Last week’s Facebook announcement regarding the Libra cryptocurrency project triggered a virtual news cyclone. In the aftermath, surely the masses were left more confused about cryptocurrency than ever. Today we’ll clear up how the Facebook coin is different from the most successful cryptocurrency to date, Bitcoin, and what this means for the fast-evolving crypto industry.
Before we go into detail on our 17 Key differences, here’s a nice visual to nutshell some of the most important variances:
#1 – Decentralization
Decentralization in general means a move away from centralized authority towards a system where no one entity has total control. With cryptocurrencies, this often means that network computing is spread out onto multiple servers. Traditionally, businesses have had private networks on one or a few servers, thereby creating a central point of attack making it easier to hack. Decentralized networks may also be called distributed.
Bitcoin is one example of a decentralized network. It’s spread out over thousands of network servers, residing on the computers of its worldwide miners and node operators. Each of these users has a copy of the Bitcoin Blockchain stored on their computer. Moreover, no single entity controls Bitcoin.
While not impossible to hack, it would take substantial resources to try and manipulate the Bitcoin Network. The financial and time requirements needed to hack it are so extensive it wouldn’t make sense for a hacker to do it.
Facebook’s Libra project is calling itself decentralized. But at first, it will only be distributed to the founding members, those mega-businesses like Paypal and Visa. Their plan is to eventually become more decentralized. It also will be heavily controlled by Facebook in the beginning and then by the founding members (including Facebook). It’s their intention to move towards a more decentralized system by including merchants and token holders, which would essentially mean all Facebook users.
#2 – Governance
Bitcoin’s Proof of Work Consensus Mechanism is essentially a system whereby users follow rules that benefit the system and the users. Those that do not follow the rules are pushed out so that they don’t bring detriment to the system and they are also not allowed to benefit from it.
At the start, the entities running the Facebook crypto coin will be Facebook and other big companies that each pay $10 million to join the Libra Association. This Association runs the system by voting on set rules and verifying transactions. Again, the stated intention of the white paper is to gradually move towards more decentralized governance where more users take part.
#3 – Type of Blockchain
The Bitcoin Blockchain is public and open to all users. They may easily see all the transactions on the entire blockchain by viewing a Blockchain Explorer. But users do not need to give up personally identifying information in order to transact on the Network. What you can see publicly is transaction information including date, amount and wallet address.
Even though the Bitcoin Blockchain protects privacy, law enforcement officials have learned to monitor the blockchain transactional data in their pursuit of money launderers and other criminals.
The Facebook coin will be built on what they are calling a permissioned blockchain, but without blocks or chains as you’d see with other blockchains. So instead of a distributed ledger with blocks connected by chains to store transactions, they will use a “single data structure that records all transactions and states over time.”
Furthermore, Facebook, a central authority, will decide on who can control the blockchain network. Those companies approved by Facebook must have either a market value of $1 billion or more, a user reach of 20+ million, or customer balances exceeding $500 million, with some exceptions for Universities or charitable organizations. Their goal is to move towards a decentralized, permissionless blockchain (like Bitcoin), though no one has ever accomplished this type of switchover.
#4 – Privacy
Transactional data on the Bitcoin Blockchain is open and public. Identities are not. In fact, you can make a Bitcoin transaction from wallet to wallet to anyone in the world without ever having given out your name, email address or ID. That is how it gives users worldwide financial privacy.
The design is not so that there’s a way to circumvent authorities when committing crimes. Conversely, it challenges the status quo of our surveillance state, where authorities may track all citizens in order to stop a few criminals.
The Facebook coin may offer the same modern privacy you would find at a bank, but with some major data uncertainty thrown in. This is due to years of litigation that Facebook has faced, and continues to face, over data violations.
In one such violation, Facebook experimented on thousands of unknowing Facebook users by manipulating positive and negative postings on their feeds so they could study the spreadability of emotions on the social media platform.
Additionally, since Facebook intends to be fully under compliance with regulators and has the ability to toggle back and forth between crypto and fiat currencies, it will not be able to offer the same kind of privacy that Bitcoin provides.
#5 – Intent of founder
Mark Zuckerburg’s intent on the surface is to create a fair and just system of money, similar to what Bitcoin does. Quite possibly Facebook is turning to crypto to get in on the future of money. Some conspiracists are pointing to Zuckerburg’s long standing rivalry with the Winklevoss twins, whose Gemini crypto exchange has seen great success. Even more compellingly, it might be they want to utilize a decentralized blockchain based system that would remove liability for them regarding data.
Bitcoin was created by Satoshi Nakamoto, whose identity no one knows to this day. We only know that Nakamoto published the Bitcoin white paper shortly after the 2008 economic crisis in the US. Many people believe that Bitcoin is a solution to modern economic woes.
#6 – Security
Bitcoin celebrated its 10th birthday not too long ago. To this day, it has never been hacked. As long as you hold your own Bitcoin keys safely and not trust the 3rd party to hold them, it is near impossible to have your Bitcoin stolen.
Facebook accounts get hacked every day, which may come down to poor password and system management on the part of users. To be fair, the Libra coin will be used via the Calibra wallet and not through Facebook itself. But the company sports an unsavory history of massive data breaches. In researching this article, a search for “Facebook hacks” brought up 946,000,000 results, including courses on how to hack it.
Any search you do on “Bitcoin hacks” will only bring up articles about exchanges or other 3rd party holders of bitcoin that got hacked. But again, if you hold your own private keys and store them on a simple paper or hard wallet (known as cold storage), you are safe from all those online hacking expeditions.
#7 – Censorship Resistance
One of the hallmarks of blockchain technology, censorship resistance means the blockchain cannot be altered. Or at least without altering every transaction (or block) that has ever occurred on the blockchain. For perspective, today we’re seeing over 389,000 Bitcoin transactions per day.
So blockchains, in general, are immutable and cannot be changed. This also means that no authority can come in a freeze and Bitcoin wallet or block it. Bitcoin can’t be censored.
Because the Facebook coin will be on a private, permissioned blockchain that’s controlled by the Libra Association, it’s not clear their level of censorship resistance. Most likely it will not be as robust as Bitcoin.
#8 – Hierarchy of participants
Users on the Bitcoin Network are distributed. That doesn’t mean they all receive the same rewards for participation. Running nodes and mining Bitcoin are two different ways of earning Bitcoin while contributing to network efficiency. Naturally, those that participate with nodes and mining receive more benefits than the everyday user.
But the general user also benefits – they get to use a peer to peer currency that is private, borderless, censorship-resistant, public and safe. It is up to each individual as to how they participate. As such, the rules clearly spell out how the more work you do to benefit the network, the more you will personally benefit.
Facebook’s network has a very succinct hierarchy. Facebook determines the Libra Association Members who then decide how the network operates. The general users (all 2.3 billion of them) do not have a say in the system. (Just as Facebook users today have very little say while giving Facebook tons of data that the social media giant then sells.)
#9 – Coin valuation
To determine Bitcoin’s value, we look at market forces. For instance, how many transactions per day, what is the market cap, and how much is being traded daily? Additionally, the number of minted Bitcoins is finite – only 21 million will ever exist. This precludes it from inflationary manipulation, which is rampant in fiat currencies where central banks and governments are in control.
Facebook’s coin is a stable coin. This means that for each Libra coin, the value of that coin will be held in reserves. The reserves include various world currencies (such as the US dollar and the Euro) and low-risk securities. Furthermore, there are no limits to minting Libra. The Libra Association will decide when to mint and how much. Again, this sounds more like fiat currencies than a decentralized cryptocurrency.
#10 – Borderless
You can make a peer to peer, wallet to wallet Bitcoin transaction to anyone in the world (who also has a wallet). It takes a few minutes, costs very little and is secure and private. Since you are not dealing with a fiat currency, as you’re just sending Bitcoin, no 3rd party is necessary. No fees, no wasted time, no identification procedures. Bitcoin is completely borderless.
If you want to send some Libra coin to someone in another country, you may need to go through similar formalities as you would when sending an international wire with account identification processes, which are traditionally burdensome with time and fees.
So if a country is banned due to US sanctions, for instance, you would follow the same banking rules and not be allowed to send money there. So the Facebook coin is only borderless to an extent. And, if it plans to improve upon the current methods of sending international payments, it will need to work with regulators on a complete overhaul of the payments system.
#11 – Income level of founders
We don’t know who Bitcoin’s founder is. But we do know that the original Bitcoin users needed only to spend a small amount of money to get started. It did not matter how much users made, nor does it matter now. If you have a computer, an internet connection, and a minimal amount of technical know-how, you can use Bitcoin.
The Libra Association founding members are companies with valuations in the billions. The centralized authority choosing the Association members is Facebook. It is led by Mark Zuckerburg, who personally is valued at $72.2 billion.
#12 – Minds behind it
Developers and engineers have been behind the Bitcoin project, and continue to work on improvements. Social media, data, and payment processing giants are behind the Libra project. They will have a massive budget for hiring blockchain developers and engineers.
#13 – Marketing
Bitcoin is not a corporation, it’s really just a beneficial algorithm. So there’s no Chief Marketing Officer, no Social Media Manager, nor a CEO for that matter. In fact, Bitcoin marketing is grassroots and largely volunteer.
On the other hand, Facebook is the #2 advertising company in the world with a global platform of over 2.3 billion users. The massive amount of free data it collects from its participants is used in its own marketing campaigns.
#14 -Threat to banks
Bitcoin has the ability to fully operate outside of banking institutions. It has been doing so for ten years without a hitch. So it may be a threat to traditional banks. But it could also be viewed as simply an alternative to the banking system. Many people may prefer to stay with traditional banks. Either way, Bitcoin carries on.
Since the Libra coin will combine Facebook’s vast global network with a peer to peer payment system, it is even more of a threat to banks. By partnering with Visa and other major payment processors, Facebook coin takes more of a direct stab at traditional banks.
#15 – Regulation
When it comes to Bitcoin, how exactly do you regulate an algorithm that is controlled by no one? Additionally, Bitcoin requires no 3rd parties to function. But if people want to cash out their BTC into dollars or euros, they’ll need to come under regulations for fiat currencies. That is why crypto exchanges often need to verify who you are, just as a bank would do.
Upon hearing the Facebook coin announcement, it only took governments and central banks a few hours to cry foul play. But if the Libra coin will enable users to go back and forth between crypto and fiat, they’ll have to be regulated, too. Facebook and Libra will also come under intense scrutiny due to their history of data breaches and manipulations.
Facebook will face a steep uphill climb on the regulatory front. If successful, it would take years and could be a good thing for the crypto industry.
#16 – Programming Language
Facebook’s coin project will use its own Move programming language, which is completely new. The Bitcoin code uses C++, one of the world’s most common programming languages. Blockchain and other web developers use it extensively.
#17 – Smart Contract Capabilities
A smart contract is basically a digital contract that uses an algorithm to verify and enforce that all those involved live up to their end of the bargain. A digital handshake, so to speak, with no 3rd party involvement. A smart contract is a success when all criteria in the contract are met.
Bitcoin does not have smart contract capabilities, though some projects are building second layer functions for bitcoin that mimic smart contracts. Facebook plans to offer smart contract options using their newly created programming language, Move.
We hope this article has been helpful in introducing you to both Bitcoin and the new Facebook coin. Understanding the differences between the two gives you insight into the cryptocurrency industry as a whole. Also, it hopefully will clear up the muddied waters created by fear of missing out (FOMO). So when you read the latest news story about bitcoin or Libra, you’ll have a foundational knowledge from which to draw perspective.
In a nutshell, if Facebook is able to accomplish all that it has set out to do, it will be an amazing feat. It still won’t be Bitcoin, but it will have managed to bring cryptocurrencies to the mainstream. Before the Libra project can succeed, however, Facebook has some major headway to make. Not just with regulators, but with its own brand problems as well.
“No company can do what Bitcoin Does”– Andreas Antonopoulos