Let’s face it; no lawmaker was prepared for Libra. Facebook’s digital currency project was unveiled in June 2019 and took the regulatory world by storm, confirming to Silicon Valley that politicians do not understand how the world of digital payments really works.
The confusion and fervour was perhaps best encapsulated in last week’s Congressional hearings featuring Facebook CEO Mark Zuckerberg. While this time there was no confusion between Libra, the digital currency project, and LIBOR, the London Inter-bank Offer Rate, it is quite clear that Zuckerberg and Congress were reading from different scripts.
Barring a few questions on Libra’s reserves, the consequence of Switzerland being the abode of the Association and the threat posed to the U.S dollar, most politicians used their 5-minutes of questioning to further their own agendas and attack Facebook’s. It was quite clear that Congress did a poor job of peeling back the layers to understand what Libra actually is and issue appropriate regulations.
The apparent lack of understanding was so palpable that third-party organisations have decided to address the political shortcomings. The Electronic Frontier Foundation [EFF], an international non-profit digital rights group, recently penned an article containing rules that lawmakers should keep in mind when grilling Facebook executives about regulations on Libra.
In an article titled, “Facebook Faces Another Congressional Grilling,” the EFF stated that regulators need to have a calculated and measured approach when regulating Libra and that reactive legislation can do more harm than good. The EFF said,
“We remain concerned about the implications of Libra, including the serious possibility that reactive legislation to this idea could further harm consumers—and possibly entrench Facebook’s position rather than encourage needed competition and innovation in this space.”
The EFF went on to list five principles that regulators should keep in mind the next time they are critiquing anyone operating in the space of digital assets and blockchain technology, so that regulation does not bring about any “harm to consumers.”
Beginning with privacy, a forte that Facebook has dipped its toe into quite often, the EFF stated that regulations should not curtail innovation aimed at enhancing privacy in the space of virtual payments.
One of the arguments used by Facebook is the case of innovation. Zuckerberg had said that Libra is simply a response of “American Innovation,” a point which was echoed by Congress and one that, the EFF states, can be benefit customers. Hence, regulations should not “chill future technological innovation.” A fear of regulation should not deter smaller companies, lacking a legal counsel, from entering the blockchain space, thereby creating a concentration of wealth.
A point which was mentioned by the SEC in its criticism of the cryptocurrency-retail market was custody. The EFF advised regulators to “focus on custodial services.” Custodial companies, in the digital rights group’s opinion, are the prime abusers of “consumer trust.” In this context, regulations should,
“Any regulation should protect individual miners, merchants who accept cryptocurrencies, and individuals who trade in cryptocurrency as consumers.”
If one principle were to be taken away by regulators when looking at cryptocurrencies, it is the nature of decentrality. Lawmakers should recognize the “important role of decentralized exchanges and other decentralized technologies in empowering consumers.” The principle added that any technology that promotes decentralization should be protected.
Finally, regulations should not cause harm to the underlings of this debate, the developers. One of the main struggles for the EFF has been to legally equate people who write and publish codes as a form of free expression of ideas and hence, is protected under the First Amendment. The EFF added,
“Any regulation in this space must heavily weigh the First Amendment protections for free speech and must defend the rights of speakers to express themselves.”
The question of privacy, innovation, custody, decentralization and development should be weighed heavily, prior to making any digital assets-focused regulatory decision. Regardless of these principles stemming from the case of Facebook’s Libra, it could go a long way in ensuring the cryptocurrency and blockchain space continue to develop under the watchful eyes of regulators.