Libra concerns on the Hill have turned more 'Facebook' than 'crypto'

U.S. lawmakers took their customary August break in the wake of July’s Libra hearings, which saw Facebook blockchain lead David Marcus face a barrage of questions on a variety of fronts. Now, Congress is back in session, the question of a Facebook cryptocurrency is still on the table, but concerns have shifted from the “crypto” aspect of things to concerns of Facebook’s role as its creator and the ramifications for big tech in America.

While Marcus was bombarded with questions and some hostility, including comments from U.S. Rep. Brad Sherman likening a Facebook crypto to the Sept. 11 attacks, Marcus held his own, according to Kristin Smith of policy group The Blockchain Association. 

“David Marcus did as well as anybody could have done in his position,” Smith told The Block. “He walked into two different committees, one in the House, one in the Senate that were not looking to be his friend.”

Indeed, lawmakers questioned Marcus for hours, but according to U.S. Rep. Ted Budd (R-NC), the hearings also showed which members of Congress had a handle on the issue and who still needs to be brought up to speed on the crypto world. Despite the insistent testimony of Chief Strategy Officer at Coinshares Meltem Demirors that Libra, with its basket of currencies and centralized structure, drastically differs from bitcoin’s model, some lawmakers still haven’t grasped the difference between the two.

“It's not yet understood,” Budd said in an interview. “We have to continue to drive that message. So when Libra resurfaces, and I'm certain they will, we have to make sure that the broader membership of Congress, especially on the Financial Services Committee, understands that difference.”

However, Smith said she was encouraged by lawmakers’ ability to differentiate Libra from cryptocurrencies like bitcoin. Still, she said the conversation needs to continue, including further education on the crypto space and blockchain technology's potential in areas like data privacy. Looking forward, she said she is interested to see how Congress tackles Libra’s basket structure, since it resembles an exchange traded fund. It is not yet clear whether Congress will consider Libra a security, which could have significant regulatory implications if it’s viewed as such as opposed to a mechanism for value transfers.

While lawmakers and policymakers said the Libra hearings did push crypto regulation further into the mainstream and up the docket on the Hill, the conversations surrounding Libra are hinging less on crypto acceptability and more on sentiments surrounding big tech and trust busting. According to Budd, concerns linger not because Libra is a crypto, but a Facebook crypto. 

“I would say the issue has shifted away from Libra being on top of mind to now an antitrust issue and it’s broader than just Facebook,” he said. “It's going to be Facebook, Google, perhaps Amazon to some degree in there. Are they too big? That's really the question coming up right now.”

During the Senate hearing, U.S. Sen. Tina Smith (D-MN) posed questions about governance of the Libra Association, pointing out potential problems surrounding conflicts of interest, a lack of leadership structure and how minority opinions could be protected within the planned framework. After the hearing, she said questions she and colleagues raised remained unanswered, and a source of ongoing Senate concern. While specific issues of data privacy, Facebook’s ability to bar users from the platform, and concerns of consumer protection all remain on the table, according to Sen. Smith and Rep. Budd, most of it boils down to Facebook’s size and power rather than its use of blockchain technology.

“The size of Facebook and the monopoly power of this organization are all issues my colleagues asked questions about, and we should remain concerned about it…The association that Facebook is proposing would also have 100 members, but Facebook couldn’t answer clearly when I asked about who sets the agenda and about conflicts of interest,” Sen. Smith said.

Although no further hearings are slated for this session, and Budd said much of crypto regulatory efforts like the Token Taxonomy Act remain in similar limbo, Smith said the hearings could push regulation forward. However, this could lead to some industry hiccups before regulation catches up.

“I think what we may start to see are some efforts that are well-intentioned but might not have all of the details correct and could have some unintended consequences,” she said. 

As lawmakers parse out options, Smith said it’s important not to overreact in the early stages.

However, if the Libra response is any indication, Congress is certainly reacting to early stage shakeups in the industry, and can be expected to keep a watchful eye on Libra going forward.