After announcing the development of its own digital currency, called the Libra, Facebook met with the skepticism of governments and central banks towards its project. The technology giant released a new version of its white paper last week, which is being reviewed, again, by governments and financial authorities around the world. The question now is how did Facebook get here?
Although the economy has been suffering from renewed levels of chaos and uncertainty in recent days, due to the effects of the Covid Crash, the turbulence in the currency markets began months ago. Specifically, shortly after Senators Sherrod Brown and Brian Schatz sent a letter to the CEOs of Visa, Mastercard, and Stripe. The three companies joined Facebook during the announcement of the Libra launch, but months later abandoned the project.
The letter that evicted many companies from the project
In particular, the letter underlined the concerns of both senators about Facebook’s crypto currency. In the letter, the two politicians expressed their concern about how Facebook and the other participants in the Libra project would deal with fundamental issues. These included preventing money laundering, monitoring potential terrorist financing and compliance with other financial regulations. Sending a letter to the CEOs of private sector companies may be part of the standard. The exception was a paragraph at the end
“Facebook Libra seems to want the benefits of participating in financial activities, without the responsibility of being regulated as a financial services company. Facebook is trying to achieve that goal by shifting the risks and the need to design new compliance regimes to the members of the Libra Association, as well as to their companies. If this activity is undertaken, one can expect a high level of scrutiny by regulators, not only in Libra-related activities, but in all payment activities”.
As told by the press at the time, it was the tone of the letter that led Visa, Mastercard, Stripe, eBay, Mercado Pago and PayPal to leave the Libra Association. Without a doubt, they were off the hook. Who wants to fight the U.S. government?
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The pressure on the members of the Libra Association, in addition to being considerable, highlighted how regulators and legislators tend to relate their concerns with money laundering, KYC, or other preventive regulations to digital currencies.
However, two days after Mark Zuckerberg was dragged into the US Congress for questioning about Libra, Chinese President Xi Jinping made his first statements about blockchain technology in China.
Jinping indicated that blockchain should be taken as an important advance for innovation, independent of basic technologies. The Chinese leader also stressed the need to “clarify the direction, increase investment and accelerate the development of technology and industrial innovation towards blockchain technology
The interpretation of Jinping’s comments was simple and almost unambiguous. Blockchain technology is very important for the future and China plans to be the world leader. The words of the President of the People’s Republic of China are now being translated into actions by the Central Bank of China (PBOC). The People’s Bank no longer hides information about the imminent arrival of a distributed network on which to run its digital Yuan.
The sharp contrast between China’s response to the use of blockchain technology and that of the United States regarding the regulation of Libra, seems to have turned out to be too negative. Just after the Chinese President’s announcement, Donald Trump was making this statement on his Twitter account:
East and West
No doubt, Trump’s comments highlight the contrast between the two powers. While China was willing to embrace one of the most important technologies of the future, the United States was struggling in regulatory hell. Thus turning off any innovation close to blockchain, as is the case with Libra. But the emergence of Covid Crash threatens to change everything. Including Libra, which could become the West’s new weapon in fighting the digital Yuan (DCEP) of the East.
The movement in Libra has come after a long period of silence. And it has done so only one day after the Financial Stability Board, the G20 body charged with overseeing the proper functioning of the financial system, issued a document with regulatory recommendations on stable-type cryptomonies.
Chance or no, it makes sense with Libra’s revamped white paper making the transition to a stable digital currency basket. In seeking approval from the Swiss authorities to become a payment network, Libra has modified the initial structure of the cryptomoney.
Single currency LIBRAs
The application differs considerably from the project originally proposed. At present, in addition to a stable multi-currency currency, Libra also includes “single-currency pounds”. This means that if previously there was only a single crypto-currency Libra, now, in addition to this crypto-currency, there will be, so to speak, “pound sterling” or “pound-dollar”
A new programming language is also highlighted in the introduction to the new Libra white paper. It is called “Move” and should allow the creation and use of intelligent contracts in the blockchain. Libra also makes adjustments and optimizations so that finally Byzantine Fault Tolerance (LibraBFT) is used.
Thus, the new Libra will have full smart contract functionality, which could represent serious competition for the Ethereum network. In the new space enabled by Libra, not only will it be possible to trade and exchange digital assets, but it can also be used by companies to create their own blockchain networks and tokenize their assets.
Libra and the DeFi
Libra will definitely be a Level 1 blockchain, focused on networking and digital assets. Therefore, if Libra can overcome the current regulatory uncertainty, it is likely to play an important role in the future DeFi ecosystem
Now that the Libra Association has made a move, the ball is in Finma’s court. The Swiss supervisor has said he will not give details of the progress of the application until a final decision is made, nor will he speculate on the length of the process. In any case, Facebook spokespeople have said that the Libra project will be launched at the end of the year. The Swiss supervisor believes that, as it is a project with internationalisation goals, it requires a coordinated global approach. What seems clear is that we are back to the beginning, where everything depends on the United States.
Will Donald Trump and the other congressmen now be less inclined to trip up Libra? Will they use Libra as an experimental weapon against the Digital Yuan? Everything seems to indicate that they will.