Facebook’s cryptocurrency announcement was a seismic event, and it has nothing to do with Bitcoin or a digital bubble. The implications go way beyond the tech sector and could eventually affect massive sectors of the global economy. Even if Facebook’s product ultimately fails, the announcement is the long-awaited inflection point for industries and governments to start learning what blockchain is, and how it might change the way they operate.
Facebook’s new cryptocurrency “Libra” — supported by a digital infrastructure called Calibra — is intended to allow users of their social media platforms to easily send money or conduct transactions anywhere in the world for a small fee. If only 5 percent of Facebook’s 2.7 billion daily active users send money through their new system, Facebook will immediately have three times more of Venmo’s active users and rival Citibank in terms of a customer base. The token and its digital ecosystem will be overseen by the Switzerland-based Libra Association, which already counts companies like Visa, MasterCard, Spotify and Uber as members.
The integration of a peer-to-peer payment system into the world’s largest social network is what makes this such an important step. This could have the two-fold effect of 1) providing financial infrastructure for a wide swath of traditionally unbanked communities around the world; and 2) introducing cryptocurrencies into mainstream use overnight for hundreds of millions of people and businesses on a platform where they already spend much of their day. Where Facebook was the first interaction with the online world for so many, it could also provide their first encounter with more sophisticated financial planning and instruments — creating entirely new markets around the globe. And as Facebook introduces these consumers to digital assets, the new economies generated could well be cryptocurrency-based, providing a doorway to investment in other digital coins.
Facebook’s entry into what has long been considered a “fringe” market legitimizes a space that institutional investors have long been wary of. In the 10 years since Bitcoin was first launched, industry analysts have waited for the moment that cryptocurrencies would hit the mainstream. This may well be it, providing a cashless means of storing or exchanging value with other users almost instantaneously. Libra will likely push other traditional financial institutions toward adopting or integrating certain aspects of the digital economy into their own offerings.
Before any of these systemic changes take place, Facebook’s entry into the digital currency space raises a whole host of policy and regulatory questions, many of which face a long road through Washington to reach a resolution. There will be battles over who gets to regulate the token, the ecosystem and the transactions that will take place over Facebook, and whether it increases antitrust questions already dogging the global giant. Law enforcement agencies will investigate its possible use for money laundering and terrorist financing. Central banks will be attentive to cross-border payments that go around them, and tax authorities will not be quiet.
It is an obstacle-rich environment that Facebook will confront and need to overcome. Facebook’s disruption in this sector may have lasting impacts on global commerce, and will certainly provoke a response from the many companies and interests it will be challenging.
The Silicon Valley tech company has faced intense scrutiny from regulators for months before the Libra announcement over personal security and data privacy concerns, and already Chair of the House Financial Services Committee Maxine Waters has called on Facebook to pause the Libra project.
Navigating these minefields will require serious time and effort. Companies of all sizes should be thinking about how they will be impacted by regulatory action in Washington — and whether their voice will be heard as this framework is developed and enacted. Innovators in the cryptocurrency space should be focused on what they do best, which is where those of us inside the beltway can help. Clearly, we’re on the cusp of serious change — and disruption. Given all the legal, regulatory and policy debates to come, people and businesses alike need the appropriate tools to navigate the storm.
• Craig Stevens is a partner at DCI Group, an independent public affairs firm based in Washington, D.C., where he leads the firm’s cryptocurrency practice.