On July 2, U.S. Congress wrote to Mark Zuckerberg, Sheryl Sandberg, and the Chief Executive Officer of Calibra, David Marcus, requesting a halt to the development of Libra.
When Facebook shared its initiative with the world on the upcoming Libra coin prospect, the cryptocurrency world shook in anticipation. The big news was spreading rapidly amongst different parties, building up the momentum and theories around the topic. Suddenly, news of the Libra launch has become outdated, as Congress placed stress on Facebook. The slow-moving government machine requested that Facebook pauses all actions related to the development of Libra cryptocurrency. And, until lawmakers take their time to sort out potential ramifications of Facebook’s intended actions, the future of Libra is yet to be discovered. It is hard to know whether the act is a desperate cry from the Congress or a rational well-weighted decision made by those who have remained in power. What is clear is that Facebook’s implementation plans are to be ceased at the moment.
When Facebook released its Libra whitepaper on June 17, from libertarians to institutional investors, any proactive cryptocurrency supporter had a thing or two to say about the announcement. Blockchain commentators paid special attention to Libra’s governance rules, the consensus mechanism and the new programming language Move. People who are not a part of the crypto community, in contrast, spent much of their time explaining the concept of digital assets to their readers or listeners, with only light details on how Libra might differ from other currencies. One detail, however, seemed to catch everyone’s attention: The $10 million that Facebook was asking from each partner for the privilege of running a Libra node. Unfortunately for Facebook, The New York Times quickly reported that no company had yet paid and that several firms were reluctant to open their wallets and commit. And, so, the question is raised: Can we be sure that the announced members of the Libra Association will remain with the project?
The Libra Association Holds Its Inaugural Meeting In Geneva
This month, the Libra Association holds its inaugural meeting in Geneva. Perhaps, the crisp Swiss air will inspire the various delegates — 27 companies have announced partnerships with Facebook — to firm up their nonbinding agreements. Or, maybe the scrutiny that Facebook has received, the criticism coming from governments and techies, and the doubts expressed by cryptocurrency experts will drive some companies to withdraw. As enthusiastic as I personally am about cryptocurrency and its potential to change the world for the better, the things that I have read, watched, and discussed since the Libra news broke out have left me suspicious about Facebook’s goals and methods. I know that I’m not the only one who has doubts.
In just 15 years of operation, Facebook has acquired over two billion users. Millions of people who don’t use the flagship product nonetheless have daily interactions with the company, which owns both WhatsApp and Instagram. Given the meteoric pace of Facebook’s rise, it is not surprising that the company’s plans tend to be ambitious and its implementations usually swift. In the case of Libra, however, Facebook may have attempted too much too quickly.
U.S. Representative Maxine Waters, Chair of the House Financial Services Committee, responded to Facebook’s announcement by calling a hearing as soon as the firm released its whitepaper. So, on July 17, Facebook representatives will once again appear before Congress. Any attempt by a major corporation to create a new global currency will distress regulators, and the fact that the corporation in question has an ambiguous reputation only exacerbates the issue. Facebook executives have spent a disproportionate amount of their time defending their actions and inactions in front of Congress, and trust in the company is at an all-time low post-Cambridge Analytica. From a government perspective, Facebook, with its dubious history, might be introducing a questionable currency that will compete with the U.S. dollar.
Is Libra Competing With Bitcoin?
Even if Facebook had a sterling reputation for transparency, honesty, and scrupulousness, certain elements of Libra would still give governments and regulators pause. Libra is a stablecoin, a coin designed to resist volatility and maintain a constant value. Most stablecoins are “pegged” to a particular world currency; Tether and Gemini Coin, for example, are both supposed to be tied to the U.S. dollar. Libra, in contrast, will be pegged to the value of an undisclosed “collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.” Facebook, in short, pays no deference to the dollar. That, in turn, puts at risk the future prospects of the U.S. dollar. Let’s not forget that the U.S. dollar used to be pegged to gold. Similarly, once the Libra coin gets widely adopted, it may at some point change the asset basket to exclude the U.S. dollar. In such a way, it can gain dominance over the major national currencies.
Libra won’t link its valuation to a preexisting “fiat” currency issued by a government, and Facebook wants its cryptocurrency to be global. Does that sound like any other cryptocurrency? If you said that it sounds just like Bitcoin, the first and still the most trusted cryptocurrency, you’d be entirely correct. Bitcoin has existed for over a decade, and even those who prefer other currencies at least acknowledge the strength of the Bitcoin community and the trustworthiness of the currency’s algorithms. Banks, corporations, and governments have been afraid of cryptocurrencies for years, and, for the majority of them, it was too late to get involved to fully capitalize on the inevitable decentralized payment adoption. What if leading corporates joined forces to create the only feasible way to compete with Bitcoin? I doubt very much that we would see them back out, in that instance.
Given all the concerns raised by governments and cryptocurrency enthusiasts, I wouldn’t be surprised if some of Facebook’s announced partners withhold their funds. I’ve spoken to numerous peers in the crypto space about Libra and have received some contrasting opinions. While many are skeptical, some recognize how Libra will likely onboard millions into the space. General Partner of Gumi Cryptos – backer of the Asian version of Libra (Klaytn) led by Kakao, LG, and Union Bank – Miko Matsumura put it well: “Messenger platforms will catalyze mass adoption of cryptographic assets and convergence of payment, wallet and app platforms. Leading messengers in every major geography are bringing billions of users into cryptographic assets.” Facebook is one of the world’s most powerful and influential companies, but, with Libra, their reach might exceed their grasp. Only time will tell. The crypto community will be watching the updates closely.