Facebook’s new cryptocurrency raises red flags for critics
Facebook is facing fresh scrutiny from lawmakers and consumer advocates over its plans to launch a new cryptocurrency, a project that could fundamentally alter the way millions of people exchange currency online.
The company’s digital currency project, Libra, is backed by dozens of powerful businesses, including MasterCard and Uber, and is slated to launch next year. Libra has branded itself as an effort to aid the “unbanked,” the estimated 1.7 billion people who do not have access to traditional banking.
On Wednesday, the Senate Banking Committee under Chairman Mike Crapo (R-Idaho) became the first to schedule a hearing on the project and related privacy issues, set for July 16.
And in the House, Financial Services Committee Chairwoman Maxine Waters (D-Calif.), within hours of the company’s announcement Tuesday, called on Facebook to halt the project altogether until lawmakers have more answers.
“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,” Waters said in the statement.
She hit the company over its history of privacy breaches, alleged violation of consumer protection laws and ongoing data privacy controversies. Waters called for a “moratorium … until Congress and regulators have the opportunity to examine these issues and take action” and said she is planning to call Facebook executives before her committee.
Facebook’s toughest critics are seizing on the project with the company already facing a slew of other concerns over its market powers and privacy protections.
Sen. Sherrod Brown (Ohio) — the top Democrat on the Senate Banking Committee — has been hitting the tech giant over the ambitious undertaking.
“I’m very concerned about how they use their power in the marketplace, how they profit from people’s data, how they show so little concern for privacy,” Brown told The Hill on Tuesday.
In a statement, Brown also called on the government’s “financial watchdogs to scrutinize this closely to ensure users are protected.”
“We look forward to responding to lawmakers’ questions as this process moves forward,” a Facebook spokesperson told The Hill.
Facebook’s cryptocurrency plans are an ambitious move for the company. Facebook on Tuesday said it hopes Libra makes transferring money as easy as sending a text message. The company is launching a new subsidiary, Calibra, tasked with rolling out the alternative financial system.
The cryptocurrency will be operated by a nonprofit called the Libra Association, headquartered in Switzerland, which will give Facebook one vote among many companies overseeing the project.
Facebook emphasized that the cryptocurrency will be governed by the Libra Association, a likely attempt to assuage concerns about the tech giant gaining too large of a foothold in the nascent digital currency industry. And the company has pledged that none of the financial customer data collected by Calibra will be shared with any other Facebook service.
But consumer advocates insist that Facebook’s ownership of the project raises unavoidable red flags, considering the privacy and antitrust concerns that have swirled around the company for years.
“Facebook is about the last company in the world that should be given authority to develop crypto currency,” Marc Rotenberg, the president of the Electronic Privacy Information Center, told The Hill in an email. “Facebook does not protect consumer privacy. There is no reason to believe it will protect consumer financial transactions.”
David Marcus, who is heading Facebook’s cryptocurrency effort, on Twitter wrote, “we understand we will have to earn your trust.”
Facebook has faced a barrage of scandals over its handling of user data for several years, at one point in 2018 announcing that it had discovered a breach affecting the accounts of 50 million users. The company’s Cambridge Analytica data scandal marked a turning point in the country’s awareness of data privacy issues after it was revealed that a public relations firm obtained data on hundreds of millions of Facebook users without their consent and used that information to spread pro-Trump messages.
“Given the grave concerns about Facebook’s privacy practices, the promises to keep financial data separate from your Facebook data — there are questions whether that promise will be kept and what that means for consumers,” Christina Tetreault, policy counsel on Consumer Reports’ financial services team, told The Hill.
The white paper on Libra says Facebook created Calibra, the subsidiary, “to ensure separation between social and financial data.”
“We’ve heard loud and clear that you don’t want social and financial data commingled,” Marcus said.
But there are lingering questions about whether Facebook will follow through on that pledge and how it plans to achieve a total separation when Libra will be available in Facebook’s messaging services, Messenger and WhatsApp.
“Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy,” Brown said.
Some critics have said Libra is antithetical to one of the original goals of blockchain, which was to create an alternative payments option outside of traditional institutions. Libra is backed by some of the most powerful financial companies in the world.
“Technologies like blockchain were touted as helping to break the hold of large platforms,” Sen. Mark Warner (Va.), the top Democrat on the Senate Intelligence Committee, said in a statement. “Instead, we see Facebook using its scale to blunt the promise of decentralizing technologies.”
The cryptocurrency move comes months after Facebook CEO Mark Zuckerberg announced that the company is making a “privacy pivot,” turning its attention away from the public News Feed and toward direct messaging and small groups as it makes an effort to better protect users’ privacy. Some analysts have raised the possibility that Libra will bolster Facebook’s profits at a time when the company is undergoing changes that could undermine its fundamental business model, which relies on targeted advertising through the collection of user data.
“Right now, their [business] model is under attack,” Daniel Ives, an analyst covering the technology sector at Wedbush, told CNBC. “They need to diversify and further monetize those 2 billion users, and that’s what this is doing.”
Libra’s potential independence from traditional banks could also pose unique legal and oversight challenges for financial regulators. The project is likely to boost federal scrutiny of Facebook on a number of fronts, including the possibility that the Securities and Exchange Commission (SEC) will seek to regulate Libra as a security.
The SEC declined to comment on whether it has engaged in conversations with Facebook.
The Libra white paper addresses the issue of potential regulation. “We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system,” the paper reads.
Tetreault from Consumer Reports said federal regulators have taken a “variety” of approaches to cryptocurrency, and it’s not yet clear how Facebook will be treated. She raised concerns that some approaches are “not as consumer-protected as they should be.”
Lawmakers are already focused on Facebook and its market power after the House Judiciary Committee this month launched an antitrust investigation into top tech giants. Warner in a statement accused Facebook of leveraging its “dominance” in order to enter the e-commerce market.
A Warner spokeswoman told The Hill that he is planning on introducing legislation in the coming weeks aimed at blunting that dominance.
As lawmakers and regulators grapple with the potentially game-changing cryptocurrency, they will also be under pressure from outside groups skeptical of Facebook.
“Consumers should be leery of this proposal,” Tetreault said. “They should wait for more details before deciding to act.”
Sylvan Lane contributed.
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