Facebook’s Cryptocurrency Troubling Regulators & Losing Key Partners
Earlier this year Facebook announced Libra, their proprietary cryptocurrency, with the goal of launching it across all their platforms in 2020. Based on a basket of fiat currencies, Libra would be more stable than traditional cryptocurrencies like Bitcoin, and could provide an alternate financial system for the more than one billion unbanked people in the world — many of whom have access to Facebook on their mobile devices for free. However these same people are also some of the world’s most vulnerable, leaving them exposed to facebook’s ethically murky business operations. You can read more about my concerns about Libra in my previous blog.
Since the announcement, Facebook has hit a number of significant roadblocks. Let’s take a look at what they’re up against, and their global social impact, if they plan to stick to their 2020 target.
Bitcoin has the advantage of being a leaderless, fully decentralized cryptocurrency, and is subsequently beyond the reach of many traditional regulators. Libra, on the contrary, needs to play within the lines set by existing governments and the owners of the financial systems it is trying to disrupt. Predictably, these regulators are putting up a fight.
France and Germany were swift with the public announcement of their issues with the currency, calling it a “shadow bank” that can’t operate in a “regulatory nirvana”. The EU also came out with their concerns, citing issues with potential competition restrictions related to the use of consumer information and data. If Facebook owns the financial system, they can easily shut out their competitors from participating or receiving payments. A committee of the G7 that includes representatives from the International Monetary Fund and the Financial Security Board has also weighed in to say that any stablecoin — a cryptocurrency with a less volatile price — with a viable potential to scale will pose a problem for the viability of existing fiat currency systems.
Facebook says it will work with regulators and comply with any and all regulations. However, not all of its partners from the Libra Association are standing strong in the face of this regulatory adversity.
When Libra first announced its initial cohort of Association members, it held some fairly impressive names including Kiva, Uber, and Xapo. However in the weeks since the launch, and only a few days before the first meeting of the Board of Directors, several key partners dropped out.
This loss was concerning for three reasons: firstly, big brand names like those of Visa, Mastercard, and PayPal bring credibility to the project, which could appear risky to less tech savvy players. Secondly, the value of a currency is very dependent on the members using the currency itself and the ease of use. The more partners who leave, the less viable the network is. In this particular case, those who left are universally accepted payment providers, critical for ensuring Libra’s interoperability within existing payment and point of sale systems. Their loss is a significant hit for the organization in terms of scaling adoption with traditional merchants.
Thirdly, the loss comes as a result of threatening letters from the US Senate. Several of the partners who dropped out received communications that included this warning: “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities”
While it’s comforting to see regulators finally taking cryptocurrencies seriously, and trying to put a stop to a global tech company owning the future of money, this amount of regulatory blackmail is concerning, and a sign that the world’s financial system is overdue for disruption. While Mark Zuckerburg testified at Congress that they won’t move forward without US regulatory approval, in my opinon, it’s likely that delays or refusal of regulatory approval in western countries will simply mean their roll out plan will seek new geographies. These will likely be low and middle income countries where the need is high and regulatory bodies can be underessourced and less robust than their European counterparts.
Libra’s only Canadian partner, Toronto’s Creative Destruction Lab, remains a part of the Association, and expects the Canadian regulators will come forth with similar restrictions to those seen internationally.
Anne Connelly is passionate about harnessing blockchain and decentralized technology to transform the lives of people in developing countries. Anne is Faculty at Singularity University and has been an active part of the global blockchain community since 2012. She previously worked with Doctors Without Borders Canada in Central Africa and currently serves on their board of directors. Anne was honoured as one of CBC’s 12 Young Leaders Changing Canada and one of the Fifty Most Inspirational Women in Technology in Canada. You can find her at www.anneconnelly.ca.