The real reason Uncle Sam is afraid of Libra

A lot of column inches have been devoted to Facebook’s Libra coin so far, and we can expect many more to come. The tech giant’s stablecoin has put the wind up Uncle Sam, and a few other countries as well, but with the USA being the home of Facebook, its reaction is the one that most observers are following.

And here’s an amazing fact to consider: Facebook has 2.5 billion ‘citizens’ and the USA has 350 million users, as Clem Chambers, a senior Forbes contributor points out. . This Chambers claims is the root of the fear of Libra.

Who needs the dollar?

What the US government and others fear is that Libra will usurp their sovereign currency. This is particularly important to America, because it exports its dollar as a way of maintaining solvency. If other countries didn’t look to the dollar as a ‘safety net currency, what would happen? Clearly, the US government has been asking itself that question, then asked David Marcus for some answers. None of which seemed to reassure them.

As Chambers says in his article, “bad things would happen to the US status as a reserve currency …if the 2.5 billion Facebook users started to use libra, a basket of currency linked money.” The USA is sitting on a debt mountain, so any threat to the value of the dollar is an issue of mega proportions. As Chambers warns, “If a new private sector money is created and made available instantaneously to 2,500 million people a lot of unpredictable things will happen.”

Disrupting the retail sector

He has been working on a site that has developed its own crypto ‘Plus1’ for social media validation, and he suggests it provides us with a laboratory of sorts, where we can see the possible outcomes for Libra. Chambers’ site has around 3 million site users a month, so it’s a very scaled down version of Facebook. But the use of a ‘native’ cryptocurrency is working very effectively, despite some slowness in uptake.

He says his first two observations are: “crypto works within an online community, and crypto takes a goodly time to permeate into usage.” So adoption takes a while, but it does happen. His data also shows what we already know from other social media usage: older users are less likely to engage with what he calls “new-fangled stuff,” but “mature members” do engage with it quite quickly. By contrast, “The young’uns however, are all over crypto like butterflies on summer lilac.” Chambers says this age dynamic makes adoption slower than most might think.

Furthermore, Chambers says that while you can buy things with crypto, this has been slow to happen. He suggests Facebook’s Libra should be the coin that changes this and acts as a major disruptor in the retail arena.

Libra may also lower the barrier to entry for consumers. Using and owning crypto at the moment is not simple enough to have a broad appeal, but again Libra could change that.

Furthermore, just the fact you can transfer fiat in and out of Facebook creates a massive bank. Will we have ‘Facebank’ in the future? I’d say it’s pretty likely.

And, as Chambers remarks, the lawmakers are completely focused on privacy issues with Libra, whereas what they should be looking at is “the techno-political structure over issuance and control of Libra’s proposed ownership and business model.”

Libra is just the beginning: in the future expect to see similar coins from Google, Amazon and Apple. And there will be others. Who will need the dollar, the yen, the euro and other currencies then? That is what governments really fear.

Keep big tech out of finance? Seriously!

As Off the Chain writes, this week is a big one for crypto. It may even become a defining week, when at some point we look back at its events.

The Facebook hearings in Congress play a major role in this. David Marcus has faced two different committees, neither of them over-informed about cryptocurrency in general. He sat like one man alone holding back the tide of ill-informed views held by America’s lawmakers. For example, they (and the President) are still convinced that crypto is primarily used for criminal activity, when by now we all know that cash is king in the drug world for starters.

However, while Elizabeth Warren probed the issues of privacy and trust, ever implying that it would be almost impossible to trust Facebook after the Cambridge Analytica scandal, the hearing that most concerned crypto’s supporters was that with the Banking Committee.

Old men backed by banks

As numerous journalists have noted, the average age of a US Senator is 61.8 years old, and most of them are not open-minded enough to grasp the innovations that blockchain and crypto can bring to the United States. Most of them have benefitted financially from the old system, so why change it. Who cares about the future when ‘I’m alright Jack’.

Keep Big Tech Out

These hearings were significant, but even more noteworthy was information leaked over the weekend regarding a bill that has been drafted by Congressional representatives aimed at preventing large technology companies from becoming financial institutions. It is literally titled “Keep Big Tech Out of Finance Act” and contains a number of extremely worrying statements, with potentially dangerous ramifications.

The Act targets companies like Facebook, Amazon and Uber, but totally ignores the fact that Goldman Sachs and JP Morgan are engaged in the same blockchain-related projects as the Silicon Valley boys.

And consider this: the same lawmakers who are participating in the Senate Banking Committee hearing, are some of the lawmakers who have received significant donations from the banking industry. These guys are hardly going to make changes that have a negative effect on banking.

The cost of prohibition — America loses

They are also proposing to prohibit digital currencies and this would put the United States and US-based technology companies at a significant disadvantage. There was some irony in Marcus being asked as to why Calibra had registered in Switzerland rather than the USA. There’s your answer, although Marcus simply said they were already an American company.

Several journalists have also noted that this Act proposes a daily penalty of $1 million for any tech company flouting its rules. Significantly, most observers agree that Facebook can afford to pay that fine with ease, and that they will probably just see it as the cost of doing business.

If the United States cannot get behind digital currencies it will lose out to Southeast Asia where there is widespread adoption: instead of Facebook’s Libra becoming a leader, AliPay and WeChat Pay will be the platforms used internationally.

It looks like the Big Tech companies in the US are going to have to play ball with Wall Street, something they have managed to avoid in the past. Will they abandon their attachment to liberal principles and embrace those of the less principled occupants of the Street? Let’s see. But I doubt it will be possible to keep them out of finance in the long term.

Cuban and Congress gang up against Libra

Just a few days before the Congressional hearings involving David Marcus, Facebook’s head of the Libra project, Mark Cuban, the billionaire co-host of “Shark Tank”, echoed President Trump’s tweets when he told CNBC that he “wasn’t a big fan” of Libra.

Libra is a gift to despots

There are seemingly quite a few people who agree with Cuban. He referred to the Menlo Park-based social networking company’s foray into distributed ledger tech as a “big mistake.” Most particularly he took aim at what he sees as Libra’s potential to further destabilise unstable economies and political situations worldwide. He said, “Some despot in some African country that gets really upset that they can’t control their currency anymore.” This doesn’t actually make much sense, but these days nobody seems bothered about rational statements.

Yes, Facebook is targeting the 1.7 billion unbanked people worldwide, a factor that David Marcus repeated several times during his first day of giving testimony to US Congress. The Libra Association’s white paper states: “All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges… When people are asked why they remain on the fringe of the existing financial system, those who remain “unbanked” point to not having sufficient funds, high and unpredictable fees, banks being too far away, and lacking the necessary documentation.”

Cuban takes issue with this: he believes that Libra will unleash “reactionary impacts of extending financial access to the underrepresented.” Presumably he’s referring to that African despot again.

David Marcus is calm and collected

Meanwhile, in Washington, David Marcus looked cool as a cucumber as he took questions from a succession of senators. The primary issues for the lawmakers were those of privacy and trust. Senator Elizabeth Warren, who is crypto-unfriendly, asked about Facebook’s willingness to allow data portability: “If a Facebook user wishes to use a wallet other than Calibra, will you make it easy to allow the export of other data?” Marcus unequivocally replied, “Yes,” although he was noticeably more hesitant to respond so forcefully when asked about Messenger and Whatsapp data. Sen. Warren got her knife in some of the way when she concluded her remarks by saying, “what Facebook’s been really good at is figuring out how to monetize people’s personal data […] I am not reassured by your statement that you can not see any reason right now why there would not be any data sharing between these platforms.”

Nobody hammered bitcoin

On the bright side for crypto enthusiasts, Congress appeared to be very careful not to attack bitcoin. As Coindesk remarks, “Bitcoin was barely mentioned during the two-hour session and most of the lawmakers seemed far less concerned with the technology than with who was planning to leverage it: Facebook.” Indeed, Sen. Pat Toomey (R-Pa.) sounded bullish on blockchain in general, saying, “We shouldn’t prevent what can be a tremendous financial innovation. There is a big potential in blockchain technology.”

How’s the score looking for Facebook’s Libra as the Congressional interrogations resume today? It looks like most news outlets agree that it has the advantage, although they don’t say that in so many words. Congress appears to be more focused on the fact that it is Facebook (and Mark Zuckerberg) who is leading this project than the real potential of Libra. If another company had launched this project, perhaps Congress would be a lot less interested.

A letter to Facebook