There were many questions, many comments, a few evasions and about the expected amount of histrionic blustering on display when David Marcus, Facebook’s head of blockchain projects, stepped up to the plate to testify before the Senate Banking Committee on Tuesday (July 16) to offer an explanation and defense of the controversial Libra cryptocurrency project.
We say defense because it was apparent from early in the hearing that the senators gathered were more than a little suspicious of Facebook’s latest innovation — and less than favorably inclined to letting it move forward.
“Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over, and called every arson a learning experience,” said Ohio Sen. Sherrod Brown. “We would be crazy to give them a chance to experiment with people’s bank accounts, and to use powerful tools they don’t understand, like monetary policy, to jeopardize hardworking Americans’ ability to provide for their families.”
Brown was the day’s most vocal and colorful critic of Facebook’s Libra plan — at various points calling Facebook “dangerous” and “delusional” and asking Marcus if he would be willing to take his salary in Libra and store it in the Calibra wallet (Marcus answered yes to both questions).
But Sen. Brown was far from the only voice on the committee during the hearing with sharp words for the manager Facebook sent. Louisiana Sen. John Kennedy accused Facebook of destroying journalism in the U.S. and being Russia’s favorite platform to hack American elections when it was his turn to question Marcus.
“Facebook now wants to control the money supply? What could go wrong with that?” Kennedy said. “Isn’t it true, and I really want your opinion, that Facebook has chosen to advance a set of values in which truthful reporting has been displaced by flagrant displays of [expletive]?”
Marcus said he did not know how to to answer that question.
But for all the variations on the “we don’t trust you” theme, Facebook did have a few conditional supporters at the hearing, or at least those interested in discussing issues other than how very little they trust Facebook to build a currency of any kind. Committee Chairman Mike Crapo of Idaho applauded Facebook’s intention for Libra — to create an on-ramp for unbanked consumers around the world. But Crapo also went on to note his concerns about the company’s “massive reach and influence” and the vast amount of personal information it keeps.
North Carolina Sen. Thom Tillis noted that for good or ill, cryptocurrency is here, and a potential important force in the market that ought to be reckoned with.
“It’s a good idea for us to explore this because quite honestly cryptocurrency now is still kind of the wild, wild west that is not well regulated,” he said.
But beyond all the comments and performance art, senators had a lot questions.
The Many Inquiries
Marcus faced a barrage of questions, some of which were rather complex and involved.
Why is Libra headquartered in Switzerland; how much will Facebook invest in the project; how much access to consumers’ shopping data will it gain access to through the Calibra digital wallet; how will developers who want to work with Libra be vetted; will they be vetted at all; how can Facebook stop terrorists from using the network to send each other funds; will Libra be interoperable with wallets that compete with Calibra; will consumers be protected from fraud?
Some of those questions Marcus answered — and much of what he offered ought to be familiar to anyone following the Libra saga thus far. Marcus affirmed that Facebook’s intention for Libra was not to gather or sell consumer data, though if it offered additional financial services in partnership with other financial organizations it would ask consent to use data specifically for those purposes. He also affirmed that Facebook’s revenue model on Libra is that more digital commerce on the platform will push businesses to purchase more Facebook ads.
He said the U.S. should “absolutely” lead the way when it comes to creating global cryptocurrency structures — and further asserted it is Facebook’s belief that blockchain technology is inevitable and it falls to the U.S. to lead it its construction and regulation, lest the technology form factor be led by others from places “out of reach of our national security apparatus.”
Marcus went on to reaffirm Facebook’s commitment that it would not look to bring Libra online in the U.S. without regulatory support. He also said the Libra Association is headquartered in Switzerland “not to evade any responsibilities of oversight” but because it is the hub for international financial groups like the Bank for International Settlements. He said Calibra will be regulated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.
Finally, he affirmed repeatedly that believing in Libra does not require anyone to trust Facebook, because it’s only one of 28 current and potentially 100 or more Libra Association members.
The Unanswered Questions
What data on transactions Facebook will collect with its Calibra wallet remains a bit fuzzy. Chairman Crapo asked Marcus directly if it will collect user data on transactions when users buy items with Libra via Facebook — and what data it will collect. Marcus didn’t answer directly, instead noting that consumers have their choice of methods on Facebook, among which Libra will be one.
Sen. Bob Menendez of New Jersey asked how easily the Libra Association could freeze assets if terrorist organizations were identified using the system to send funds.
Marcus noted Calibra and other custodial wallets that actually hold users’ Libra could freeze assets, and that regulated off-ramps could block them from converting Libra into fiat.
But if the wallets don’t do it — and there are no stops at the on-ramp — it is not clear how the Libra Association could stop transfers between terrorists’ non-custodial wallets.
Arizona Sen. Krysten Sinema was concerned about security and asked what process would be used to keep dishonest developers in the services of scammers off of the Libra platform. Marcus offered no direct answer. When Sen. Sinema followed up to ask what would happen to a U.S. citizen if they were scammed out of their Libra by a Pakistani developer via a Thai exchange and a Spanish wallet. Specifically, she wanted to know, would that person would be entitled to protection to recuperate their lost funds?
Marcus responded that U.S. citizens would likely use American Libra wallets that are subject to protection and that the Libra Association will work to educate users on how to avoid scams — which didn’t exactly address the issue Sinema raised.
Whether any hearts or minds were changed as a result of Tuesday’s hearing is unknown — but it seems unlikely. Lawmakers appear as skeptical coming out of the hearing as they were going in, and Facebook seems no less determined to bring Libra to the world.
Which means there are likely many Libra conversations going on in the United States Congress — and in legislative bodies all over the world.