August 12, 2019
“Trust starts with truth and ends with truth.” – Santosh Kalwar
Thankfully, blockchain technology and decentralized applications present an opportunity to restore public trust.
The Road to Minimally Viable Trust
Don’t trust, verify.
Algos and Libras: Goals, Governance, and Consensus
Algorand is a blockchain startup focused on “building trusted infrastructure for the borderless economy.” Its goal is to create a decentralized infrastructure that extends the benefits of fast, cheap, and secure transactions to the global economy. This includes making payments in emerging markets far more accessible, affordable, and easy to use.
Libra’s mission sounds strikingly similar: “A simple global currency and financial infrastructure that empowers billions of people.” To be fair, this is the modus operandi of most blockchain networks. Make transactions better than the status quo. But Algorand stands out in several important ways.
Libra Talks the Talk
What separates Algorand from Libra is the difference between vision, mission, and execution.
Facebook sees cryptocurrency as an opportunity to grow its already massive global footprint. Its mission of wanting to connect and empower everybody seems to justify its means to an end. But not everybody is buying it.
We see this again in Congressman Duffy’s remarks addressing the policy consequences of social and financial discrimination:
Algorand Walks the Walk
While both Libra and Algorand share similar goals, Algorand truly walks the walk. Algorand sees beyond money making. This is apparent in its design and proven in practice.
Money Making Money
Several design decisions limit Libra’s goals and path towards execution. Foremost, the way in which the Libra Association establishes value for the Libra token has both regulatory and practical limitations.
In general, money is made up of 3 constituent parts. Fiat currency consists of a unit of account (e.g. a dollar), a medium of exchange (e.g. a physical dollar bill), and a store of value (e.g. a physical dollar bill backed by the US government). What the Libra Association is trying to do is transform these 3 pillars into its own digital token called the Libra in order to transfer Libras across its own payment rails, the Libra Network.
Governing Libra with and without the SEC
Some questions raised during the recent congressional hearings revolved around who owns what, and when. Given Facebook’s current problems with data privacy, these questions are warranted.
While David Marcus made clear that some governance decisions will require a ⅔ supermajority of Founding Member votes to approve network changes, it was unclear what the scope, breadth, and depth of these decisions will be.
Among them was the need for the Libra Association to grant Libra users interest generated from their investments in or purchases of Libra tokens. In its current state, Libra will generate interest for its Founding Member investors but not its users.
By definition, that makes the Libra investment token a security, under the jurisdiction of the SEC. Since Libra users will need to buy in to the Libra Network as well, they should expect the same treatment. In the congressional hearings, this issue was left unanswered.
Algorand’s Governance and Consensus Models
On the other hand, Algorand is comprised of 2 main entities:
Because Algorand’s blockchain platform is transparent and permissionless by design, Algorand cannot be gamed in ways that other permissioned blockchains like Libra are susceptible to – like social engineering or off-chain agreements made behind the scenes.
Part of Algorand’s mission is to engineer high performance protocols for long-term use and forwards-compatible applications. This involves a lot of planning, prototyping, and standardization efforts. Algorand has carefully crafted a team that separates governance from political and technical missteps.
Platform Building with Purpose
The Upshot of Political Fallout and the Upside of Open Source
On the surface, Algorand and Facebook’s Libra share a lot in common. They both want to decentralize current financial services. They both want to democratize payments in a fair and equitable way. And they both want to enable frictionless, cheaper global transactions using blockchain technology. While both companies share a similar mission, their approach to creating and delivering value is vastly different.
Building trust takes time. Regaining it after a blunder takes effort and positive change. Facebook has broken its promise to preserve user privacy and security time and time again. Unfortunately, Facebook’s credo of “move fast and break things” doesn’t bode well for reestablishing lost trust. Especially as it moves into financial territory.
Algorand has created a Pure Proof-of-Stake blockchain that empowers qualified frameworks of trust. The elements that make Algorand transactions work are self-contained, self-signing, and publicly verifiable. This means that users can check that 2 + 2 = 4 and that 2 is actually 2 – not some other representation of 2 – without needing to just trust the organization governing their transactions.
Algorand’s software is the source of truth. It is open source, public, and permissionless. Anybody can look under the hood and examine its inner-workings. This sets Algorand apart from Libra in a way that instills user confidence from the start.
As blockchain and distributed ledger technologies continue to evolve, I believe we’ll see trends in decentralized applications develop which reaffirm Algorand as an innovative market leader. In the months and years to come, I believe we’ll see businesses and users prefer public, permissionless protocols governed by transparent non-profits like the Algorand Foundation over private, permissioned protocols made by pay-to-play consortia like the Libra Association. The path to verifiable transactions is bright and lit by transparency by design.
Disclosure: I am an Algorand Ambassador. I do not hold any ALGO tokens and do not have any vested interests.