The question of what exactly is Libra has confounded people from all walks of life from the everyday Facebook users posting memes and invitations to their potluck barbecue; to members of Congress who find themselves walking a tightrope between deep inquiry on what is to most people an unfamiliar subject area; and the need to present oneself as an expert.
Yet Libra’s function, while a worthwhile bone of contention, might not be the immediate issue at hand. The emergence of a Facebook cryptocurrency is just the latest example of why clear regulation in the US on cryptocurrencies is so pertinent:
Legislation is the guardrails for US-based innovation in crypto and by extension, for economic prosperity as a whole.
Libra and the Token Taxonomy Act
While the advent of Libra has upped Congress’ ante on digital assets, the race to figure out how exactly cryptocurrency figures into the evolving US economy — and how regulation can best let it flourish — is not all that new a topic for Congress.
This past September, Ohio Rep. Warren Davidson spearheaded a Congressional roundtable featuring some 50 thought leaders from all sides of the cryptocurrency sector, including regulatory bodies, institutional investors, and business advisory firms. The overarching takeaway from the event:
Crypto needs a clear US rulebook yesterday.
Stemming in large part from that panel’s testimony came the Token Taxonomy Act. First released just before the December holiday break, the bipartisan bill, now in its second version, lays out a rubric for treatment of digital assets on array of issues, including their taxation and treatment as a security. Says Mike Minihan, partner at BX3 Capital, a business advisory firm dedicated to helping startups get funding and situated in their chosen sectors, continues, “Libra will shine a spotlight on the industry, and create a dramatically heightened interest in crypto — and consequently, the Token Taxonomy Act itself.”
In other words, the Token Taxonomy Act addresses many of the quandaries that the Senate Banking Committee and the House Committee on Financial Services have bandied about Libra. Beyond assuaging the privacy issues that have bedraggled certain tech behemoths as of late, though, the benefits of the bill stand to be manifold: It could help steer cryptocurrencies — Libra, Bitcoin, Ethereum, or whatever other crypto of choice — into a bonafide asset class and a tool of economic and banking innovation for greater adoption.
Perhaps it’s no coincidence, then, that the Senate Banking Committee has called for a hearing on the Token Taxonomy Act on July 16, with rumblings of the House Financial Services Committee following suit.
What is Libra?
The jury is out as to whether or not Libra is a cryptocurrency at all but rather, a digital currency. Those who are in the “Libra as cryptocurrency” camp point out that Libra uses digital wallets and public keys for its transactions. On the not-a-cryptocurrency side of the argument, Libra is a stablecoin, meaning its value is pegged to a fiat currency such as the US dollar, euro, or pound sterling; or perhaps a bond.
For the macroeconomists and forex enthusiasts out there, think of stablecoins as a reserve currency or basket of securities, such as ADRs. Libra falls more into the latter category, being a pool “of low-volatility assets, including bank deposits and government securities” that would be managed from a nonprofit “Libra Association” based in Geneva. Being tethered to a basket of securities frees Libra from being pegged to a given currency, in turn freeing global users from having to convert currency when making cross-border transactions and providing a currency that has the potential to be a more attractive store of value than the local fiat currency. Let’s say someone in the US wants to buy a classic album that the band only released in the UK. The fan finds the album for sale on a UK-based music site. Either the US customer and the UK seller — if not both — would, under the status quo, be subject to foreign-exchange fees. With a cryptocurrency, Libra included, the parties in this transaction would stand to save money, as there wouldn’t be forex fees involved. This state of affairs also means users ostensibly could keep their savings in Libra instead of dollars, should the de-facto exchange rate seem favorable.
What’s Next for Crypto?
“The next step? how long can it be before the U.S. dollar itself is given the features of a cryptocurrency, in effect competing with Facebook?” asks Mark Roderick, head of the crowdfunding and fintech practice at Flaster Greenberg, a law firm based in Cherry Hill, New Jersey, on his blog. Also, as he points out, central banks would be loath to compete with a cryptocurrency, as would political players in the US, if not also the world over.
The Federal Reserve is taking a “careful” look at Libra, for its part. Many US crypto firms have been taking their investments overseas for some time now, however, fearful of making an unwitting misstep and running afoul of the SEC in the absence of clear securities regulation. Concerns over Facebook Libra are just the latest echo of calls from US crypto industry leaders to Congress: Regulate or the US doesn’t innovate.
“The sheer magnitude of Facebook means that Libra can’t be ignored. As a result, many members of Congress — thinking of you, [House Financial Services Committee chairwoman] Maxine Waters (D-Calif.), — had to get very smart, very quickly when it comes to cryptocurrency,” says Mike Minihan, partner at BX3 Capital, a business advisory firm that provides guidance and fundraising access to startups, with a niche practice on blockchain and cryptocurrency.
Libra’s Behemoth Means More Chatter in DC
At its surface, Facebook’s use case for Libra are somewhat straightforward: leverage the 2.38 billion-user social network and an established use case for cryptocurrency for the 1.7 billion people around the world who are either under- or unbanked. It offers a mobile payment platform in a similar vein as M-Pesa, the mobile phone-based payment platform launched in 2007 by Vodafone that got its start by serving customers in Kenya and Tanzania who, while not having had easy access to banking services, had access to a postpaid cell phone.
For its part, Libra’s take on mobile payments technology uses cryptocurrency as the store of value for mobile payments. To date, it’s also attracted the braintrust from more than two dozen global brands, including Visa, Mastercard, and Lyft, and the direction of former PayPal president David Marcus, who is at the helm of the social network’s blockchain research unit. (PayPal, already a global payments platform, had said it’s been in talks with Facebook for a few weeks.)
Facebook hopes to gain backing from more than 100 companies by the time of Libra’s launch. In the meantime, the fact that this particular cryptocurrency-slash-payment platform has some star names on its marquee might mean that crypto-focused legislation such as the Token Taxonomy Act could finally get out of committee.
“Any time you have a company like Facebook teaming up with Mastercard, Visa, and other big names, it will inevitably shine a light on the industry and the potential bills that are coming out,” says Gary Nealon, co-founder and president of Usawa.io, a blockchain-based crypto token platform that seeks to be an alternative investment option for pension fund management in Africa. “With the growing number of organizations lobbying for a bill, I think it is inevitable that some form of [the Token Taxonomy Act] gets passed.
Household names joining on Libra means that the average American who might not understand cryptocurrency, never mind have investment holdings in it, could very well embrace crypto, however unwittingly.
Just as Venmo has become a generic trademark for “sending money to friends, coworkers, and roommates by phone”, Libra could become to cryptocurrency what Kleenex is to tissues; or as is now to many, Bitcoin to cryptocurrency.
Yet for an idea to come to fruition, it needs an outline on which to base its growth. The Token Taxonomy Act could be the very framework on which to develop this next phase of mobile payments.“When the underlying technology fulfills its promise to bring ‘better, faster, cheaper’ to any number of transaction types, the Token Taxonomy Act is a stepping stone and baseline guidance that will help the builders and investors in this nascent technology that will ultimately benefit the average American,” Minihan continues.
It’s not often that a sector’s salvo is “regulate or die.” For leaders in the US crypto sector, though, the Token Taxonomy Act, heeds this call.
As pundits try to sort through the finer points of Libra, observers need to take in the big picture. While technological change is a constant, the need for innovation and economic growth remains the same. Let’s ensure that we have the tools not to let development run out of our hands.