The GID Report #8 — Regulators turn up the heat on Libra and Telegram
Welcome to The GID Report, a biweekly update that includes globaliD team news, market perspectives, and industry analysis. Check out the last report here.
This week we’ll be covering:
1. The Libra situation
2. The SEC v. Telegram
3. The IRS chimes in again on crypto
4. Stuff happens
5. Shoutouts
1. The Libra situation
When your product is money and payments, any progress is going to be slow. And it’s not the kind of progress rate that tech companies are generally acclimated to in an industry defined by fast disruption. The timeline is closer to decades versus years.
Facebook’s money story is just beginning. It’s very early days. And they’re learning very quickly about the difficult road ahead. The company is also pivoting into the space at a time when public distrust toward Big Tech has never been greater.
Backlash against Big Tech is on track to escalate around the world
And because of the splash they’ve made, everyone is paying attention now.
US House Committee Pressuring Zuckerberg to Testify on Libra: Report — CoinDesk
But much of that attention is going to be highly critical. So Facebook’s partners are feeling the heat. Paypal was the first big name to pull out:
Via Jacob — WSJ News Exclusive | PayPal Drops Out of Facebook’s Libra Payments Network
Others soon followed:
Visa, Mastercard, eBay, Stripe Follow PayPal in Quitting Facebook’s Libra Project — CoinDesk
It’s unclear how much any of this will impact the big picture. I think what we learned from the whole Saudi Arabia murder of a journalist is that big companies are incredibly self-serving. They pulled out of Davos in the Desert last year because of poor optics. Well, those same companies are back now. There’s simply too much money at stake.
I’m guessing it’ll be the same for Facebook. Of course, a limited roster of Libra members also translates into a potentially diminished product.
Anyway, here’s what Mark Zuckerberg thinks:
Read the full transcript of Mark Zuckerberg’s leaked internal Facebook meetings
MZ: There’s a bunch of other regulatory news this week. I mean, we had a couple of folks in DC on different hearings. [Facebook VP of messaging products] David Marcus talking [about] Libra and the work that we’re doing there. We basically put out this big idea for enabling through our networks, through WhatsApp and Messenger, the ability for people to send money hopefully as easily as you can send a photo or other content across the world to different folks. But we want to work with traditional currencies. So we have a test going in India. We’re working in Mexico and a bunch of other countries to have this rolled out broadly. The hope is to get that rolled out in a lot of places with existing currencies before the end of this year.
And we have this bigger, or at least more exotic, project around Libra, which is to try to stand up a new kind of digital money that can work globally, [and] that will be stable … But it’s a big idea, and it’s a new type of system, especially to be implemented by big companies. We’re not the only ones doing this. We’ve led that the thinking and development on it so far, but the idea is to do this as an independent association, which is what we announced with about 27 other companies. By the time it launches, we expect we’ll have 100 or more companies as part of it.
But part of what we’re trying to do overall on these big projects now that touch very socially important aspects of society is have a more consultative approach. So not just show up and say, “Alright, here we’re launching this. here’s a product, your app got updated, now you can start buying Libras and sending them around.” We want to make sure. We get that there are real issues. Finance is a very heavily regulated space. There’s a lot of important issues that need to be dealt with in preventing money laundering, preventing financing of terrorists and people who the different governments say you can’t do business with. There are a lot of requirements on knowing who your customers are. We already focus a lot on real identity, across especially Facebook, so there’s even more that we need to do in order to have this kind of a product. And we’re committed to doing that well, and part of doing that well is not just building the internal tools and showing up and saying, “Hey, we think we’ve solved this,” but addressing and meeting with all the regulators up front, hearing their concerns, hearing what they think we should be doing, making sure other folks in the consortium are handling this appropriately.
Part of the process is going to be public, like the hearings that David did over the last couple of days. The public things, I think, tend to be a little more dramatic. But a bigger part of it is private engagement with regulators around the world, and those, I think, often are more substantive and less dramatic. And those meetings aren’t being played for the camera, but that’s where a lot of the discussions and details get hashed out on things. So this is going to be a long road. We kind of expected this — that this is what big engagement looks like.
I actually wouldn’t be surprised if we end up having similar engagements like this on other socially important things that we’re trying to move, like our big push to get towards more encryption across our messaging apps. That will, over time, be very sensitive when we get closer to rolling it out. Law enforcement, obviously, is not going to be psyched about that. But we think it’s the right thing to protect people’s privacy more, so we’ll go defend that when the time is right. But I think that there will be more things like this, and this is a lot of what being public — trying to make our case publicly and engaging in a more consultative approach — what that looks like.
Mark’s a very savvy operator, he gets it. That’s also the thing with this whole “techlash.” It’s a lot of drama. But how real is it? Facebook, for instance, doesn’t seem very worried about antitrust stuff:
Instagram’s latest assault on Snapchat is a messaging app called Threads
And then there’s the numbers:
Consider Facebook: It’s hard to imagine a more backlashable company. Facebook is widely associated with data breaches, the spread of dubious information and a basic deterioration of interpersonal communication. It was recently fined nearly $5 billion by the Federal Trade Commission for mishandling its customers’ data. And, given its ubiquity, it’s also a handy stand-in for the corporatization of online life in general. If you’re going to make a show of quitting a tech service, Facebook may be your best choice.
But according to its most recent quarterly report, the number of Facebook accounts used daily (1.59 billion) and monthly (2.4 billion) each increased by 8 percent over the prior quarter. Despite all the anecdotes you’ve heard about people deleting their accounts, the company’s flagship app added about a million new daily users in the United States alone. Revenue was up 28 percent. Even factoring in the F.T.C. fine, Facebook recorded a profit of $2.6 billion.
Facebook is not the only demonized tech platform; social media companies in general are routinely criticized as toxic swamps full of trolls, liars and bots. But again, there’s no evidence of any exodus. In the same quarter, Twitter added five million new daily users, and Snap reported that the daily user base of its flagship Snapchat app grew 7 percent, its best-ever performance as a public company. According to the Pew Research Center, 72 percent of Americans use some form of social media, a percentage that has risen steadily for years and shows no sign of flagging. (The people I know who quit Facebook all use Facebook-owned Instagram, WhatsApp, or both.)
So forget about all the noise. That’s the reality.
Still, the critical spotlight will only continue to heat up. Here’s a Wired takedown that points out the inherent collusion potential w/in the Libra Association:
The Ties That Bind Facebook’s Libra
But a WIRED analysis finds that 15 of the 27 founding members of the Libra Association are directly or indirectly tied to Facebook. The total includes members that employ former Facebook executives, members whose boards include Facebook board members, and numerous ties through common investors.
Also: G7 Evaluates Stablecoins as Risk to Global Financial Stability
As it turns out, Facebook’s biggest competitor could very well be the US gov’t:
US Lawmakers Ask Fed to Consider Developing ‘National Digital Currency’ — CoinDesk
And even the IMF is chatting up stablecoins:
From Stablecoins to Central Bank Digital Currencies
Fed’s Harker: Digital central bank currency ‘inevitable’
Via Jeff — Watch: Could London be at the forefront of a central bank digital currency?
Meanwhile, blockchain tech companies are starting to look more like banks.
Coinbase to Pay Users 1.25% Interest on USDC Stablecoin Holdings — CoinDesk
Ripple continues to do stuff, too:
Ripple’s Xpring Launches Crypto, Fiat Payments That Integrate Into Any App
Because that’s the thing. This is a huge space that’s fundamentally important. Technology and the internet has transformed every industry. Finance was always going to be last to the party due to heavy regulations.
Related: Global payments: Expansive growth, targeted opportunities
But now it’s here. Even the shovel-makers are killing it:
Then, there’s the fun stuff:
Via Craig—Art on blockchain pioneer Verisart raises $2.5M for art and collectibles certification — TechCrunch
Via Taku—Brave Partners with Uphold to Launch Wallet That Rewards Users for Browsing
And the other stuff:
PayPal finds a way into China’s huge business of digital payments
Via Rebecca—Meet the Russian Oligarch Launching a Metal-Backed Crypto Token — CoinDesk
Via Nejc—France Set to Roll Out Nationwide Facial Recognition ID Program
Via Paul—what3words | Addressing the world — ”imagine a namespace for every 3x3square meter location in the world — that’s what this app does”
2. The SEC v. Telegram
Telegram’s crypto project has always sort of served as the antithesis of Facebook’s Libra. Going by Greg’s favorite analogy, Telegram comes from a Mad Max kind of world. And now they’re in the SEC’s crosshairs:
Via Vadim — SEC Halts Telegram’s $1.7 Billion ‘Unlawful’ Token Issuance — CoinDesk
Still it does seem as if Telegram might want to play ball — above board and all that, delaying the launch of the project from October to April:
Telegram Looks to Cut Deal With TON Blockchain Investors After SEC Order — CoinDesk
Because even Mad Max ultimately wants to go mainstream. And playing by the rules (eventually) is the only real way to do that.
3. The IRS chimes in on crypto
The other bit of news was the latest IRS guidance when it comes to crypto. The first in 5 years.
The IRS Just Issued Its First Cryptocurrency Tax Guidance in 5 Years — CoinDesk
They’ve even updated their tax forms!
The IRS Will Now Ask if You Own Crypto in the Most Widely Used US Tax Form
So ya, hope your accountants are crypto-savvy.
4. Stuff happens
Nevada privacy law takes effect
U.S. laws don’t cover campaign disinformation
Via Rebecca—Do humans have rights in the digital era? A Transatlantic dialogue.
Via Rebecca — Is your ID good enough to travel? It may not be next year.
Via Rebecca — California blocks police from using facial recognition in body cameras
Via Jeff — Sequoia spotlights Jack Dorsey
Via Laura — ”Came across a curious identity solution that uses behavior (“implicit authentication”) to identify unique users”: https://unify.id/
Via Vadim — LinkedIn is updating their groups functionality
Via Vadim — Yoti Stamps Galaxkey Emails with an Extra Layer of KYC Security
Via Vadim — Robinhood quietly rereleasing the “checking account” they botched earlier
5. Shoutouts
Jacob Cohen — Head of Compliance
Taku Kawane — VP of Product
Laura Toh — Director of Strategic Initiatives
Vadim Slavin — Director of Attestations
Rebecca Schwartz — Product Manager
Nejc Horvat — Engineering Architect
Jeff Coddington — Comptroller
Craig Dalton — Executive Director, Bike Index
