Opinions That Nearly Killed Facebook's Libra | forklog.media

Opinions That Nearly Killed Facebook’s Libra

News and Analysis
02.02.2020

Libra made a lot of news over the last year. Surely, an arguably promising project developed and promoted by none other than Facebook was guaranteed to draw attention. Apparently, it was also a serious threat to the existing monetary system, so the project faced fierce opposition from regulators around the world.

While the story of Libra isn’t entirely over, the project has passed an abstract milestone, bringing conclusions to some of the speculations that pervaded the crypto-industry for the last year.

This article is a collection of notable opinions about Libra voiced by the crypto-community and regulators.

A Bit of Background

First reports about Facebook’s plans to launch its own cryptocurrency appeared back in May 2018. Facebook confirmed the rumors in a comment to The Verge:

“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team will be exploring many different applications. We don’t have anything further to share.”

Libra was to be a stable token. Thanks to a number of initial $10 million investments the coin was expected to be fully backed right from the launch. 

The project was planned to be governed by a Switzerland-based nonprofit called Libra Association, which would be overseen by said partners with equal voting rights. The entity was told to be independent of Facebook. 

The social media giant was involved indirectly through a subsidiary company called Calibra. This company was going to develop and maintain a Calibra cryptocurrency wallet that would be integrated into Messenger and WhatsApp. 

Despite the fact that such integration gives a significant boost to the wallet’s potential for wider adoption, Calibra CEO David Marcus said that the product will be just “one of many competing digital wallets available to customers.” 

The formal announcement of Facebook’s coin called Libra took place in June 2019. It became apparent that the giant social media corporation has plans to create “an alternative financial system that relies on a cryptocurrency that the company has been secretly working on for more than a year.”

Indeed, such a bold incursion of a mainstream player into the crypto-space has given hope of adoption to many of the crypto-enthusiasts. 

“This is something that could be a profound change for the entire world,” said David Marcus, head of Facebook’s blockchain technology research and former president of PayPal.

Shortly after Libra’s whitepaper was published, regulators opened up with criticism. By the end of July, Facebook stated that the project may never launch because of regulatory scrutiny.

Since then the Libra Association is losing members. PayPal went first on October 4th, 2019. Mastercard, Visa, eBay, and Stripe left a week later.

Still, the developers haven’t scrapped the idea and aim to launch in 2020, however unclear Libra’s future is.

Authorities Response

On June 18th, 2019, French Finance Minister Bruno Le Maire said that Libra has no chance to become a “sovereign currency” and shouldn’t be seen as a replacement to traditional money. He expressed concerns about money laundering, terrorism financing, and users’ privacy.

The next day, the U.S. congressmen urged Facebook executives to testify and halt the project.

Russian authorities also reportedly opposed Libra, saying that the coin and any platform that lists it will be restricted in the country.

On June 21st, Reuters reported that France is creating a G7 task force to study “how central banks ensure cryptocurrencies like Facebook’s Libra are governed by regulations ranging from money-laundering laws to consumer-protection rules.”

On July 2d, the U.S. Congress requested Facebook and partner companies to seize Libra development, arguing that the project may create a global financial system “intended to rival U.S. monetary policy and the dollar.”

On July 3d, Calibra’s David Marcus responded to the members of the House Financial Services, saying that the project is “committed to taking the time to do this right.”

“We want, and need, governments, central banks, regulators, nonprofits, and other stakeholders at the table and value all of the feedback we have received,” Marcus wrote.

Prompted by the upcoming launch of Libra, China stepped up its efforts to research blockchain technology and build its own cryptocurrency. Huang Yipinga, Peking University professor and the rotating current chairman of the research initiative, said that Libra “has sent a warning to China that its lead [in digital finance] is not a sure thing.”

U.S. Federal Reserve Chairman Jerome Powell said that “Libra raises many serious concerns regarding privacy, money laundering, consumer protection, and financial stability,” and that he doesn’t think the project could go on.

On July 13th, The Block wrote about a draft of the law aimed to prohibit large companies from “establishing, maintaining, or operating a digital asset that is intended to be widely used as a medium of exchange, unit of account, store of value.” The law was targeting “technology companies with annual global revenue of more than $25 billion and predominantly engaged in the business of offering online public marketplaces, exchanges, or platforms for connecting third parties.” 

On July 16th and 17th, two Congress’ hearings on Libra took place

Notably, Senator Sherrod Brown of Ohio called Facebook’s venture into the crypto-space “breathtakingly arrogant,” considering its reputation in terms of users’ data misconduct and general trust issues. In his words, Libra is a “recipe for more corporate power over markets and over consumers.” The Senator also called the company out for its influence on journalism and methods of propaganda. 

Other Senators voiced concerns about Facebook’s troubled past, Libra’s potential for illegal use, and the fact that the Libra Association incidentally consists of large corporations who will control the network.

At the end of the last hearing, Calibra CEO said that Facebook will not attempt to launch Libra, before addressing all the regulatory concerns.

Subsequently, in August, Bloomberg reported that European regulators are worried about the project’s compliance with antitrust laws. 

The officials were concerned that Facebook may have an unfair advantage and will likely restrict potential competition. Now, apart from the already ongoing antitrust investigation into Facebook’s operations, the EU authorities began looking into Zuckerberg’s take on alternative money.

In October, the Financial Action Task Force (FATF) said that projects like Libra could drive the mass adoption of cryptocurrencies, which hinder law enforcement.

“If stablecoins were to become widespread, it could potentially lead to new risks regarding money laundering and terrorist financing,” said FATF president Xiangmin Liu.

Remarkably, by October 2019, U.S. Senator Mike Rounds supported Libra. He stressed that Libra may be the technical progress the country needs and expressed concerns about the U.S. falling behind in the technological race. 

“I believe that there is promise in cryptocurrency and digital payments, but regardless of how one views such technologies, it is clear that the United States is falling behind in this space,” Senator Rounds said.

On October 30th, Politico reported that France, Germany, Italy, Spain, and the Netherlands teamed up to oppose Libra’s introduction in the EU. The officials were seeing complete prohibition as problematic, as it is still unclear what rules would apply to Libra. As a workaround, they consider restricting Libra in the EU until it can be properly regulated.

The next month, on November 21st, the U.S. Congress members Sylvia Garcia and Lance Gooden presented a draft of the law that would deem Libra and similar assets securities. 

“This piece of legislation would protect consumers against certain cryptocurrencies, such as Facebook Libra Project. The bill would clarify that ‘managed stablecoins’ are securities under the Security Exchange Act of 1934 and thus regulated by the Security and Exchange Commission,” reads the official release.

Lastly, on December 5th, the EU finance ministers agreed that private digital currencies, including Libra, will not be allowed in the EU “until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.”

Conclusion

It seems that the regulatory concerns about Libra and the respective barriers to its launch remain relevant up to this day. 

The story of Libra, in some sense, is an epitome of the current situation with crypto-regulation. Theoretically, Libra could become something like a gateway drug into cryptocurrencies for those who have never heard about them, let alone weighed on using them. In a sense, Libra could be the killer app that Bitcoin has never become.

On the other hand, Facebook’s interest in creating parallel money could signify the growing ambitions of giant corporations. Considering the history of Facebook, any privacy concerns about whatever they do are reasonable. Libra, had it been implemented, could have made Facebook almost omnipotent.

Finally, regulators have seen Libra for what it actually was: private money that could rival fiat and effectively ruin the governmental monetary monopoly. This, in turn, is one of the foundations of state per se, and therefore alternative money could effectively undermine the state as we know it.

Still, what’s most important, is that Libra is definitely not the last in the string of attempts to create alternative money. This means that, corporate or not, the world actually requires an alternative to the existing economic system, and is desperately seeking it. Bitcoin and Libra are just two most notable attempts of this kind. China’s digital yuan could become the third. Whatever becomes of this quest for a new economy, it seems that it will not stop that easy.

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