Congress is ill-prepared to regulate Libra, and Facebook is forcing its hand. The need for a well-informed public debate about Libra specifically, and blockchain technology in general, has never been greater.
On October 23rd 2019, Mark Zuckerberg of Facebook testified before Congress. It was a six-hour-long ordeal of pre-written statements and poorly formulated questions on one side and (less than usual) expressionless testimony on the other. The hearing was not supposed to be only about Libra, Facebook’s cryptocurrency project. The investigative committee was interested in several aspects of Facebook’s business, from its decision not to fact check political ads to its role in enabling genocide over Rohindas. Even so, questions about Libra dominated the hearing. The members of Congress asked harsh questions, listed Facebook’s misdeeds, and even raised their voice at the young Zuckerberg. But what the hearing demonstrated is how unprepared Congress is to deal with projects like Libra, and blockchain technology in general.
What was lost among the platitudes is the fact that Libra is, in essence, a value transfer protocol. Just like internet protocols such as HTTP and FTP, blockchain can one day become as essential to the economy as the internet is today. Allowing any one company (or group of companies) to build such a value transfer protocol could give Facebook and its partners the possibility to privatize the pipelines of the global economy.
What did catch the imagination of Congress is the (crypto)currency aspect of the Libra blockchain. However, the digital currency is only one of the applications of blockchain technology and not its raison d‘être, nor even its core capability. The purpose of a blockchain as a protocol, including Libra, is to be a platform for building and developing new forms of digital assets, peer-to-peer transactions, and decentralized applications, akin to the Ethereum blockchain and many other blockchains that came after. If Facebook was to operate and maintain such a platform, it could soon dominate what many call “the future of the internet.” It remains unclear whether anyone on the committee gave this possibility any thought at all.
Republicans on the committee praised Zuckerberg as an innovator. Be it as it may, the real innovation behind Libra appears to be not technological, but rather organizational and political. By initiating the creation of the Libra association in Switzerland, Facebook is effectively giving Libra a way to come to life with or without Facebook’s direct involvement. Zuckerberg made it clear that he does not intend to move forward with Libra without the required regulatory approval from the US government. Still, he also stressed that he couldn’t speak for the rest of the members of the association. Lacking a single point of failure (and control) is precisely the power of decentralized systems, and Libra is already taking advantage of such power in order to lessen the influence of governmental regulation.
Libra is also a masterful political maneuver. The reiterated fears, by Zuckerberg and other, mostly Republican members of the committee, of the US losing the technological and financial supremacy to China would make even the staunched sinophile afraid. From trade war to technological competition, the relationship between the US and China is arguably the topic of the century, and no one should remain deaf to it. It is a powerful driver in Washington as well as in Beijing. But China’s intentions behind the recent announcements by the central bank or their president and their eventual impact are still poorly understood. The “Libra as the antidote” argument could end up favoring a particular type of arm wrestling, which might ultimately be harmful to the US economy, regardless of who the winner is. [1]
Motivation and intent behind Libra — the 1.7 unbanked billions
The 1.7 billion people who lack access to banking and financial systems seem to be front and center of Libra’s PR strategy. Drawing from Zuckerberg’s testimony to the talks given by Libra’s Kevin Veil and Calibra’s Cristian Catalini one week after the hearing, it appears that the driving force behind Libra is the need to help the poorest third of the world’s population. As noble of an objective as it sounds, upon closer examination such a lofty goal loses some of its charm.
The 1.7 billion number is based on the World Bank’s Global Findex Report from 2017. 400 million of them are located in China and India, two countries that are either building their own version of Libra (e.g. China) or have outright said they will not allow Libra to operate in their country (e.g. India). It is safe to assume that other countries will follow suit and — like Germany and France — ban or limit Libra through regulation. In light of this, the goal of banking these 1.7 billion people starts to look more like a moniker than a real goal.
In contrast to Libra’s focus on the poor, Facebook’s Q4 2018 earnings report tells a different story. In Q4 of 2018, the company generated $16.9B in revenue, coming mostly from the US or Canada ($8.43B) and Europe ($4.15B). Even revenues from the APAC region are coming from well-off countries with a smaller unbanked population. Given Libra’s potential impact on the cryptocurrency and blockchain ecosystem, it is astounding that no one is debating what Libra means for Facebook’s key demographic: rich, (mostly) western users.
To what extent is it realistic that Libra will actually contribute to banking the unbanked? And what is a realistic portion of the unbanked population that Libra will actually be able to empower and by when? Which strategies have been put in place to achieve those goals? These are all questions Congress should be asking the Libra team.
One can’t blame the committee for not being prepared to ask better questions. Blockchain technology is a notoriously difficult technology to wrap one’s head around, and most members of the committee have their attention divided. That is why the COALA team is putting out a series of articles that will debate various aspects of the Libra project with hopes of contributing to the much needed public debate.
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