Cryptocurrency News Today: What Happened at the Congressional Hearing on Facebook and Libra?
Libra season is over. On October 23, Facebook founder and Turing Test dropout Mark Zuckerberg testified to Congress for five hours about the Cryptocurrency that Facebook wants to launch next year—but which now might never launch at all. Here’s what went down.
What was this hearing about?
Zuckerberg appeared before the 62-member United States House Committee on Financial Services, for a hearing titled “An Examination of Facebook and Its Impact on the Financial Services and Housing Sectors.” Representatives mostly focused on Libra, data privacy, Facebook’s policy of allowing disinformation in political ads, and the company’s violation of housing anti-discrimination laws.
Real quick, what’s Libra again?
Libra is Facebook’s would-be Cryptocurrency, aimed at making international online payments frictionless, fee-free, and available to people around the world without bank accounts. Facebook announced it this June and wants to launch it in 2020.
It’s technically not just Facebook’s. Facebook is one of several founding members of the Libra Association, which is based in the global financial center of Geneva, Switzerland. But everyone agrees that Facebook is the de facto controller of the operation, and that the U.S. government is the one it has to please.
Plus Facebook entirely owns Calibra, a digital wallet for holding your Libra coins. What a confusing combination of names! Anyway, other people can also make wallets, but Calibra will probably be the default, and only cool nerds will use someone else’s wallet.
Facebook’s stated goal is to enable billions of unbanked people to access digital payments for the first time, in underdeveloped or unstable places like Venezuela and India, as well as their friends, family, and business contacts in more developed countries.
What happened up to now?
Libra’s in trouble. Since Facebook announced it this June, things haven’t gone well. Seven of the 27 other partners backed out earlier this month, including Visa, MasterCard, eBay, Stripe, and PayPal, before the Libra Association’s first meeting, but just after senators sent them letters boiling down to “You are entering a world of pain.” Zuckerberg spent today in that world.
Previously, the Financial Services committee questioned David Marcus, CEO of Calibra. Zuckerberg has testified before other Congressional committees before, but this is his first hearing since Facebook announced Libra.
Democrats on the Financial Services committee are developing a “Keep Big Tech Out of Finance Act” that would explicitly prohibit large tech companies from acting as financial institutions or issuing currencies, so Zuckerberg knew he was talking to politicians who want to stop Libra from happening.
Facebook has said repeatedly that it wants to play by the rules, and that it will get regulatory approval in the U.S. before launching Libra. But this statement, as several representatives pointed out today, is more ambiguous than it sounds.
What’s the government’s problem with Libra?
Is Libra money? Would that make Facebook a bank? The government—or at least the Democrats on the committee, plus some Republicans and Donald Trump—think so. They believe Facebook is trying to avoid the regulations that govern existing financial institutions.
What happened at the hearing?
The entire five-hour hearing, led by committee chair Maxine Waters (D-Calif.), is on video here. I’ll break it down in slightly less than five hours. Let’s talk about the Libra discussion first.
Is Facebook competing with the government?
Facebook says they want to be regulated, but by whom? Zuckerberg told Rep. Chuy García (D-Ill.) that Libra shouldn’t be regulated as a bank, or by the SEC. Rep. Ed Perlmutter (D-Colo.) asked Zuckerberg if a Calibra wallet is like a bank account. “We’re not a bank,” Zuck replied. “We’re not applying for a bank charter.” Perlmutter interrupted: “That’s the problem!”
Zuckerberg calls Libra a “payment system.” Several representatives don’t see it that way: Why not just make a coin that fully follows the dollar? (Chris Dixon, who heads the crypto fund at Libra partner Andreessen Horowitz, has suggested pegging Libra to the dollar alone.)
What do they care? Because it threatens the dollar’s supremacy. Rep. Madeleine Dean (D-Penn.) called Libra a “shadow currency that would operate more like a government.” Rep. Brad Sherman (D-Calif.) pointed to the dollar’s role as the world’s main reserve currency, and said this demand for dollars is profitable for the U.S. Treasury, and thus for tax-paying Americans.
Crypto lawyer Felix Shipkevich, principal at Shipkevich PLLC, tells Lifehacker that financial institutions are so heavily regulated because otherwise they threaten to usurp the role of government. When people buy Libra coins, they’re handing over their local currency. What happens, for example, if Libra is a huge hit in Venezuela, and Facebook ends up owning 10% of the bolivar? Facebook would be heavily invested in the success of Venezuela, and vice versa. What happens, he says, if Facebook becomes too big to fail?
Concerns about Facebook’s international currency exposure weren’t raised at the hearing, but representatives pressured Zuckerberg about the choice—his choice, as they see it—to base Libra in Switzerland. Why not in the good old U.S. of A., where Facebook is based, along with its biggest (ex-)partners? (Facebook, like many U.S.-based companies including Google and Apple, “bases” its international operations in Ireland to avoid U.S. taxes. Unlike Google and Apple, it does not operate in China.)
Is Facebook in charge of Libra?
Zuckerberg kept insisting that Facebook is just part of a larger group controlling the currency—“We’re a part of it, we don’t control it.” Representatives kept insisting that oh come on, we all know you’re in charge.
Rep. Ayanna Pressley (D-Mass.) pointed out that Zuckerberg ha