Facebook's Crypto Proposal Triggers Fury in Congress: Bitcoin Fans Take Note
After nearly a year of speculation, Facebook has finally unveiled its plans to Create a Cryptocurrency Called Libra and debut in 2020.
- The cryptocurrency will be managed by a separate Switzerland-based foundation initially backed by Facebook and 27 other organizations.
- These organizations are known as Founding Members, and the foundation hopes to have about 100 of them by launch next year. They include businesses like Uber and Lyft, payments companies like Visa, Mastercard and Paypal, investors like Andreessen Horowitz and Union Square Ventures, and nonprofits and academic institutions like Kiva and Women’s World Banking.
- In exchange for investing at least $10 million in the foundation’s reserves (which back the Libra token’s value), these members will get to run validator nodes for the Libra blockchain — "a rack of servers that will run transactions," as the foundation's currency chief describes it.
- They'll also receive special Libra "investment tokens," which are different from the basic form of the cryptocurrency, and get a vote as part of the foundation’s council.
- For some of these members, Libra may provide a new channel for acquiring customers. "If you’re Spotify [a founding member], you’re thinking about how there are a lot of people in markets you want to serve that don’t have an ability to pay you digitally," Kevin Weil, product chief of Facebook's cryptocurrency division, told Axios.
Bloomberg reports Facebook Triggers Fresh Washington Fury Over Crypto Project
Facebook Inc.’s plans to create a new cryptocurrency that can be used for everything from commerce to money transfers is facing pushback from angry U.S. lawmakers.
House Financial Services Committee Chairwoman Maxine Waters urged the company to halt development of the token until Congress and regulators can examine it. Other lawmakers demanded hearings and questioned whether the coin, called Libra, will have appropriate oversight.
“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” Waters, a California Democrat, said in a statement. “With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users.”
Representative Patrick McHenry, the top Republican on the financial services panel, wants Waters to hold a hearing. He said Congress needs to go “beyond the rumors and speculations and provide a forum to assess this project and its potential unprecedented impact on the global financial system.”
People knew the launch was coming. The reaction could hardly be a surprise.
What Is Surprising
The response from ZeroHedge was surprising: "What is most surprising is that she [Maxine] is, don't shoot us, right."
Either you believe in free markets or you don't.
What to Expect
The reaction by Congress shows the very real risk for Bitcoin.
If Bitcoin gets big enough, central banks or governments will squash it like a bug.
Those harping about hash rates, first mover advantage, etc., seriously underestimate the risks.
One of Two Things
- Bitcoin will fail on its own (or at least never become a serious currency threat)
- Governments will squash Bitcoin
Talk of million-dollar prices is seriously crazy. It would create mountains of trillionaires. Governments won't let that happen.
What Can Governments Do?
Easy. If threats to current monetary systems get serious enough, governments will bar payments in cryptos or conversion to dollars. That would be the end of it.
The excuse would be money laundering, tax evasion, a need to end speculation so people don't get harmed. etc.
In scenario 2, Bitcoin would become practically worthless, overnight.
In scenario 1, the valuation never gets high enough to support a regulatory crackdown. That's a far better fate, but it does rule out nonsensical targets.
I do not know, nor does anyone else.
As with gold, people proclaiming they "know" how high Bitcoin will get are either charlatans or fools.
For the record, I actually consider cryptocurrencies a legitimate investment vehicle, just a speculative one that I choose not to partake in.
After all, Bitcoin is a free market construct. But overzealousness and million dollar hype does not serve anyone.
People will get burnt badly over this.
Some already have. Lessons were not learned. They seldom are.
Mike "Mish" Shedlock