I actually don't know if
libra is going to work, but I believe that it's
important to try new things. When Facebook first
announced it was getting into the crypto
business with a basically unregulated currency called
libra, the reaction from Wall Street and
government bankers was about as expected. Libra raises
a lot of serious concerns. I'm not a big
fan of what they're doing there. I think it's
a big mistake. It was a neat idea
that'll never happen, and I have nothing else to
say about it. Libra is in trouble. The social media giant had
lined up a long list of corporate backers
for the initiative, including major players in
the payment space. In early October 2019,
PayPal became the first company to back out
of the libra coalition. That led to an exodus
of other companies from the project. MasterCard, Stripe, Visa
and eBay all followed PayPal and
ditched libra. So, why are all
these companies ghosting Facebook's digital currency all
of a sudden? First, let's explain how
Facebook got into another mess like this. I like the libra concept, but
you got to drop it. It's clearly doing more
harm than good. Facebook first announced libra
in June 2019. Introducing Libra, a
new global currency. It formed the Libra
Association in Switzerland to run the cryptocurrency project
and lined up 27 companies to oversee it. Facebook also set up
a subsidiary called Calibra, designed to host the
financial services and payment software built on
top of the libra digital currency. Why did
Facebook get into crypto in the
first place? Facebook is big.
It has 2.41 billion monthly
active users. That's a huge base. Even if a quarter of
the users ended up using Libra for payments. That's
600 million people, about twice the population
of the United States. Facebook, though, also has
a ton of baggage. Think 2016 presidential
election and Russian hacking kind of baggage. So, when a company that
big and that influential plans to introduce a
product that could potentially disrupt the
global financial community, you can
see why U.S. lawmakers are paying even
closer attention to the social media giant. This is Facebook's currency
chief David Marcus testifying before the
House Financial Services Committee back in
July 2019. The reason we designed libra
in such a way that Facebook will only be
one among 100 different members of the Libra
Association and we'll have no special privilege, means
that you will not have to trust Facebook. Well except, Mr. Marcus, you know
better than that. You know that only Facebook
has access to 2 billion people and all, all
to say that, that you are just one of many
is simply, is simply not true after people's data
and private messages have been stolen. And this
is Facebook CEO Mark Zuckerberg testifying before
the House Financial Services Committee about
the proposed cryptocurrency in
October 2019. I want to be clear. Facebook
will not be a part of launching the libra
payment system anywhere in the world, even
outside the U.S., until the U.S. regulators approve. Lawmakers
are really, really nervous about Facebook
getting into digital currencies. Libra could be
misused by money launderers and
terrorist financiers. Cryptocurrency such as
Bitcoin have been exploited to support billions
of dollars of illicit activity. Facebook designed libra to
be a digital global currency. Like other
digital currencies, libra will be built on top of
a blockchain or a digital ledger. Unlike other
cryptocurrencies, libra would be backed by a
basket of real world currencies. That would
stabilize its price, protecting it from wild
swings seen in the bitcoin market. The libra
reserve will hold bank deposits and short-term
government securities for every libra coin
created online. If all goes according
to Facebook's plan, users would have a virtual wallet
where they could buy, sell, send and receive
libra through platforms like Facebook or
Instagram or WhatsApp. And, those payments would
move within seconds for small fees. With bitcoin
transactions, it could take several minutes to
confirm a transaction. And in some cases
cost a few dollars. Bitcoin is known for
its volatility and steep price swings because it
isn't backed by government. That means things
like inflation and monetary policy don't
influence its value. Instead, cryptocurrencies move
with supply and demand and basic market
forces, fear and greed. Bitcoin, for example, has
a fixed supply. The total number that will
ever be minted is hard-capped at 21 million,
and experts say that hard cap won't be reached
for another 120 years. Facebook says all that
volatility wouldn't happen with Libra because it will
be backed by a bunch of currencies, effectively
maintaining a stable price even when
demand changes. I think Libra is being
designed right now to be spent because it's a stable
coin and it's pegged to a basket of currencies,
and so most people today are going to assume
that people will be buying burgers or coffee. That's Tom Lee. He's head of research
at FundStrat Global Advisors, an independent
research firm. He says Facebook entry
into cryptocurrencies is a huge positive. It brings a
lot of credibility to space, but also with its
2 billion users, it's a massive increase in the
addressable market, and arguably one of the
biggest headwinds for crypto adoption has been the user
interface or the ease of sort of
finding on ramps. Libra would use blockchain
technology, which is what all cryptocurrencies
run on. The blockchain is a
secure, digital collection of financial accounts. So, it's basically a
decentralized bank ledger. There's no middleman. The
currency is exchanged person to person and
recorded on the blockchain so you can see
who owns what. Traditionally in crypto, anyone
could access that blockchain, but not
with Libra. This is David Yermack. He chairs the finance
department at New York University's Stern School of
Business and he teaches courses
on cryptocurrencies. It's very different
than cryptocurrency like bitcoin or ether, which
is decentralized, has no leadership and relies on
a community of people who compete to build the
blocks that update the transactions. Because of the
design of something like bitcoin, it really
can only accommodate a small amount of traffic,
but something with central management like libra
could really grow to almost any size
that you wished. Libra would be
permissioned, which means transactions can only be added
to it by a group of trusted parties. That's where the Libra
Association comes in. It's the Swiss-based consortium
of nonprofits and companies like Lyft,
Uber and Spotify. Each partner of the
Libra Association invested a minimum of $10 million
into the project. David Marcus is the
Facebook executive leading the blockchain initiative, who
also once served as the president of
PayPal, previously testified to Congress that libra would
work more like a traditional currency than
a cryptocurrency. The intent of libra is
not to compete with other cryptocurrencies. It's to compete
with the real currencies issued by
the central banks. That raised a red
flag among government regulators. And that's a
big reason why libra's corporate backers
began fleeing. Zuckerberg took heat from
lawmakers looking for clarity. Given the company's
size and reach, it should be clear why
we have serious concerns about your plans to
establish a global digital currency that would
challenge the U.S. dollar. For the richest man
in the world to come here and hide behind the
poorest people in the world and say that's who
you're really trying to help. You're trying to help
those for whom the dollar is not
a good currency. Drug dealers, terrorists,
tax evaders. He acknowledged the risk
of digital currency like libra poses, but also argued
it could ensure the U.S. position as an
innovative financial world leader. I just think that
we can't sit here and assume that because America
is today the leader, that it will always get to
be the leader if we don't innovate. And innovation
means doing new things. And that does mean
new things have risks. And we need to address the
risks and we need to be careful in doing that. But when pushed to
explain why corporate backers exited the libra project,
Zuckerberg put the blame on risk. Why
have they departed? Scores of stable partners
have dropped out. Why? Well, Congresswoman, I
think you'd have to ask them
specifically for- Why do you think
they dropped out? I think because it's a
it's a risky project and there's been a
lot of scrutiny. Yes, it's a
risky project. And when asked about
potential privacy concerns, he told Congress there
are millions who trust Facebook. Billions of people
come to our services because they trust that
they can share content, messages, photos, comments with
the people they care about. And more than
100 billion times a day, people do that. They share something with a
set of people because they know that that content
is just going to reach the people that
they want it to. So I think that if
we're able to move forward with this project, there may
be some people who who don't want to use
it because they don't trust us or don't like us. And that's one of the
values of having an independent association where there
will be other competitor wallets and
other approaches, too. Zuckerberg spent most of
the hearing reassuring lawmakers libra wouldn't
launch without approval from U.S. regulators. Facebook's push into digital
currency served as a big wakeup call for
lawmakers and central bankers. It's pitting Facebook
against the U.S. and other governments. And Facebook is
losing so far. In September 2019, France
and Germany both agreed to block libra. The
government said, "no private entity can claim monetary
policy, which is inherent to the
sovereignty of nations." A few weeks later, libra
began to lose its corporate backers. PayPal was
the first company to leave in
early October 2019. Days later, two senators
on the Senate Banking Committee sent letters to
the CEOs of Visa, MasterCard and Stripe to
express concerns over their involvement in
the Libra Association. Senator Sherrod Brown of Ohio
and Brian Schatz of Hawaii told companies "to
proceed with caution" until Facebook provides more
details on the risks posed by libra, like
financing terrorism and disrupting the global
financial system. A few days after the
senator sent the letters, eBay, MasterCard, Visa and
Stripe announced they would leave the
Libra Project. The U.S. Treasury Department
had also been privately pressuring libra's
corporate backers, according to the
Wall Street Journal. The opposition to libra
is coming from countries with established financial
and payment systems, where a majority of
the population already has bank accounts. That's not really
the kind of user Facebook has in
mind with libra. It's going after the
world's unbanked population. You know, that unbanked world
is a lot larger than we all appreciate
because anyone living in the U.S., you know, has
pretty simple access and low-cost access to banks. Facebook points to statistics
that show 31 percent of adults in the
world don't have a bank account. That's about 1.7 billion people globally. And those numbers are
worse in developing countries and even
worse for women. Turns out, the unbanked
community of 1.7 billion people can be
leveraged through reliable internet infrastructure and
mobile phones. Those two things alone have
given rise to a new generation of financial
services without requiring fancy tech. 1.1 billion of those 1.7 unbanked people have
a mobile phone. For example, in
sub-Saharan Africa, simple, text-based phones have
popularized mobile money accounts. So, Facebook has a
lot to gain from winning over the unbanked
with a global payment service based on its
own digital currency. It's not just Facebook
making waves in the digital currency market. China's government also wants
a piece of the action. China's central bank
has made some very public announcements that
they're going to compete with the private
digital currencies in their economy by having a
crypto version of the renminbi, their
own currency. And there have been a
lot of central banks around the world researching this over
the last five or six years. The People's
Bank of China announced in August 2019 that it's
close to launching its own digital currency, saying
the rationale behind the move is to
protect its foreign exchange sovereignty. Some say the
move would encourage the worldwide use of
the yuan, the Chinese currency and the deputy
director of the People's Bank of China's Payments
Department said this currency will have similarities
to libra and would be as safe as
the central bank-issued paper notes Libra is really trying
to mimic what has already occurred in China,
where two social media companies, Tencent and
AliBaba, have launched payment services. They've run very, very quickly
and have begun to push aside the regular
banks as sources of payments for people. And if you look at
how quickly the Chinese social media companies have grown
and the fact that they're now going abroad
into other countries, there seems to be
an opportunity for companies like Facebook, Google, Amazon
to create a very similar service. China's central bank plans
to launch this digital token through a two-tier
system, where both the People's Bank of China
and commercial banks would be legitimate issuers. All this means that Facebook
doesn't just have to contend with the opposition,
with regulators and politicians. It means the
social media giant is also in a race against
time with governments that want to build their
own digital currencies. While libra still may be
in deep trouble, despite Zuckerberg's performance on
Capitol Hill, the promise of digital currency
should live on, according to Tom Lee. I mean, I think the
future is really bright for digital assets. one, because I think it
is reducing a lot of friction in traditional
financial architecture. The average person spends almost
a month of every year paying for the
right to use banks. So, I think that that's
a level of value capture that's high, and so digital
assets are going to help sort of create
productivity around that. No one knows when
the federal government will enact regulation that would
impact how the libra coin operates or what
that regulation would look like. All they do know
is it's coming at some point. Some even speculate
Facebook won't be the first public tech company
in the U.S. to issue a currency. I don't think other
majors Silicon Valley technology companies are far
behind, so I think Facebook is the first, but
I think we'll see many other versions.
https://www.invidio.us/watch?v=quTUTUNdZx4