Facebook’s Reputation Proves to Be a Roadblock for Libra

The focus of the hearing between Facebook’s David Marcus and the Senate on the Libra cryptocurrency was trust—or the lack thereof.

David Marcus, the head of the blockchain division at Facebook, testified before the Senate Committee on Banking, Housing, and Urban Affairs to clarify issues around Libra, the cryptocurrency Facebook revealed last month.

Libra Under Fire

Marcus’ testimony was arranged after Libra attracted national scrutiny from several divisions of the United States government. The Federal Reserve Chairman, Jerome Powell, stated that Facebook should halt development until major concerns around privacy and money laundering are addressed.

The committee has been unrelenting in criticizing Facebook for its previous scandals. Incidents such as the Russian election meddling and Cambridge Analytica dominated the hearing. Making matters worse, this week the FTC approved a $5 billion fine on Facebook for mishandling users’ data. Senators have clearly stated that Facebook is hard to trust right now.

“I don’t trust Facebook, and it’s because of the repeated violations of user privacy and repeated deceit, and I am not alone,” stressed Arizona Republican Martha McSally. “The core issue here is trust.”

Marcus tried to address the claims, noting that Facebook is not the sole member of the so-called Libra Association backing the cryptocurrency and that other members — including the likes of PayPal and Visa — would minimize the company’s influence over the network.

“Facebook is just one vote among many,” he told the Committee.

Facebook Has Trust Issues

The Senators were not convinced. Facebook’s market power, vast resources, 2 billion user base, and founding role in Libra would make it trivial for the company to heavily influence the payment system.

Unlike other hearings, those on the Committee appeared relatively knowledgeable about the potential of distributed ledger technology. Senator Thom Tillis, a Florida Republican, added to the positive sentiment towards crypto, saying the United States should take a leading role in setting cryptocurrency regulation.

However, there is still uncertainty around the securities classifications, tax treatment, and legal status of cryptocurrencies in the United States. This allows other jurisdictions such as Malta and Switzerland to be at the forefront of the cryptocurrency industry.

Nevertheless, the Senate Committee was more concerned about the trustworthiness of Facebook over the threat that Bitcoin, or any other payment network, poses to the U.S. financial system.

As Senator Brown effectively summarized:

“Why with all of your problems should we trust [Facebook] with something as important as a worldwide currency and the damage that can come from it.”

Canadian Municipality Set to Accept Bitcoin for Tax Payments

The City of Richmond Hill, a municipality in Canada, is in talks to accept Bitcoin (BTC) for property tax payments from residents and businesses, according to an announcement on Monday.

The municipality has entered a partnership with cryptocurrency trading platform and payments processor Coinberry for the initiative. Coinberry is a Toronto-based, FINTRAC-registered, financial technology solutions provider focused on blockchain and digital currency solutions.

This takes place after local council voted in July in favor of entering into this agreement with Coinberry.  Once the deal is concluded, over 200,000 residents of the city will see Bitcoin as a payment option on the municipality’s website. Deputy mayor Joe Di Paola is optimistic about the upcoming cryptocurrency implementation as the newer generation is comfortable with digital currencies.

“We believe that the demand for a digital currency payment option is only going to grow in the coming years, especially amongst millennials,” said Joe Di Paola, deputy mayor, Richmond Hill.

This is the second official partnership for Coinberry in less than six months, which highlights a growing interest for the implementation of real world digital currency solutions.

Coinberry already has an agreement with the Town of Innisfil in Ontario to provide its 36,000 residents the option of paying property taxes in Bitcoin, as part of a one-year trial. Andrei Poliakov, Coinberry CEO and Co-Founder stated:

“We are very happy to be entering into a partnership with our second Canadian Municipality […] Leaders of government and enterprise organizations are realizing that, with the right partners, they can innovate with blockchain and digital currencies. We’re pleased to be working on additional innovative solutions with leading enterprise and municipal partners, and have a number of very exciting initiatives we will be announcing over the next several months.”

Besides providing its users with the possibility to buy Bitcoin, Coinberry is driving adoption for digital currencies in practical solutions. Coinberry is currently the only blockchain based cryptocurrency platform to have secured partnerships and provide solutions to two Canadian Municipalities.

Trump Shares Critical View Towards Cryptocurrencies and Facebook’s Libra

Donald Trump tweeted on Thursday that he is “not a fan” of cryptocurrencies, marking this as his first public comment on cryptocurrencies since becoming president of the United States.

He criticised Facebook’s proposed Libra, demanding that companies seek a banking charter and make themselves subject to US and global regulations if they wanted to “become a bank”.

“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” Trump wrote on Twitter.

He continued to criticize Facebook’s Libra cryptocurrency project in subsequent tweets, stating that it “will have little standing or dependability” and hinting that U.S. regulators would subject the social media platform to regulation:

“If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”

Trump further highlighted the potential of cryptocurrencies being used in illicit activities and facilitating illicit activities, in particular drug trade. He concluded by strongly stating that there’s only one real currency in the USA, which is the U.S. dollar.

“We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”

U.S. regulators and lawmakers have taken notice of the Libra project, with both the U.S. Senate Banking Committee and the House Financial Services Committee having scheduled hearings next week with Facebook’s blockchain lead David Marcus.

Previously, the Senate committee has expressed concerns about Facebook’s track record with user data and privacy, writing an open letter to the company in May. In response to that, Marcus stated that Facebook would not itself collect any personal financial credentials.

Trump’s comments follow after the Federal Reserve chairman, Jerome Powell, stated on Wednesday that Facebook’s Libra project cannot move forward until it addresses concerns over privacy, money laundering as well as consumer protection and financial stability.

Meanwhile, Facebook announced last month that it would launch its global cryptocurrency in 2020. The new coin would be regulated by the Libra Association, which comprises of Facebook and 28 partners, including Mastercard Inc, PayPal Holdings Inc and Uber Technologies Inc. At the moment, no other banks are part of the association. JPMorgan Chase & Co, the largest US bank by assets, has recently announced its plans to launch its own digital coins.

New Job Ad Confirms Goldman’s Crypto Plans

A fresh job listing from investment bank Goldman Sachs reveals intentions to pursue digital asset development.

Goldman Sachs has reportedly launched a new crypto-related business within its incubator, and it is looking to go further than ever before with digital assets.

The job ad is for a Digital Asset Project Manager which will lead the new business. The executive level position will be responsible for developing comprehensive road maps for distributed ledger technology that will “play an integral role in helping define both the scope and direction of the business,” according to the job posting.

CEO David Solomon has previously stated that the bank is looking for opportunities to enter the cryptocurrency space. He made specific reference to stablecoins and asset tokenization, as the direction in which the payment system will go.

The open position is part of the firm-wide initiative, which aims to cross-pollinate different bank divisions to drive innovation and growth. The project manager will consult with the firm’s businesses, risk, operations, compliance, legal and finance teams to develop “unprecedented projects.”

Although details for the job position are limited, Goldman is presumably looking to launch something similar to JPMCoin, which is JPMorgan’s digital asset aimed at simplifying international transactions between itself and its wholesale clients.

Goldman has been on the fringes of the cryptocurrency industry for a while. In 2018, the bank considered to create a cryptocurrency fund and provide secure storage services. At the time, some speculated the move would direct Goldman Sachs towards providing other custodial services, such as a brokerage.

Around that time, Goldman Sachs and Morgan Stanley also became the first banks to use a blockchain-based payments service developed by IBM and CLS, a currency trading utility. Currently the firm is trading non-deliverable forwards tied to Bitcoin.

SEC and FINRA Share Outstanding Issues with Crypto Custodians

The United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued a joint statement on July 8th, in which they outlined regulatory compliance issues for cryptocurrency custodians.

Both agencies believe that there are a number of questions they need to address before they can approve crypto companies’ applications to become broker-dealers.

The statement outlined important criteria for both institutions’ approach to broker-dealer regulation, investor protection including when assets are deemed as securities under the 1970 Securities Investor Protection Act (SIPA), as well as various factors related to many of these questions such as when to consider approving a broker-dealer application of crypto-related companies.

The statement reads:

“The requirements of the Customer Protection Rule have produced a nearly 50-year track record of recovery for investors when their broker-dealers have failed. […] This record of protecting customer assets held in custody by broker-dealers stands in contrast to recent reports of cybertheft, and underscores the need to ensure broker-dealers robust protection of customer assets, including [cryptocurrency] securities.”

Broker-dealers in the U.S. are registered and regulated to buy and sell securities for themselves or their clients. And some firms use digital assets such as securities, thus allowing them to cater to institutional investors that cannot hold or directly buy assets.

“Put simply, the Customer Protection Rule requires broker-dealers to safeguard customer assets and to keep customer assets separate from the firm’s assets, thus increasing the likelihood that customers’ securities and cash can be returned to them in the event of the broker-dealer’s failure,” notes the report.

Apparently, the agencies claim that a crypto custody service may not be able to sufficiently prove that it actually controls the assets it supposedly holds. For instance, although a broker can verify that it has private keys to a crypto wallet, the challenge is to prove that no other individuals or institutions hold a copy of the private key, which could allow them to transfer digital asset security without obtaining permission from the broker-dealer.

In addition to that, if the transaction is made successfully, the custodian has no power to reverse it. This is applicable to all transactions a custodian wants to cancel or reverse.

Apart from custodial services, the regulators have suggested in the statement that they consider over-the-counter (OTC) trading, where brokers do not have custody of the digital asset securities, as lower-risk. This would mean such OTC trading would not require high levels of scrutiny. The report further tackles issues such as non-custodial service registration, bookkeeping policies, and liquidation following SIPA’s protocol.

Meanwhile, the SEC requested feedback back in March on how it might regulate crypto settlements. The agency showed further interest in the role of custodians in non-delivery versus payment trading as well as what safeguards are currently in place.