Policymakers Are Between a Rock and A Hard Spot on Blockchain, Cryptocurrency
You may have heard about Libra, Facebook’s newest venture aimed at the cryptocurrency and blockchain industries. Facebook released a whitepaper on Libra in June, detailing how the company plans to use Libra as a decentralized blockchain, low-volatility cryptocurrency and smart contract platform to create innovation in financial services.
While cryptocurrency is self-explanatory (a digitally encrypted currency), blockchain is the technology used by cryptocurrencies and other similar platforms. A blockchain is a collection of encrypted data, linked together and spread across a decentralized network that transparently shares data for financial or information purposes.
While Facebook’s announcement drew widespread attention, blockchain and cryptocurrencies have been slowly growing for more than a decade. Attitudes have changed regarding the industries in that time, too.
Deloitte’s 2019 Global Blockchain Survey shows that the technology has really turned a corner, with more than half of all companies surveyed saying blockchain is in their top five strategic priorities and 86 percent agreeing that blockchain is scalable and will achieve mainstream adoption.
Compare that to 2008, when a white paper named Bitcoin: A Peer to Peer Electronic Cash System was published, introducing the world to blockchain technology.
David Marcus, Facebook’s top executive in charge of Libra, endured a less than friendly reception before Congress as senators called Facebook’s plan delusional, crazy, and untrustworthy.
Many of Facebook’s claims about the Libra Blockchain and currency are applaudable. Libra could provide economic empowerment through affordable financial services, low-cost movement of money, and increased economic opportunities for those who may be locked out of traditional financial markets and institutions.
User financial information and data would no longer be controlled by a traditional third-party or single network, which is often the cause of data breaches.
In a free market, this principle could lead to more opportunities for individuals to earn a living and even secure wealth, especially in poor countries or nations led by corrupt regimes.
But Facebook’s lack of credibility regarding data privacy and security mean that policy makers and financial regulators have serious concerns about their movement into cryptocurrency and blockchain. The company’s announcement probably couldn’t come at a more complicated time.
Congress is figuring out what to do with big technology companies, with some type of regulation on the horizon. Policy makers seem to be stuck between passing heavy regulations to protect consumer data privacy or embracing innovation and entrepreneurship of an emerging technology.
David Marcus’ testimony came at the tail end of testimonies from the Federal Reserve and critical comments from other officials regarding Libra and blockchain.
Jerome Powell, the Federal Reserve chairman, shared concerns about Libra in his testimony to the Committee on Financial Services in the U.S. House of Representatives on July 10, saying that the Fed supports responsible innovation in the financial services industry as long as the risks are identified and managed. He stated that Libra raises serious financial concerns like money laundering, financial stability, and consumer protections.
The U.S. Department of Treasury recently labeled Libra a national security issue due to concerns about money laundering. Concerns from the Fed and Treasury are not without merit. The Manhattan District Attorney’s Office completed the first conviction for crypto money laundering in April 2019.
International regulations are picking up steam, too. The United Kingdom is establishing a new crypto assets regime to monitor cryptocurrencies for illicit activity and the Financial Action Task Force, a global money-laundering watchdog, will begin the first attempt at the enforcement of worldwide regulations for illegal use of cryptocurrency.
Despite these efforts, sophisticated hacking operations have stolen an estimated $2 billion worth of cryptocurrency since 2017, according to the MIT Technology Review.
Let’s not forget the obvious issue that cryptocurrencies inherently threaten established fiat currencies and the traditional financial market across the globe.
Congress and state legislatures need to draw a careful line between regulation and stifling innovation.
House Minority Leader Kevin McCarthy raises this serious concern in a recent New York Times op-ed. The congressman argues for a light regulatory touch that punishes repeat offenders and bad actors and embraces the best pieces of blockchain and distributed ledger technology while embracing the free market.
“In many respects, it is a throwback to the permission-less innovation that brought us the internet we know today. For the free market, there is no better remedy to monopolistic behavior.”
Hopefully, any regulations or new laws will do just that – cut out the bad actors and practices and embrace innovation that benefits the free market.
Evan Harris is media relations and outreach manager at the Pacific Research Institute.