- July 22, 2019
- Posted by: James Hall
- Category: Posts
Since President Trump’s tweets against bitcoin and other cryptocurrencies and the Senate Banking Committee’s hearing concerning Facebook’s libra token, many are now learning about libra and bitcoin for the first time. This article helps explain the key differences.
The first and most important distinction is the general public’s access to the ledger. Bitcoin is a permissionless (“open”) blockchain. This means anyone in the world can view the full blockchain, open a digital wallet, and transact in the peer-to-peer network. The network uses an impartial code, rather than humans, to clear transactions.
Libra, on the other hand, is a permissioned (“closed”) ledger. This means that access to their network can be restricted for some users. As well, the ledger may also be kept from public view. In fact, the company has not explicitly stated whether or not access to the ledger will be limited. Unlike bitcoin, a centralized entity of corporate-human actors exists as validator nodes between users. Those nodes can vote to “block trades, rewrite the blockchain, or even stop it temporarily if they gained a majority within the Association.”
While libra proposes to eventually transition to a decentralized blockchain, which they admit they do not yet have a plan to achieve, we are (until libra finds and implement this solution) comparing fundamentally different entities. Bitcoin is an open, peer-to-peer network of distributed nodes and users; libra is a permissioned ledger which is managed by centrally selected nodes.
Libra is also a corporate enterprise whereas bitcoin is an impartial network to facilitate peer-to-peer borderless transactions. Anyone can open a bitcoin wallet and engage in the network without approval from any entity. On the other hand, libra will adopt the same verification and fraud prevention measures used by banks and credit card companies today. This will have two major effects. Many groups, such as refugees, won’t be able to use the libra ledger. As well, it gives unprecedented access to user data for those who can access it.
Anyone engaged in the libra network must trust the corporate entities behind it. For example, they promise not to combine their current data profiles of you with the financial data they could soon possess. In the wake of the Facebook data scandal, this potential for abuse is a forefront issue.
Contrary to libra, bitcoin accounts and transactions are anonymous; unless you can identify who controls that account from outside the bitcoin network. For example, if you post a bitcoin address on Facebook for donations, anyone can tie that account to your name and track the transactions. This is why bitcoin is not the cryptos of choice for illicit activity, as some still suggest.
Going forward, it is important to understand these distinctions as they extend beyond the bitcoin and libra comparison. Many projects use the blockchain name but are far from a distributed ledger. Libra acts more like a payment processor since it can restrict access to its platform and alter the ledger through the Association’s votes. Bitcoin uses no centralized actor or clearinghouse to transact. This is why a distributed ledger, such as bitcoin, is known as a “trustless network.”
As such, this ultimately comes down to a matter of trust. We can choose to trust the corporations leading this project to act in good faith, especially with our data, all along the way. Alternatively, we can choose to trust the trustless, which is impartial code that can validate transactions on a peer-to-peer network between entities anywhere in the world.