Ethereum co-creator Joseph Lubin says he has a few problems with Facebook’s new cryptocurrency Libra.
Lubin Doesn’t Care Much for Libra’s Ideals
The biggest issue at press time appears to be trust. Right now, he says he has little faith in the true goals of Libra, and comments that most of the public probably feels the same. Again, this is likely a reference to the company’s recent ties to Cambridge Analytica and allegations that it sold users’ private information to third parties for advertising purposes.
In a recent article, Lubin calls Libra a “centralized wolf in decentralized sheep’s clothing.” It has been mentioned in the past the Facebook Coin is allegedly being promoted as a means of payment for goods and services through WhatsApp and merchants’ websites that offer Facebook login options. This would align the currency with one of crypto’s primary goals.
The problem is that Libra is also likely to be controlled by a small party of its largest sponsors, which means that party’s ideals and profits are bound to come first. Maybe not right away, but somewhere down the line. This is a scary thought in the sense that Libra will allegedly become a global cryptocurrency yet will be controlled by only a small and privatized group whose interests could potentially take precedence over customers.
In the article, Lubin writes:
Trust is a slippery subject, especially when magnified to the scale of a global financial infrastructure. Ten years ago, the bitcoin whitepaper proposed that instead of relying ‘exclusively on financial institutions serving as trusted third parties to process electronic payments,’ we can instead rely on crypto-economic proof… With the Libra whitepaper, Facebook is not eliminating subjective trust, but imploring us to trust in Libra. You must trust that one Libra will have ‘intrinsic value’ by being backed by a basket of currencies and government bonds, rather than the capriciousness of daily cryptocurrency price swings. Facebook will seek trust from regulators that its Calibra wallet can comply with know-your-customer (KYC) and anti-money laundering laws by requiring government-issued IDs to verify an account. It will need merchants to trust that their initial network will responsibly run nodes to validate transactions on the system.
If We Don’t Trust It, We Won’t Use It
One of the biggest problems appears to be that Facebook is asking people to trust its new cryptocurrency “just because.” The Cambridge Analytica scandal occurred just over a year ago. Since then, all that’s really changed within the Facebook spectrum is Mark Zuckerberg’s declaration that the platform will focus more on privacy, but even that has caused executives to argue.
In addition, former players in the Facebook arena have spoken out regarding the social media conglomerate’s rise to power through its entry into the digital asset space. Among them is co-founder Chris, Hughes, who referred to the situation as “frightening.”
Libra is Not Bitcoin, CoinShares Exec Testifies Before US Congress
Facebook cryptocurrency Libra is an imitator of Bitcoin, Meltem Demirors of CoinShares testified before the US Congress on Wednesday.
The chief strategy officer appeared before the House Financial Services Committee to explain the difference between Bitcoin and thousands of cryptocurrency projects that takes inspirations from it. Putting Libra in the same bag of imitators, Demirors attempted to decouple bitcoin from it, focusing on how the cryptocurrency is entirely different than Facebook’s version of global payment service.
“We are seeing a wave of interest in cryptocurrencies and countless imitators which borrow some features but – decidedly – are not cryptocurrencies,” she said in her address. “Libra is not a cryptocurrency.”
Demirors touched upon the various factors that separate Bitcoin from Libra, such as decentralization. The fact that no single entity or person could block or censor transactions on the bitcoin network undermined Libra, which is an entity controlled by a group of companies with the ability to practice censorship.
The CoinShares executive also stressed on the underlying value of Libra and Bitcoin. She highlighted that Libra would be pegged to a pool of fiat and other reserves. On the other hand, Bitcoin remains its own asset, backed by its own scarcity and demand for it.“There is no entity that holds assets that give Bitcoin value,” Demirors clarified.
Third and last, Bitcoin is permissionless, meaning anybody can enter or exit its network without anybody’s permission. On the other hand, people will require to seek permission from Facebook to access Libra, which does not adhere to the idea of bitcoin.
Bitcoin is Not Going Away
Demirors’ statement appeared in the wake of Congress’ concerns about Libra which, following the comments of US President Donald Trump, got extended to the rest of the cryptocurrency sector. Trump last week bashed Libra and Bitcoin in a string of tweets. That sent the bitcoin’s spot rate down by 31 percent as of July 17, 11:00 GMT. The investors’ confidence in the cryptocurrency also suffered after Treasury Secretary Steven Mnuchin called it “a national security threat.”
The US Congress, meanwhile, kept its focus on Libra, a cryptocurrency it believed is an attempt to replace sovereign currencies. The lower house of representatives called on the Facebook executive David Marcus on Wednesday to get answers. Marcus affirmed that they would not launch Libra cryptocurrency without the permission of US regulatory authorities.
In her attempt to separate bitcoin from the Libra mess, Demirors reiterated that the technology is untouchable. She compared it with the internet, an open, distributed, and borderless protocol, which cannot be regulated or governed. She told the Congress:
“I urge you to view Bitcoin as an open public network that enables innovation and growth. And to treat Libra and its future imitators in the context of the facts: private efforts led by corporations holding billions of dollars of the public money. These things are not Bitcoin and not cryptocurrencies.”
The bitcoin price recovered by up to 10.55 percent following Demirors’ testimony. It is now trading at $9,428 on Coinbase exchange.
‘Libra vs Alipay, WeChat’ Trending High on Chinese Search Engine
Since Facebook announced its new cryptocurrency “Libra,” it has faced resistance from global regulators and financial sectors. The People’s Bank of China, which in 2017 banned the use and trading of cryptocurrencies, has also expressed skepticism, believing that the US-controlled digital currency would circumvent its financial sovereignty.
But that is not stopping consumers in China from exploring Libra’s potential against leading regional payment services like WeChat and Alipay. Crypto news portal cnLedger reports that the keyword ‘Libra will compete with Alipay and WeChat’ is trending on the number 2 position on Weibo, China’s equivalent to Google.
Libra against Capital Control
The trend emerges as China continues to clamp down on funds leaving the country. According to EUSME, the Chinese government has imposed a string of measures to curb capital outflow, which includes higher scrutiny over Merge & Acquisition transactions, limitations on forex transfers, buying limits, and reporting of overseas transactions that exceed 200,000 RMB.
Facebook’s Libra, on the other hand, proposes to offer a global payment network pegged to a pool of convertible fiat currencies. The project has received backing from leading payment processing firms like Visa and MasterCard, meaning it could practically become a de facto online currency in the future.
Graphic Illustration Reflecting How Facebook Coin Libra Works | Image Credits: Facebook
Libra aims to make cross-border payments more comfortable, which could subvert Beijing’s efforts to enforce capital controls. The people in the country, meanwhile, have already discovered bitcoin, a decentralized cryptocurrency that became the inspiration for Facebook to launch Libra. Despite an ongoing ban, investors continue to use bitcoin as a tool against capital controls via peer-to-peer methods.
Up until May, both WeChat and AliPay had become an alternative payment system to settle cryptocurrency-related trades. The state-regulated apps, in response, updated their payment policies that now prevent merchants from trading/dealing in bitcoin-related activities.
The surge in Libra’s trend in China appears to come partially from people looking for non-Chinese payment alternatives. On Monday this week, US Treasury Secretary Steven Mnuchin said the Facebook cryptocurrency is open to get misused by money launderers and terrorist financiers. That further applies to people looking to bypass capital restrictions.
Libra is Important in China
Wei-Tek Tsai, the chief scientist at Chinese blockchain firm, Tiande Technologies, believes Libra is essential in China despite the political and regulatory hurdles it might face. The expert said stablecoins represent a new financial frontier in the new currency competition. Excerpts_
“Some people may think it’s just a US company launching a stablecoin, not a fiat currency, and this company cannot operate in China, so Libra is not important. Is it? Now that the government and central banks from the US and Europe are all in on this, even though they may disagree on their positions. It has become a national-level public debate. How could it not be significant?”
Zuckbucks” encounters resistance due to Facebook’s damaged reputation, Libra may precipitate unfavorable legislation
Facebook’s Calibra CEO David Marcus took another beating, this time from members of Congress, with one lawmaker even scorning the proposed Libra cryptocurrency as “Zuckbucks.”
Marcus went before members of the House Financial Service Committee to explain the social media platform’s ambitious proposal to enter the crypto space. During the hearing, which spanned more than four hours, most of the House Reps made it clear that if they had anything to do with it, this Facebook crypto would never come to fruition.
Following Marcus’ appearance before the Senate Committee on Banking, Housing, and Urban Affairs Tuesday, Bitcoin’s price plunged from $10,423 to $9,669 over the course of the hearing—a 7.2 percent drop. Prices continued to fall, hitting a low of $9,050 while the news circulated.
As the hearing in the House droned on this Wednesday, Bitcoin’s price rebounded by the end of the hearing around $9,698 at press time—up 7.1 percent from today’s low. Prices remained below $10,000 following the precipitous drop during the Senate hearing July 16, 16:00 UTC.
Plenty of speeches, little next-step guidance
House Financial Services Committee Chair Maxine Waters started the hearing by referencing legislation called the “Keep Big Tech Out Of Finance Act.” Congresswoman Waters, a California Democrat, garnered bipartisan support in calling for a moratorium for Facebook before it moves forward with Libra.
The bill recommends prohibiting giant tech firms from serving as financial institutions or launching their own cryptocurrency. During the hearing, instead of focusing on the proposal, lawmakers trained their sights on Facebook.
In making their comments, House members picked up where their colleagues from the Senate left off. This included thorough questioning of Facebook’s ability to safeguard user privacy.
Rep. Brad Sherman questioned the motives of Facebook, saying that its CEO, Mark Zuckerberg, should be an advocacy for privacy. Sherman coined the proposed crypto as a “Zuckbucks.” He charged that Zuckerberg was creating a device that will provide privacy to drug dealers, human traffickers, terrorists, tax evaders and sanctions evaders. He said:
“Problem number one, Zuckerberg can’t print money, yet. Problem number two. Zuckerberg is under attack because he invades the privacy of ordinary Americans, and sells it to the highest bidder.”
Reports surfaced Tuesday that the Swiss agency that Libra execs have said would be used to protect and oversee users’ data had not heard from Facebook.
David Marcus is sparse on details about Libra
Lawmakers were particularly annoyed with the lack of specifics. Marcus claimed to not know the answer to numerous questions or was not willing to share more detailed information about Libra. For example, when Rep. Michael San Nicolas asked him what the average user would have as a Libra balance, Marcus said:
“We have not projected average balances at this point.”
That drew a sharp rebuke from the San Nicolas, who responded:
“You really expect me to believe that? Facebook is built around average users, average number of hits. Visa, Mastercard—all these huge players are signing up and you guys have no idea how much you expect to have in an average Libra account?”
Unsatisfied with Marcus saying he’d be willing to follow up with answers, San Nicolas quipped the company was trying to hide the figure.
Lawmakers also pointed out that by the end of 2020, Libra was expected to have 100 partners for Libra. With that kind of triple growth, it was unbelievable that they’d sign up without knowing the cryptocurrency’s potential.
Libra’s not a bank, but it’s for unbanked, Facebook claims
Lawmakers complained that Libra seems like it is a bank, despite the company stressing that the network is a payment service. Moreover, Marcus had to admit that he did not have firm numbers on the number of unbanked consumers Libra could serve, causing more head-scratching among lawmakers.
In referring to the most vulnerable consumers who may not understand the nuances of cryptos, Rep. Joyce Beatty spoke about Libra’s potential victims.
“We know that those who are unbanked and underbanked are that for a reason. This is very complicated. We have some of the best minds here on both sides and clearly there’s a lot of unanswered questions.”
She questioned how Libra could be explained to someone who is unbanked or underbanked considering they are likely not financially savvy.
Libra encounters staunch resistance
Facebook’s shortage of goodwill cuts across political boundaries. Hardline Democrat Maxine Waters and President Donald Trump both voiced similar concerns about the social media giant’s crypto proposal.
Facebook created Calibra as one of many wallet applications it claims will be on the Libra network. The application, similar to Venmo or PayPal, will use the crypto to settle payments. It’s supposed to also offer consumers fraud protections. It will also serve as the point of control for conducting know-your-customer and anti-money laundering checks on users, according to the whitepaper and statements from Marcus.
When it comes to Calibra, Marcus stressed Facebook would have just one vote among the 100 partners. That assertion largely fell on deaf ears in the hearing. Libra was seldom the topic of focus, especially considering the sparse details offered by Marcus. For Congress, it seems the driving force behind regulating Libra is the distrust toward Facebook.