As Facebook Prepares For Congress, Its Crypto Chief Asks Forgiveness

Fibo Quantum

Facebook wants forgiveness. And to earn that forgiveness, the social media giant accused of letting its users’ personal data be used by controversial political consulting firm Cambridge Analytica, has an uncanny plan. It’s going to use cryptocurrency first popularized as a way to anonymously buy drugs as a way to connect people without bank accounts to the global economy. That, and it’ll likely have to pay a record-breaking $5 billion fine to the U.S. Federal Trade Commission (FTC) for the alleged privacy violations.

While neither Facebook nor the FTC has confirmed reports of the fine, David Marcus, the man in charge of Facebook’s cryptocurrency subsidiary, Calibra, says he’s already looking ahead at how cryptocurrency could be just what the social network needs to win back the trust of its users. In June, Marcus announced that Facebook was gathering a group of companies to help build a new cryptocurrency, called libra, that would be as easy for anyone around the world to use as bitcoin, but without the volatile price fluctuations that make the cryptocurrency progenitor unattractive as a means of exchange for more traditional goods.

The secret to this seemingly impossible task is that Facebook and the other companies in the non-profit Libra Association helping develop libra’s code have promised that every libra will be backed by stable assets, almost certainly including the U.S. dollar and government treasury bonds. While some central banks, like the Bank of England have already reacted positively to the news their currency could be locked up in accounts held by private companies, the U.S. Federal Reserve has expressed concerns. U.S. President Donald Trump has gone so far as to call for the companies to get a banking charter, and multiple members of Congress have asked for a moratorium on development of the cryptocurrency until more is known.

Now, as the public waits to hear Facebook’s fate regarding the $5 billion fine, Marcus has his first chance to turn the page and prove that Facebook can be trusted once again. This morning Marcus, who was previously president of payment giant and Libra Association member PayPal, is the sole witness scheduled to physically address the U.S. Senate Committee on Banking, Housing and Urban Affairs about the plans for the cryptocurrency. Tomorrow he’ll follow the tight-rope act with a performance in front of the U.S. House Committee on Financial Services on libra’s potential impact on consumers, investors and the nation’s financial infrastructure at large.

If successful, Marcus’s testimony could help pave the way for more than just connecting 1.7 billion humans the World Bank estimates still don’t have bank accounts, but give Facebook a second chance at trust.

“Clearly we made mistakes in the past, and it’s a top priority for Mark [Zuckerberg] and the rest the leadership team to really address this,” says Marcus, who previously served as a board member for cryptocurrency startup Coinbase. “And as far as I’m concerned I see libra as an opportunity to demonstrate that we have learned and we are a different company now than we were.”

That’s a big “if” though. Based on a draft of Marcus’s testimony submitted to Congress, one particularly controversial topic is likely to surround his handling of concerns over customer privacy. A month before the inaugural member of the Forbes Blockchain 50 list formally announced its plans for libra, committee chairman Mike Crapo, a Republican from Idaho, and ranking member Sherrod Brown, a Democrat from Ohio, requested information directly from Facebook CEO Mark Zuckerberg regarding how the social network makes financial data about its users available to others. 

While in one breath, Marcus’ submitted comments call such privacy a “top priority” for the Libra Association, he adds that the ultimate regulator in charge is not even in the U.S. due to the non-profit organization’s Geneva, Switzerland headquarters. “For the purposes of data and privacy protections, the Swiss Federal Data Protection and Information Commissioner (FDPIC) will be the Libra Association’s privacy regulator,” his notes read.

Further explaining the project’s stance on privacy, Marcus says the Libra Association “cannot, and will not, monetize data on the blockchain,” though he is notably silent on how Calibra, the Facebook-owned wallet for buying, holding and storing cryptocurrency will use or not use customer data. Adding only that “Calibra customers’ account and financial information will not be shared with Facebook,” and leaving the door open for other possible uses.

To combat these and other concerns, Marcus proposes that the very structures of the Libra Association and the libra blockchain will ensure that competition itself helps hold the social network accountable. Last month, Facebook contributed the original code describing how the blockchain works to the open source community, and developers are already copying it, and tweaking it as they see fit, meaning theoretically, the very technology being developed by the Association could be used and improved to benefit any code base. Beyond just the code though, the Association itself is comprised of Facebook’s first batch of competitors, including PayPal, Visa, Mastercard, Coinbase and Xapo, and anyone will be able to build a competing wallet, even if they aren’t members. And unlike PayPal, Venmo, Square Pay and Apple Cash, each of the wallets built using libra will interoperate.

“As a consumer, no matter which wallet you choose you’re going to get the benefit of the scale of the network,” says Marcus. “And for that reason we really need to earn consumers’ trust if we want to have a fighting chance.” Further competition will likely come from fellow fiat-backed stablecoins like Circle’s USD Coin, and Tyler and Cameron Winklevoss’s Gemini Dollar which also already have live products, while MakerDao and soon-to-be launched Celo offer similar stability without fiat currency at all.

To really get that fighting chance Marcus talks about he says there’s two main misunderstandings he hopes to address over the two days of Congressional hearings, and the following year before the cryptocurrency’s scheduled launch. First, he says that contrary to decade-old accusations levied against bitcoin, cryptocurrency like libra actually makes crime more difficult be leaving a trail of pseudonymous transactions to follow. “You improve the efficacy of anti-money laundering, you improve the efficacy of counter-terrorism funding, and at the same time you don’t close the system on who needs it for small cash-like transactions,” he says.

Of course, such transparency leads to yet another concern, the increasingly well documented trend towards of “surveillance capitalism,” where every purchase is observed all the time. As with many of the problems the Libra Association purport to solve, new problems frequently arise.

The second misunderstanding Marcus hopes to clarify to Congress is that he says critics have inaccurately portrayed libra as a drain on central bank monetary supply controls, especially buying back government bonds as a way to increase demand for a currency. Since the Libra Association is currently committed to a 1:1 pairing of the value of currency, bonds and other assets stored in banks around the world with the value of the libra cryptocurrency in circulation, Marcus says monetary supply controls won’t be impacted. Should a central bank seek to buy back treasury bonds owned by the association, the association could compensate for that by purchasing other assets in different jurisdictions.

“The Libra Association has no ability to create more libra than there are corresponding value in reserve, there’s no way to print money,” says Marcus. “The monetary policy of the assets that are contained in the basket gets transferred as a unit of digital currency that represents the underlying asset.” But what happens if all those central banks need to buy back bonds? What happens when a global financial crisis occurs? It’s important to remember that the reason bitcoin was invented at all was because someone, or some group, going by the name Satoshi Nakamoto didn’t trust central banks or traditional banks after U.S. President George W. Bush signed a bill that bailed out insolvent banks to the tune of $700 billion. 

While Marcus is the only witness scheduled to speak at today’s hearing, another witness, former Morgan Stanley managing director and current Forbes contributor Caitlin Long was asked to provide her own written testimony to the same hearing. In Long’s lengthy remarks, published yesterday on Forbes, she argues that the only reason why stablecoins like libra were invented in the first place is because banks have been largely unwilling to work with cryptocurrency companies. “If Congress wants to make stablecoins irrelevant (including Libra), it can easily do so—simply by allowing the banking system to consistently bank this new asset class.”

Following Marcus’ testimony today, he’ll be grilled for further answers from Republican led Senate Banking committee members, including Massachusetts Democrat and known Facebook detractor Elizabeth Warren. Wednesday, Marcus is scheduled to testify before what could be an even more aggressive panel hosted by the Democratic-party led House Financial Services Committee, which in addition to inviting witnesses including corporate accountability advocate Robert Weisman, plans to review a draft of the “Keep Big Tech Out of Finance Act,” designed to keep large tech companies from becoming financial institutions.

Marcus sounds prepared for the long-haul. “We will have to not only make very strong commitments when it comes to serving our customers,” he says. “But we will have to live up to them for a very long period of time.”