It’s been only a few weeks since Facebook debuted its long-awaited cryptocurrency plans, and lawmakers are already calling on the social media giant to hold off on rolling out the red carpet.
On Tuesday, several Democratic members of the U.S. House Financial Services Committee published an open letter to Facebook’s executives requesting they “immediately agree to a moratorium” on the proposed cryptocurrency.
Last month, Facebook announced the creation of a virtual coin, Libra, and a digital wallet called Calibra—along with number of major partners ranging from Mastercard and PayPal to eBay and Lyft. Other brands that are a part of the initial rollout include Spotify, Uber, Visa and Vodafone. Libra and Calibra will be overseen by the Libra Association—which Facebook set up as an independent not-for-profit based in Switzerland—and will be used to create a decentralized digital-payments ecosystem backed by real currencies.
“It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar,” according to the letter signed by committee chairwoman Maxine Waters, D-California, and four other lawmakers. “This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”
Libra and Calibra won’t officially be available until next year, but Facebook has already published a variety of materials explaining the strategy addressing privacy and economic issues. However, the skepticism from Congress—on top of existing issues related to data privacy and misinformation—could make its latest bet its hardest.
“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,” a Facebook spokesperson wrote in a statement emailed to Adweek.
Lawmakers said the risks that Libra poses are “even more glaring in light of Facebook’s troubled past.” In the letter, they cited Cambridge Analytica’s access to user information to manipulate voters during the 2016 election, ongoing issues with the Federal Trade Commission, struggles to moderate hate speech and fake accounts and lawsuits related to uses of its advertising platform.
“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” wrote lawmakers in the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”
Whether or not lawmakers have their way with getting Facebook to slow down, others say there are additional issues to address even if the social media giant does debut its cryptocurrency without regulatory issues. When Libra debuted last month, some experts said there were many unanswered questions.
However, if Facebook does succeed, it could be a massive boon for blockchain-based payment systems like Bitcoin and others beyond the existing momentum. According to a report released last week by Coinbase, 58% of the 2,000 Americans surveyed in December by YouGov had heard of Bitcoin, and more people searched Google for information about Bitcoin in the past year than than they did for other popular searches like “royal wedding” or “election results.” And with that increased interest also comes increased legislation. Coinbase opined that 70% of U.S. states have enacted new rules related to cryptocurrency or blockchain technology.
Interest in actually purchasing cryptocurrency is still relatively low. According to Coinbase, only 15% of Americans surveyed said they are “somewhat likely” or “very likely” to purchase cryptocurrency. That could change if Facebook has its way.
Bhaskar Krishnamachari, a professor of engineering and computer science at the University of Southern California, said that although Facebook’s ubiquity and its more than 2 billion users could help drive mass adoption of digital currencies, many are indeed still wary of Facebook’s data issues.
“I think a lot of people are very very skeptical of giving up more data and a lot of financial data to Facebook,” he said. “And I think the design here tries to address this to some extent by saying ‘Well, Facebook is only one of 100 partners that’ll host this system.’”
According to Avivah Litan, vice president of research at Gartner, one of the key promises of blockchain technology that underpins cryptocurrencies like Libra, Bitcoin and many others is the decentralization of control. However, the same giants that control much of the internet as it is today—namely Google, Facebook and their peers—are now building new walled gardens for the blockchain era. While the Libra Association has a variety of partners, it’s still a closed, permission-based blockchain system that gives control only to whoever has access.
“Web 2.0 was controlled by the gatekeepers—Facebook and Google—and it was capitalism through surveillance,” Litan said. “Web 3.0 is really about consumers owning their own identity and their own data.”
Facebook has said that it will eventually make its blockchain public, but currently there’s no timeline for when that might happen. However, Litan said that gaining traction now might help in terms of staying ahead of competitors and in terms of fending off regulators.
“The best defense is a strong offensive, and this is their offense,” she said.
Forrester analyst Aurelie L’Hostis had a somewhat more optimistic outlook on what Facebook’s planning. Because of its focus on reaching unbanked area of the world, she said the company might help improve financial inclusion while also enhancing cross-border remittance. But that doesn’t mean the company will get an easy green light.
Despite all the potential opportunities and pitfalls that Libra might provide, a lot might change between now and next year. The House Financial Services Committee will hold its first hearing to discuss Libra on July 17, with the Senate Banking Committee holding its own a day later.
“I think where there are still dark shadows is more around regulation because this is something they’ll need to deal with, especially after what happened with the Cambridge Analytica scandal,” L’Hostis said. “We can expect Facebook will be under really hot pressure.”