The world seems to have revolutionized with the announcement of the next release of Libra, a cryptocurrency that, in the words of its creators, "will transform the financial system until it becomes universally accessible". With the appearance a few years ago of blockchain, there have been many initiatives that have arisen around the concept of cryptocurrencies. Words like P2P, fedatario system, cryptography, hash… All are abstract terms that have become commonplace every day despite the difficulty they can imply for a society accustomed to using more tangible concepts.
Now it turns out that an alliance of organizations led by Facebook tells us that, in the middle of 2020, they are going to launch a cryptocurrency that they intend to convert into a universal currency. It seems interesting that we put on the table some concepts that are mentioned by the promoters of this cryptocurrency and that can help us to better understand the cybersecurity problems that this new "internet money" faces.
It is something like an account book or record; an ordered folder of pages (blocks, with the appropriate terminology) to which monetary operations are attached. Each new page must be consistent with the previous page so that a note on a page should not contradict those of the previous pages. If at some point someone decides to modify a page already archived it should be able to detect it immediately. This ensures that everything is "connected and well connected" in the logbook.
But who decides when a page should be added? Who determines that what you put on that page is true? There the concept of federated filing system. In our example, to give confidence to the system, the registration book would be copied and distributed entirely to anyone who wanted to act as a notary: to anyone who wanted to attest that a new transaction is correct. Thus, with each new page, all notaries would check if this is consistent with their own record book and they would propose adding it or not depending on their criteria (this is what is known as PoW or Work Test). And most importantly, they would communicate it to the rest of the members by contacting them (P2P).
From here two problems can arise.
- That any copy of the original record book had been intentionally altered and that there would be future errors. To solve it, the system uses cryptography as an element of authenticity. It is what is known as your hash, a unique identifier (a watermark or a footprint, to give an example). Any change in a page causes the hash change of value. Thus, the page and the identifier are related univocally. If someone modified a page, their identifier would also change and the alteration would be detected.
- That the notaries reached different conclusions on whether or not to add the page. In this case, what is known as the consensus mechanism, that is, a method of decision that, once the opinion of the notaries is known, decides whether or not to add the page to the registry book. There are multiple mechanisms to make that decision. One of them is the 51% rule: if the majority says something is true, it is taken as such.
With these few concepts it would be enough to understand the theoretical foundation of Libra. From here, the rest of the process would be to make transactions, write them down on a page and wait for the notaries to certify their authenticity in case it was added to the record book. A procedure that can be followed by electronic methods in a simple way. After all, it is an apparently robust system built on the chain of blocks and backed by a system based on the consensus of its actors.
We only need to define what is a cryptocurrency. Basically, it is an abstract unit whose value is given by the credibility granted by the economic system. If you think about it, nothing very different from the concept we currently have of any currency. Everything is based on credibility. Not in vain, the value of these coins from their correspondence with assets such as gold or silver has long since been dissociated.
What then is the real advantage of the cryptocurrency? Well fundamentally that its use will be purely electronic and, what is more important, external to the financial system. As its advocates advocate: "Goodbye to the bankers!" Something not despicable. More than 1,700 million people are currently outside the traditional financial ecosystem despite the fact that more than 1,000 million have a mobile phone and more than 500 million have an Internet connection.
The cryptocurrencies will allow transactions between two persons or entities, having as fedatarios the agreement to a number of entities that will ensure the validity of the transaction. Buy products, pay hotels, transfer money between individuals and subscribe to services will be within the range of possible operations to be performed with the cryptocurrency.
But how would Libra differentiate itself from other cryptocurrencies that are already available in the market? The answers given by its promoters are multiple, but they highlight two fundamentally. First, it will be a cryptocurrency based on open and accessible solutions to anyone interested in exploiting its use. Here the social networks and the presence of Facebook seem to have much to say. Second, it will be referenced to quantifiable assets, very far from the model based on expectations that will flag other cryptocurrencies.
To reach that point, the Libra Association, as its driving group is called and which currently includes a few dozen participants, is developing a programming language called Move, which will include all the cybersecurity mechanisms we have mentioned. The objective is for the association to act as a validation group, or notaries, of any transaction.
Likewise, the cryptocurrency issuance will be linked to quantifiable assets so that in order to issue a Pound it will be necessary to deposit an equivalent active value as a reserve. In this way, a real and reasonably stable value of the cryptocurrency will be maintained. It really is a conservative approach to the free and fluctuating model of other cryptocurrencies. In short, Libra will be a solution halfway between the traditional asset-based model and the emerging model of net virtual cryptocurrency.
Juanjo Galán is responsible for the business strategy of All4Sec.
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