- Securities laws exist to deal with information asymmetries between investors and persons trusted by investors. While these regulations apply to persons using Bitcoin to boost money (ICOs) or to supply exchange services, there are obvious reasons why these regulations don’t apply to Bitcoin. Bitcoin does not have a trusted institution minting it or a fund that backs its value. Bitcoin miners validate transactions but do not establish customer relationships. Therefore, they do not have the facility to block specific persons from sending money through the network reliably.
- Libra is not designed to attenuate the number of trusted parties in an economic transaction. The intention of Libra is to take care of stable value and users’ trust. Users also believe the permissioned validators to feature transactions to the ledger, except for their participation. It’s still too early to mention that these trusted parties should be subject to securities or anti-money laundering law. However, it would be hard to argue that they ought to not since with trust comes responsibility.
#3 The difference in Deposit Insurance
The government-provided deposit insurance works as a second layer of security, protecting depositors against the default of the bank.
- Unlike Bitcoin, with excessive price fluctuations, Libra ties with international currencies. Users can buy Libra with fiat currencies; therefore, the Libra foundation will take these dollars and invest them in safe securities.
- Libra is backed by real and stable financial assets. Therefore, the value of Libra will be stable. From the side of Bitcoin, the value is not quite strong like Libra as fiat currencies do not support it.
- Temptations will arise to invest money in riskier securities for a higher return. What may people doubt assets that may lose value? Long lines of depositors want to withdraw their funds from a bank where they wrongfully believe that the bank cannot secure their investments. In that case, Libra and Bitcoin both do not provide any guarantee. Therefore, when users want to cash out, Libra may have to sell their assets and hence end up with insufficient funds to pay all investors.
#4 Guard Against Fraud
In our traditional economic system, laws and regulators watch privacy access to the economic system. Laws not only provide privacy protections but also guard against fraud to make sure that citizens can participate in the level playing field.
Banks in most western countries cannot ban citizens from basic financial services. However, currencies issued by private companies don't face equivalent scrutiny. In that sense, Libra seems weaker compared to the traditional fiat currencies.
On the other hand, Bitcoin’s chaotic governance structure has a plus point. There is nobody who can lock anybody else out of the system. This approach ensures equal access, but it also invites criminals to use Bitcoin for illicit purposes.
As of the above discussion, we can come to the conclusion that the Libra and Bitcoin are different despite both systems using blockchain technology. The foundation for Libra is the potential for creating success in the banking sector’s shortcomings and inefficiencies.
However, Libra might not offer many advantages like Bitcoin to the people. It will open to provide financial services for millions of people around the world.
If we miss out on any difference between Libra and Bitcoin, let us know in the comments section below.