All eyes were turned to David Marcus yesterday who had to defend Facebook’s new cryptocurrency project, Libra, in front of the Senate Committee on Banking, Housing, and Urban Affairs. If one thing is clear, it’s that putting Libra under the regulatory purview of authorities – as Facebook clearly wishes – will be challenging to say the least. Moreover, it could undermine its intended decentralized nature.
The Crux of Facebook’s Congressional Hearing
Yesterday’s hearing in front of Congress called “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations” was intense, at best. Especially pressing was Senator Sherrod Brown, the banking committee’s highest-ranking Democrat, who said:
You really think people should trust you with their hard-earned money, I think it’s delusional. […] Will you accept all of your compensation in that new currency?
Marcus responded that he would, as Libra will be backed 1-for-1 “with a reserve.”
Nonetheless, as pointed out by Blockstream’s CEO, Samson Mow, Libra’s main challenge is that it aspires to do too much. “Libra can’t be everything for everyone, and it can’t be both open and closed at the same time.”
Speaking on the matter yesterday, Marcus talked about the open-source nature of the project.
We open-sourced it and as a result, it doesn’t belong to us anymore, It is now belonging to the community and they will help build the code and we will relinquish control over both the codebase and network through the process.
In a detailed thread, Mow maintained that should this statement be true, developers would be able to remove Libra’s KYC and AML components in non-Calibra wallets and still be able to interact freely with the network aside from on and off-ramps.
This, on its own, conflicts another statement that Marcus made during the hearing:
Wallets will enforce the sanctions that are led by our national security apparatus and treasury.
Moreover, Blockstream’s CEO also commented on the following statement by Marcus:
We want to ensure people, as long as they have legitimate use of the product, can do what they want with their money.
This brings up the issue of defining “legitimate use”, which brings us to the challenges that a lot of existing centralized systems such as PayPal are already facing. This leaves the door open for the Libra Association to decide that a certain use is not legitimate and to freeze a user’s funds or simply de-platform him or her.
What’s the Solution?
According to Mow, the only way Libra can guarantee compliance in all of these areas is for it to be in complete control over pretty much everything. That’s because it’s impossible to have only Calibra wallets require authenticated governmental IDs but not others.
He points out that the only way this could work is if there were two pools of currencies which weren’t allowed to intermingle. But then the project would end up with a non-fungible currency which would fail to fulfill the goals Facebook set out to achieve.
Still, Mow noted that it’s somewhat positive that Facebook will take its time to “get this right.” However, he also came to a rather interesting conclusion, suggesting that once Libra is fully compliant with every jurisdiction, it would simply end up being a more complex version of PayPal governed by a Swiss-based association. This naturally begs the question – why not use Bitcoin instead?
It’s good though that Marcus said “we will take the time to get this right.” Once Libra is compliant with every jurisdiction, it will just be a more complex PayPal governed by an association.
Should’ve just used #Bitcoin.
— Samson Mow (@Excellion) July 17, 2019