Facebook’s cryptocurrency Libra is a “rival” to US monetary policy and the dollar itself. That’s the view of Congress which has officially urged Mark Zuckerberg to cease development on its crypto project.
Zuckerberg will now go toe-to-toe with the US government and, in doing so, pave the way for cryptocurrency legislation across the board. By fighting regulators to establish a new financial playing field, Facebook is taking a huge bullet for cryptocurrency. But why? What’s in it for Mark Zuckerberg?
The House of Representatives Committee on Financial Services, led by Maxine Waters, issued a letter to Mark Zuckerberg yesterday insisting that Facebook “immediately” cease development on Libra. The letter posed Libra as a threat to the global financial system.
“These products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival US monetary policy and the dollar.”
It goes on to say that wider cryptocurrency services “pose systemic risks that endanger U.S. and global financial stability” unless they are properly regulated.
The most important part of Waters’ letter to Facebook, however, comes at the end. She promises to use the moratorium to learn more about cryptocurrency and start working on legislation.
“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions.”
In other words, the US government will finally bring some much-needed clarity to the crypto ecosystem. But it will come via a long, painful battle with Facebook taking the punches. Mark Zuckerberg, with his giant war-chest and army of lawyers, is taking a bullet for the whole industry. As lawyer Jake Chervinsky puts it:
“For a few years, crypto has enjoyed a honeymoon phase: big enough to be relevant, but not so big as to seriously threaten the status quo. Libra may be bringing that phase to a close. Hard questions are coming our way now, and Facebook’s the one answering.”
While Facebook deals with regulators and governments, bitcoin and other cryptocurrencies will develop with relative freedom.
Despite the strong words from Congress, Mark Zuckerberg isn’t likely to halt development on Libra. In response to the letter, Facebook said:
“We look forward to working with lawmakers as this process moves forward, including answering their questions at the upcoming House Financial Services and Senate Banking Committee hearings.”
In other words, Zuckerberg is willing to work with regulators, but he’s not backing down.
You have to ask, why is Mark Zuckerberg putting himself out there as the punching bag for regulators?
The first motive is simple: Facebook stands to extract immense volumes of aggregate financial data. While Facebook says the Libra Association is decentralized, node operators, like Facebook, will have access to transaction data. Facebook’s proposed digital wallet, Calibra, will also share data with Facebook under certain conditions.
Even if Calibra doesn’t link individuals’ transactions with their Facebook profile, Facebook will have access to aggregated financial data. Combine that with the aggregate private information of 2.4 billion users, and it’s a powerful monetization tool.
And then there’s power. Zuckerberg isn’t taking on governments just for a revenue opportunity. He’s expanding Facebook’s control over the most private area of people’s lives: money.