The public is justified in its skepticism of Facebook’s coming cryptocurrency “Libra.” But in government’s rush to regulate the tech behemoth’s digital currency, lawmakers should balance their wariness of Facebook with the potential of the underlying technology. An overzealous, heavy-handed, or knee-jerk response could benefit Facebook while hurting some truly transformative projects around the world.
You’d be naive to think that Facebook does not recognize how it might use such regulation to its own advantage. Among the most effective ways for Facebook to widen its moat is by encouraging onerous government regulations that would create an uneven playing field. By facilitating (either directly or indirectly) additional roadblocks in the form of prohibitive government policies, Facebook knows that it will deter current and new market entrants who are at a resource disadvantage.
Facebook has a track record of endorsing government regulation. Founder and CEO Mark Zuckerberg called on politicians in March to create policies in four areas: harmful content, election integrity, privacy and data portability. In the hypothetical scenario that regulators require a manual review of all content uploaded to social networks, you can guess the number of companies with the cash flow to abide by those rules.
Nevertheless, the government will pay attention to Libra, and whatever conclusions that regulators draw about the coin should not apply to blockchain technology as a whole. The two are different.
Blockchain enables verified, peer-to-peer transactions, and its goal is to keep track of ownership with one major differentiator: No one controls it and no one can shut it down. It’s called “blockchain” because transactions are recorded in 10-minute blocks, and each block is tied to the previous set of blocks in a chain over time. The work of verifying the transactions and adding them to an irreversible digital ledger is what is referred to as “mining” cryptocurrency, because people are rewarded with digital “coins” for their work and contributions to the network.
The Libra “blockchain” does not use blocks or a chain in its digital currency. Nor is it decentralized since The Libra Association will oversee the operation of the coin. Despite the Libra Association’s stated goal of moving toward decentralization over time, there are no guarantees. Facebook’s spotty track record on privacy also casts a shadow over any attempts they make to connect your digital wallet and your Facebook account.
These fundamental differences with blockchain should prompt regulators to draft separate rules for digital currencies such as Libra. However, it isn’t clear government will understand the nuances and act prudently.
Give credit where it’s due. Facebook is smart and bold. Libra is an aggressive move to create a mass-appeal, stable digital currency that exists outside the current financial system. It’s also an ambitious attempt to get ahead of an existential threat to their business. Blockchain can change the way we transact across any industry with networks of buyers and sellers, consumers and producers, or creators and distributors. The open and transparent nature of blockchain creates an environment where information asymmetry is minimized. It’s clear how this dynamic threatens the status quo.
A great outcome for Facebook would be if government regulators overreact and paint digital currencies, such as Libra, and blockchain technology with the same brush, enacting legislation that is so harsh that it handicaps legitimate blockchain projects.
Let’s hope the government shows restraint and finds a middle ground while still holding Facebook accountable.
Martin Floreani (@MartinoFlo) is the founder and CEO of Rokfin, a platform for content creators to monetize their content. He previously founded FloSports, a leading subscription-based sports media company. He ran the company for more than 12 years as its CEO, and raised more than $40 million in funding through a combination of debt and equity rounds.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.