Facebook admits Libra crypto requires “suspension of disbelief”
Facebook is reportedly using phrases like "the miracle of blockchain" behind closed doors.
An anonymous House Democratic aide has described a recent closed-door meeting between Facebook/Libra cryptocurrency executives and members of congress.
In it, Libra's lead representative and head of policy – unnamed but presumed to be Dante Disparte – "kicked it off by admitting that the whole endeavor required a 'suspension of disbelief'," the aide wrote.
The phrase “the miracle of blockchain” was used at one point."
The overall picture painted was one of two worlds colliding. Libra has drunk deep from the Kool-Aid of blockchain, the aide implied, and Congress was having difficulty communicating with the crypto faithful.
"They were asked about the timeline, and said they hoped to have Libra operational in about a year, which they kept suggesting was a prolonged timeline, but didn’t seem lengthy to anyone in the room," the aide wrote.
Of course, a year really is a prolonged timeline by cryptocurrency standards. Anyone can whip up a cryptocurrency in 60 seconds flat, the markets are notoriously fickle and volatile, and a lot can happen in 12 months. But by the standards of traditional finance, a year isn't long at all.
The main talking point was that Libra was going to be banking the unbanked, the aide continued. But Facebook appeared hazier on how exactly it would be doing that.
"When... asked directly whether they'd figure out how exactly a digital currency would be an answer for people who can't access credit currently, they said, "The short answer is no." The phrase "the miracle of blockchain" was used at one point.
The same gulf was on show when questions turned to regulatory matters, and Facebook reportedly shrugged that it had assumed the Federal Trade Commission or Consumer Financial Protection Bureau would work something out.
"Gemini, another cryptocurrency [sic], was referred to as a 'regulated exchange' because I guess there are 43 states that have some form of protections on it (with the implication being that that is adequate)," the aide wrote.
Note that Gemini Dollar is the cryptocurrency, while Gemini is the exchange. It's not clear whether this was just a typo, or whether the aide did not understand the difference between them. Either way, the point is still relevant. By cryptocurrency standards, an exchange that's regulated in 43 states is near the pinnacle of reputability – by real-world standards, not so much.
Disconcertingly, Facebook also appeared to be a bit vague not only on how it would prevent collusion between nodes, but also whether it would even need to.
"Another question asked was what protections were in place to prevent collusion between Libra’s 27 partners. The answer was that the partners were well aware of the 'reputational risks' they might incur should they violate privacy laws, etc. It was also pointed out that some of the partners are direct competitors, as if that has ever prevented them from colluding in the past," the aide wrote.
This centralisation is one of the most commonly-raised criticisms of Libra, and so it will remain by the looks of it.
But those partners are not bound to the efforts as tightly as Facebook is. At least 7 of the 27 named partners reportedly said they only signed on because their agreements were non-binding, they were under no obligation to actually use or encourage Libra, and because they could simply walk away at any time. And the regulatory shakiness around Libra was also one of the main reasons so many of the partners were so hesitant.
"Because Facebook is proposing to take over a role traditionally under the purview of central banks, not private companies, we should expect the skepticism we heard in the room from staffers to be publicly aired by House Financial Services Committee members on July 17," the aide wrote.
That would likely be a step forwards for cryptocurrency.
Despite the fretful approach of regulators in the United States, Europe and beyond, it's still clear that Libra has already had significant impacts by pushing cryptocurrency to the front of the regulatory agenda.
As European Central Bank executive board member Benoit Coeure said, Facebook absolutely cannot be permitted to develop Libra in a regulatory vacuum, which puts the ball in the regulator's court.
"We have to move more quickly than we've been able to do up until now," he said. "All these projects are a rather useful wake-up call for regulators and public authorities, as they encourage us to raise a number of questions and might make us improve the way we do things."
It's worth noting that at the end of the day, if Libra is not genuinely useful, people won't use it. The only way it can see wide uptake is if it's genuinely able to serve a practical purpose. As such, the main factor motivating regulatory concerns about Libra has to be a fear of it actually being useful. And if it's useful, the next question is how to bring the benefits of Libra while minimising the downsides.
As Coeure said, it's a wake-up call. And as Facebook said, some suspension of disbelief is required.
Disclosure: The author holds BNB and BTC at the time of writing.