Crypto For The Masses

Facebook and the Libra project, and the opportunity afforded to regulators

There are fundamental constraints that will likely inhibit Bitcoin ever taking its place as a mainstream currency. Its capacity for recording and confirming transactions, set in algorithmic stone, amounts to no more than a few transactions per second, woefully short of the capacity offered by systems like Visa, and scarcely fit for a widely-used means of exchange. Concerns will always persist over its volatility, lacking a central bank capable of keeping a hand on the tiller of money supply. Additionally, of increasing concern is its energy consumption; Bitcoin miners are now estimated to use more energy than Switzerland.

The plain fact of the matter is that Bitcoin was, as the pioneer, not designed with Visa levels of usage in mind. However, Bitcoin and the distributed ledger technology that underpins it may well go down in history as cryptocurrency’s John the Baptist: the harbinger that cleared the way for something much greater – conceived, designed, and built in a post-Bitcoin world, now that everyone knows what a powerful piece of tech it can be.

The scene is set for a new cryptocurrency with the reputation, the infrastructure and the muscle to take its place on the world stage as a truly global means of payment. Enter Facebook.

To be strictly accurate, enter the Libra Association, of which Facebook is officially only one of many members, albeit one that is taking a leading – and very visible – role. While full details of the Libra project are not yet finalised, it will be a cryptocurrency recorded on a blockchain like many others, but whose value is pegged to a hitherto-unspecified basket of currencies, government securities and other assets. In this respect Libra will not be breaking completely new ground; there are already stablecoins in existence like Tether – generating fascinating headlines for those of us that compulsively consume fraud news. However, there are some key features to Libra that may give it an advantage over the competition.

For one, Libra promises to be as easy to use as Apple Pay. A far cry from the opaque array of wallets, keys and exchanges, Libra usage will be as simple as downloading an app. For another, months away from its launch Libra already has an impressive stable of vendors pledged to accept it. It is no surprise “disruptor” tech firms such as Uber and Spotify are in at the ground floor, but they are joined by more traditional (by tech standards) big beasts, including Visa, eBay and PayPal. The contrast with Bitcoin, which more than ten years after its inception still struggles to make headway with mainstream retailers and payment services, could not be starker. The pegging system reduces the volatility that underpins so many of Bitcoin’s problems, and minting new currency will not require any particularly energy-intensive mining process. So far, it looks promising.

For my money, however, the biggest reason Libra has such potential is that it has Facebook in its corner. And when it comes to bringing tech to the mainstream, there are few companies with more impressive résumés.

When Facebook first made it to the UK in 2005, social media was in its infancy. Sites such as MySpace had achieved a measure of success, but social media as a concept was not widespread. Now, everybody’s mum (except, mercifully, my own) is on Facebook. Thanks in large part to Zuckerberg et al, social media has made the transition from a new, barely-understood piece of computer-speak – adopted enthusiastically by the young and tech-savvy and derided by everyone else – to a social behemoth, known and used by billions, with powers that (allegedly) extend to swaying national elections. And now its sights are set on cryptocurrency – a new, barely-understood piece of computer-speak… the parallels are striking.

Apart from anything else, what this amounts to is a huge opportunity for UK regulators. It is not a novel observation that Facebook is a long way from the top of most regulators’ Christmas card lists, coming as it is off the back of huge scandals involving data privacy and alleged election-rigging. The Facebook executive in charge of the Libra project, David Marcus, has recently been grilled by the U.S. Senate Banking Committee about the project. Concerns about Facebook’s record on data security were aired, mingled with wider issues around fears of a power-grab and even the spectre of direct competition with the U.S. Treasury.

In response, early signs show Facebook is bending over backwards to get back in the regulators’ good books. Meanwhile, in the UK, we have a regulatory system that needs designing. We have until January 2020 to get the crypto-related provisions of the EU’s Fifth Anti Money Laundering Directive on to our statute books, as well as the additional regulatory provisions that the government has indicated it will adopt. We are in the midst of a series of consultations aimed at thrashing out between our various crypto-stakeholders where our regulatory perimeter should sit. The days of cryptocurrency being dismissed as a passing fad are now largely over. Whether or not it becomes the new financial paradigm, cryptocurrency and blockchain are here to stay, and if the City of London wants to continue to introduce itself as the world’s pre-eminent financial centre, our regulatory architecture has to allow crypto to flourish, while simultaneously protecting consumers from its most dangerous side effects. Right now, what we collectively need more than anything is a glimpse into the future of cryptocurrencies. Enter Facebook.

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