As elected officials frantically try to make sense of Facebook’s libra cryptocurrency, application developers are getting down to business. Since the release of libra, a hybrid of public blockchains like bitcoin (which are accessible to anyone with an internet connection) and private blockchains like Hyperledger Fabric, developers have been rushing to learn how it works and, in many cases, build actual products.
The explosion of development, ranging from software designed to prevent money laundering to wallets that hold the cryptocurrency, indicates the difficulty lawmakers and regulators could face in the brave new world of open source technology. Facebook released the code, which is designed to eventually support a cryptocurrency backed by a basket of stable fiat currencies and other assets, to the public last month, and in spite of multiple calls by legislators for development to stop, progress will likely continue, even if the social network and its partners are eventually shut down.
With 28 of the largest companies in the world, including international financial services giant company Visa, international payments platform Paypal, and Latin American payments platform MercadoPago, already a part of the Libra Association developing the code, the business opportunity is just too good to pass up. When complete, libra application developers hope the libra cryptocurrency, could open up a new market of 1.7 billion people who are currently unable to send payments around the world.
“We need to be prepared from a technology perspective in order to be able to provide an anti-money-laundering solution for this kind of new thing which is coming,” says Pawel Kuskowski, whose regulation technology company Coinfirm is building the first libra tool designed to prevent money-laundering. “This is how we maintain our competitive edge.”
Among the most sophisticated work occurring on libra is Kuskowski’s effort to identify patterns in the way libra moves that look similar to money laundering and to prevent the funding of terrorists. The company has integrated a test version of the open-source libra blockchain, which is available on Github to anyone who wants to build on it, into its platform and is exploring what its existing algorithms can learn about the transactions.
So far almost a million transactions have been conducted on the libra testnet. While this number should be taken with a grain of salt (creating an account is free and libra is not currently backed by any assets), the transactions provide the raw material needed to begin testing algorithms designed to search for suspicious libra spending patterns, and build a wide range of other applications.
London-based Coinfirm has dedicated one employee to work on libra full-time, with part-time support from two others. So far, the small team has experienced difficulty implementing their existing security algorithms to scan the ledger. Since transactions aren’t settled in batches, or blocks, like a traditional blockchain, but occur in closer to real time, Coinfirm is having to work out a new investigation process from scratch. “We need to do different analytics,” says Kuskowski, who previously worked as the head of global anti-money-laundering for the Royal Bank of Scotland. “We need to define the data points. They will be different.”
It is work like this, and from Coinfirm competitors like Chainalysis and Elliptic, that David Marcus, the head of Facebook’s Calibra wallet, hopes will help address concerns expressed by legislators and the public that the pseudonymous platform could be used to facilitate illicit transactions. “There is a lot of narrative around how this could be terrifying, and clearly it’s a convenient narrative for certain stakeholders,” he says. “But the reality is completely different, and we intend to make libra much better at those things than the current system.”
Before any of that can happen though, users will need a “wallet,” a place where they can buy, hold and spend the cryptocurrency. Among the early developers of such technology will likely be cryptocurrency companies like Coinbase and Xapo, which are also a part of the Libra Association and already have similar technology for other cryptocurrencies. But as is increasingly evident, you don’t have to be a part of the Association to build on libra, which makes it even more difficult for lawmakers to stop.
The first wallet to support the test version of libra is Zengo, a mobile app available on iTunes that has support for bitcoin and other cryptocurrencies. Built by Israel-based KZen Networks and backed by $4 million in venture capital from investors including Forbes Blockchain 50 member Samsung, the wallet will let users experience what it feels like to send and receive libra when it launches in three weeks. “It should be the first-ever consumer-grade libra wallet available to all,” says Zengo CEO Ouriel Ohayon.
Ohayon is addressing concerns about what information is being shared with third-party wallet providers, by building the Zengo wallet as a “noncustodial” solution, meaning that the user is responsible for his or her own private keys. Researchers and advocates are increasingly taking the position that recent regulatory guidance from the U.S. Financial Crimes Enforcement Network (FinCEN) indicates these noncustodial wallets are not subject to onerous compliance requirements, making them, like cash, more attractive for illicit transactions but also for refugees and for citizens of nations that don’t provide official identification. “Many countries do not provide government identification and a citizen could not be able to KYC,” says Ohanyon, whose wallets can be accessed using encrypted biometrics, such as a fingerprint. “How do you onboard them?,” asks. “You need other ways for them to onboard and define their digital identity.”
Other notable libra projects include multiple block explorers, which function like Google search, except instead of searching for a website, users can search for a public libra address. Among the more sophisticated explorers is the Libra Browser, published on June 19, just a day after the open-source software was released to the public. Created by Gal Diskin, chief technical officer of First Digital Asset Group in Israel, the software, which is still very early-stage, lets users create test versions of the libra cryptocurrency, search for transactions by address, and browse statistics about the blockchain. “Currently it is slow, ugly, unstable and functionality is limited to viewing the latest transaction or a specific account,” Diskin wrote on his personal website. “But it works and is useful to the developer community.” At least three other libra explorers exist, including Libranaut, Libexplorer and Libraview.
To give an idea of the global nature of the work currently being undertaken, another site, community.libra.org lists testnets under way in Canada, Hong Kong, India, Indonesia, Japan, Korea, Ukraine, and Vietnam. In total, there are 33 developers listed on the Github page that hosts the original libra code. Among the more prominent developers building on the technology is Mika Honkasalo, founder of Fit Panda Technologies, who, like many others listed on Github, copied the public codebase, a process called forking, so he could create his own version of the technology. A similar forking process in the early days of bitcoin led to a proliferation of “alt-coins” that were little more than copies of bitcoin’s public code but with a minor tweak or no tweak at all.
In fact, it is this ability to fork that may be spurring the rapid rate of innovation on libra more than anything else, according to Kuskowski. The Coinfirm CEO says ten of his clients have asked whether his anti-money-laundering and know-your-customer services will support libra. Since anyone can simply fork the code and start working on a separate project, a code arms-race has begun to develop. As Kuskowski explains it, another company, like giant cryptocurrency exchange Binance, based in Japan, could create its own version of libra supported by a totally different association of companies based anywhere in the world.
“We don’t know if someone from the main players will come up with something like libra-coin Coinbase,” he says. “We don’t know if something like this will be created.”