Deep Dive into Libra: Facebook's Path of Payment System Innovation

In the field of digital payments, Facebook once launched an ambitious project—Libra (later renamed Diem). This is a blockchain-based payment system that represents an important attempt by tech giants to enter the financial sector. As a platform with billions of users worldwide, Facebook’s payment innovation scheme has attracted widespread attention.

Development Trends in Digital Payments

The widespread adoption of the internet has profoundly changed the way global economic activities are conducted. More and more users access the internet via smart devices, making online transactions a part of daily life. Traditional financial institutions like PayPal, Visa, and MasterCard have launched digital payment solutions, while emerging digital currency projects continue to evolve.

However, Facebook’s uniqueness lies in its massive user base. By the time Libra was announced, Facebook’s monthly active users had reached hundreds of millions. Such a large user base means that any new product launched could be widely adopted in a short period—this is the core reason why Libra attracted industry attention.

Basic Design Philosophy of Libra

Libra is a financial solution proposed by Facebook based on a permissioned blockchain. The founding team includes senior figures in the crypto space such as Morgan Beller and David Marcus. Initially planned for launch in 2020, it was delayed due to regulatory and technical reasons, with Facebook aiming for a 2021 rollout.

The project is managed and operated by the Libra Association (later renamed Diem Association). This independent organization, headquartered in Geneva, Switzerland, has members from blockchain, technology, payments, telecommunications, venture capital, and other fields. The association members are responsible for setting governance rules, supervising the payment system, and providing funding support. Facebook’s goal is to gradually expand the association to 100 member organizations.

Permissioned Blockchain and Libra’s Technical Architecture

Unlike the permissionless blockchains we often discuss, such as Bitcoin or Ethereum, Libra is built on a permissioned blockchain system. Permissionless blockchains allow any internet user to participate freely, initiate transactions, or develop innovative applications without control by any institution; permissioned blockchains, on the other hand, require users to obtain authorization from the network controller to participate, and access is restricted.

Libra’s transaction validation mechanism also reflects this centralized feature. It does not use Bitcoin’s proof-of-work (mining) or Ethereum’s proof-of-stake methods but relies on authorized validators (i.e., Libra Association members) to verify transactions. Facebook’s white paper mentioned considering a gradual transition to proof-of-stake after launch, but industry consensus generally believes this was due to the absence at the time of a permissionless system capable of supporting billions of users’ transactions.

Stablecoin System and Multi-layer Protection Mechanisms

The core innovation of Libra’s payment system is its multi-layer stablecoin design. The system supports multiple single-currency stablecoins, each pegged to fiat currencies like USD, EUR, GBP, etc. Additionally, Libra introduced a multi-currency token called Diem Dollar (initially called LBR), backed by a basket of the aforementioned stablecoins and other assets.

This design aims to provide sufficient value backing for digital payment methods. Different forms of collateral protect the Diem Dollar from price fluctuations, enabling stable operation. Users can freely exchange USD (or other fiat currencies) and Libra tokens via the upcoming Novi wallet within Facebook Messenger and WhatsApp.

On the technical side, Libra’s open-source code is called “Diem Core,” written in Rust. The project also plans to introduce the Move programming language to support smart contract functionality.

Centralization Characteristics: The Fundamental Difference Between Libra and Bitcoin

Although both Libra and Bitcoin fall under the category of digital payment systems, their design philosophies are fundamentally different.

Bitcoin is a fully decentralized, censorship-resistant store of value maintained by globally distributed nodes; Libra, however, is a permissioned network managed by a single association.

From the perspective of blockchain decentralization, permissioned blockchains are closer to traditional corporate databases and cannot achieve the same level of decentralization as permissionless blockchains. This means Libra does not possess the censorship resistance characteristic of Bitcoin. However, this centralized control also offers advantages—such as easily identifying and excluding malicious applications and scams, thereby protecting user assets.

Is Libra a Cryptocurrency?

While Libra is built on blockchain technology and employs cryptographic techniques, strictly speaking, it is not a traditional cryptocurrency. Cryptocurrencies typically emphasize decentralization, the absence of intermediaries, and immutability, principles that Libra’s permissioned design violates. Therefore, it is more accurate to define Libra as a “digital currency” rather than a “cryptocurrency.”

Project Development and Market Response

After Libra was announced, it quickly sparked heated discussions, but criticism also followed from various quarters. Central banks, legislative bodies, and regulators worldwide expressed concerns about the project, raising questions from data privacy and financial stability to payment system risks.

These regulatory pressures ultimately affected the project’s progress. Facebook made multiple adjustments and re-planning efforts, rebranding the project as Diem in 2021. Nonetheless, insufficient support and a complex regulatory environment continued to constrain development. Ultimately, the Diem project announced its shutdown in 2022, marking the end of this once highly anticipated payment innovation.

The Historical Significance of Libra

Although Libra did not launch as originally planned, its design concepts have had a profound impact on the digital payment ecosystem. The project demonstrated the feasibility of tech giants entering the financial sector and also exposed the complexities of global regulatory systems in responding to innovative payment solutions.

Libra’s permissioned blockchain architecture, multi-layer stablecoin design, and centralized management model have provided valuable references for subsequent digital payment projects. Despite its failure, its exploration offered lessons for the advancement of central bank digital currencies (CBDCs).

Summary

Libra represented Facebook’s bold vision for the future of digital payments. As a permissioned blockchain-based payment system, Libra aimed to provide financial services to unbanked users and leverage Facebook’s massive user base for rapid promotion. Its stablecoin system, professional governance structure, and technical design all reflect innovative thinking.

Although the project ultimately did not achieve its ambitious goals, Libra’s practical experience has profoundly influenced the development paths of global digital payments and blockchain industries. For those interested in understanding digital currencies, blockchain applications, and payment system innovation, studying Libra’s design philosophy and development history remains highly valuable.