The Breakdown - Crypto Daily 3@3 - 7.16 | Libra Hearing Day 1 Recap - Senate Banking Committee

Episode Date: July 16, 2019

Libra's David Marcus testified before a relatively hostile Senate Banking Committee today. In today's 3@3, we go over: 1) Facebook's trust problem; 2) the most important topics and themes of the questioning; 3) what it all means for Bitcoin.  Watch the livestreamed version on: Twitter - https://twitter.com/nlw Twitch - https://www.twitch.tv/nlwcrypto Youtube - https://www.youtube.com/nathanielwhittemorecrypto

Check, check. All right, what is going on, everyone? Welcome back to another Crypto Daily 3 at 3. I'm doing a special edition today. So we just got off something like two and a half hours of the Facebook Libra hearing. The first of two today was with the Senate banking committee. And it was interesting. And so I wanted to do, instead of the normal 3 at 3, I wanted to do just kind of a quick recap of maybe what we heard, what we learned.

And this is a little off the cuff. I wanted to do this for podcast listeners who didn't have a chance to watch the stream. We did a discussion stream, a live watch party this morning. We'll be doing the same again tomorrow for the House committee hearing, which should be even crazier and even more political. But yeah, so I wanted to go through kind of three big buckets that we heard today and hopefully give folks who are, especially listening along a little bit of a recap. So number one, Facebook and trust. So if you had to pick a word that came up more than. any other word in this hearing, it was trust over and over and again, right? So Senator Sherrod

Brown right out of the gate talked about just how little trust both him and all of his colleagues and the American people in his estimation have in Facebook after it's continuously abused and broken things to use their own words against them that trust over and over again, right? In a lot of ways today was relitigating Facebook's history of mistakes. And it's interesting. interesting in terms of what it means for Libra because it sort of suggests to me that there's a certain portion of the U.S. kind of congressional and senatorial bodies that simply aren't interested in allowing this to proceed because they already think that Facebook is too big as it is, right? There is a sense among this set of people that there is unfinished business when it

comes to regulating Facebook's power in general, even before you get to this point, right? There's still open questions around should they be forced to break up and spin out WhatsApp or spin out Instagram. And so the idea that they're now wanting to basically rebuild the global financial system on their own backs is anathema, right? It's intolerable. It's dead on site. And there's this group for whom that's just going to be the case. And we heard it today from both sides of the aisle, from Democrats and Republicans, there is this perspective. Now, of course, there were others who are basically reacting to that and saying, hey, it's a little bit too soon to throw the baby out with the bathwater.

This is a real opportunity and we need to take it. But if you had one takeaway from this entire hearing, it is that there is an incredible lack of trust in Facebook and in Mark Zuckerberg in particular. And for some people, that is a, it's probably an insurmountable barrier. So that's kind of the big takeaway number one. Now, on to point two, I wanted to talk through just kind of some of the questions that came up and discussion points and topics. And, you know, to be frank, a lot of these were more buried under that larger question of Facebook and trust. But they were there and they're worth noting.

So the first is this idea of American leadership in a new innovation economy. There are a number of senators who recognize that these innovations are important, that they are likely to have an impact on the global financial system, and they've expressed concern that perhaps the U.S. would be left behind, that if we didn't work with an actor like Facebook to enable this sort of transformation, that someone else is going to do it anyways, right? So there was a real strong indication, especially from a couple of folks, that they wanted this sort of, this new innovative error to continue to have American leadership. Someone even used the world, the phrase kind of, we have the gold standard in banking, we want the gold standard in whatever the new world of banking looks like as well. Although interested observers might have pointed out that gold standard might not exactly have been the right phrase for that.

So there was that, this idea of American leadership was point one. Point two, that was kind of contrasted with questions of why then were Facebook setting up the organization in Switzerland? And David Marcus, who definitely, if nothing else, gets an A-plus for patients on the day, his response was that it had nothing to do with trying to move around or get around the American regulatory regime. It had to do with wanting to establish the organization that is theoretically supposed to be an international body in a regulatory space that's well known, has well-respected institutions there, that is inherently international, et cetera, et cetera, right?

So it was an argument about why Switzerland is good rather than why America was bad. Now, there's a lot of people, especially kind of in the conversation on crypto Twitter, who called BS on this. And I think that the unfortunate thing about this type of hearing is that, you know, it forces the people who are in the hearing

who are doing the testimony into a very defensive position, right? David Marcus is not in a position to bite back and kind of say, well, look, here's what you haven't done, what you haven't figured out about how to do regulation. And so we have to go overseas. That would have been seen as contentious. It would not have gone well. And so he rightly didn't do that.

But it's a shame because I think there's a good argument that the lack of regulatory clarity is forcing U.S. companies like Facebook and smaller companies to go seek opportunities elsewhere. So Swiss setup was a second point. A third point had to do with data. And actually, I was surprised at how little specifics around data came up. I think that it was, in some ways, it was almost embedded in this question of the lack of trust that people have in Facebook, that the reason there wasn't more explicit conversation about, you know, how data was going to protect, or how Facebook was going to protect people's data privacy and so on and so forth,

had to do with just almost a disbelief that they even could, right? A lot of the folks who might have asked that questions, that set of questions, didn't even get to it because they were too busy just tearing apart and scoring kind of rhetorical points against Facebook. You know, the folks who did, I think, most notably Mark Warner, what they were most interested in was a couple things. One is questions of exactly how data was going to be siloed between Calibra the wallet and Facebook the company or the Libra Association. and Facebook the company. They wanted to know precisely about data portability. They wanted to know about whether the Facebook-owned messaging properties would create what sort of pressure they were going to be exerting to integrate the Calibra wallet versus

competitive wallets. And I think that this is an interesting point, actually, to make another point about the competitive question. So one of the things that David Marcus said over and over again was that, look, you know, we have 100 members, anyone's able to, even beyond those members, is able to build their own wallet. We're going to have competition, you know, not just from the hundred other members of this association, but from all of the companies around the world that might want to make their own wallets. And, you know, Senator Sherrod Brown and others made the point kind of repeatedly

that they just didn't buy that competitive argument because Facebook is the only one of those companies that has 2.2 billion people using it, right? There's such a huge, powerful force already a network effect that Facebook brings to the table that just saying, hey, other people are also going to be able to build wallets, wasn't really assurance that there was going to be true competitiveness in this ecosystem. So that was an interesting point. But yeah, in a lot of ways, there was less about the specifics of data than I thought. It feels to me like something that's likely to be on the agenda, again, to the extent that there are more hearings, and I think it's likely that there are. Fourth, of course, there was a huge conversation and numerous points about money laundering and

crime. In a lot of ways, though, you know, Facebook has already answered a lot of this. And I think this is one of the interesting things for folks in the crypto industry is that this is the area where Facebook's answers in some ways are the strongest as it relates to what, you know, the U.S. existing power structure wants to hear. right they they discuss how law enforcement's going to be able to track things how you know david marcus made the point that it's explicitly better than cash um for those of us who are interested in a kind of a privacy preserving society and an anti-surveillance society and who are worried about a creeping surveillance state these are scary answers too right this is where to us in some ways it may be the thing that's best about calabra to sovereign governments it's the thing that's worse in a lot of

ways to advocates for greater consumer privacy. And so that's kind of an interesting tension. Now, one interesting point, though, that that was made here was, you know, Bitcoin, as we'll talk about in the third and final segment of this recap, was noticeably absent from the conversations. But at one point, someone did point out, they more or less made the point that Bitcoin is too volatile to gain widespread adoption, whereas Facebook is specifically designed for widespread adoption, and for that reason, it's more of a threat. You had other folks who are saying that basically,

whereas, you know, Bitcoin is kind of open and traceable, you know, and more difficult to use, really, I think Senator Cinema from Arizona made this point. She said that we've moved on from the cash era of crime, but that cryptocurrencies were still really difficult to use. And part of what she worried about as it related to, you know, her specific example was drug cartels on the southern border. The thing that she was worried about with Libra was that it would be very easy to use, this particular cryptocurrency type thing. Now, interestingly, she made the point that this is not a cryptocurrency in the same way that something like a Bitcoin is. So I guess, you know, there's a lot to unpack with the money laundering and crime.

At least there wasn't the same sort of just like silly rhetoric that we've seen a little bit from the high level kind of statements coming out of the White House. It was a little bit more nuanced and a little bit more clear-headed. I think that this also showed that, you know, the set of senators who were at this seem to have done some amount of homework, right? This wasn't embarrassing for most of them in terms of their level of knowledge. This wasn't something that they were just dismissing. And I think that that's, you know, maybe one thing that's positive about all of this is that clearly this is now on the agenda. and you've got, you know, congressional staffers, Senate staffers who are learning up their organizations about what's going on and what the implications are. So the fifth and final point around this sort of questions and topics that came up that I want to make is that one of the strongest kind of themes as well that came out was this question of why it has to be Facebook that's going to do this.

And so a couple different people made this point in a couple different ways. Some said, you know, took this chance to kind of go through the litany of problems that Facebook had in terms of fake news, in terms of kind of international interference and elections and all the sort of things. They said, are those solved? And if they're not solved, why would you go do this unbelievably big, huge, important new thing before those things are being solved? And it was really an indictment of kind of this idea of the continued growth before figuring things out. And effectively, the argument that that was being made was that you can't be trusted Facebook to do this because you haven't even fixed the things that you're supposed to be core at. And now you want to move into an entirely different sector with an entirely different set of rules and needs and regulations and all this sort of stuff. And I think this is really interesting because, you know, it kind of echoes something that I heard a lot when when Lieber was first announced in the crypto community, which, you know, the folks who were frustrated with it, their frustration wasn't that they're they didn't understand that potentially this serves as a gateway drug for something like Bitcoin. It's that they really didn't want a company like Facebook being the standard bearer for cryptocurrency.

They didn't want to be associated with that. They didn't think it was good for the industry to be associated with that. And so it was interesting, and I think in some ways positive, to see at least one senator basically make the point that cryptocurrency and what it represents to the global poor in terms of remittances. in terms of money sovereignty, in terms of lower fees, is exciting and full of potential and high power. But why Facebook? Why should Facebook be the one that's allowed to do that? I think that's an important level of nuance that I was glad to see. So finally, let's talk about what it means for Bitcoin. I think that this is the question that I think we all had going into it in some ways, is where is Bitcoin going to be in all of this? And the short answer,

is that it was almost nowhere, right? It is still sort of under the radar. I mean, we had, I think, two that I counted, maybe three, even instances of people using the word Bitcoin. The first one wasn't until minute 39. I know that for sure because I was watching the time. And it was very clear, and this is something that people have felt, as they've seen, you know, Trump's tweets a few, you know, last week, and then the Treasury Secretary's comments yesterday, it seemed like this was about Libra, and this is about Zuckerberg. This is about an unresolved question of antitrust. This is about an unresolved question about data privacy. And certainly that was the case, right? In fact, Bitcoin was so under the radar that one of the mentions was actually someone saying that

they believed that, you know, they weren't as worried about its threat to the U.S. dollar as a global reserve currency because it was so volatile that it seems highly unlikely to them that it would be achieve the kind of mass adoption that would actually threaten the dollar, whereas Facebook is, you know, in Facebook's Libra specifically, is designed for that sort of mass adoption. So, you know, I think that in a lot of ways, Bitcoin has benefited from being under the radar in terms of the endgame implications of what it means for the U.S. dollar for the last decade, right? Like, as long as governments don't believe that Bitcoin poses a viable threat to their sovereignty, currencies, their response to it stays pretty focused on deterring criminal activity, right,

deterring the uses of that asset that are criminal and kind of adapting it into the regulatory regime in terms of, you know, taxes and how people pay for and all that sort of stuff, right? That's their focus. I think that shifts when they believe it's an actual threat to their sovereign currency. And I think that rightly or wrongly, this hearings show that so far the U.S. government is more worried about what a Facebook-backed currency does, permissioned or permission lists or whatever. They're more worried about that as a threat to U.S. currency than they are about Bitcoin. And I think for my money right now, that's a good thing.

And I guess the last point around what it means for Bitcoin is, man, has it never been better to not have a CEO, to not have a company, to not have someone that you can call for congressional hearings in an easy way? because this was so much about Zuckerberg and so much about relitigating mistakes of the past. I mean, past statements from when Zuckerberg was at Harvard. And, you know, I don't think it's unreasonable. Like, these are all parts of the public record. They're all parts of the story, right?

Like, if you're a politician and you want to make a, you know, construct a narrative, these are things are available for you. And no one's denying, you know, what he said or what those things might have meant. Their best response is, you know, we're working hard to change and be better. But it is kind of a striking reminder of just how singular it was, and it is, that Bitcoin does not have a CEO. It doesn't have a person at the top. It doesn't have a spokesperson to go before the government. And, you know, this is not to say that that's always going to be a good thing. It could mean that when it comes time to defend Bitcoin, it's a lot harder and that there isn't someone for people to rally behind.

But at the same time, right now, it's looking pretty good. So anyways, that's day one. We're going to have a lot more to talk about after tomorrow. The House Committee hearing is tomorrow. And we're actually getting some folks from our community in the crypto space and in the Bitcoin space. We'll be testifying as well beyond market. So it should be a good time for those of you who are around in the morning. We'll be streaming it again.

Come check out either the Twitter at NLW, the Twitch at NLW. crypto or YouTube. YouTube.com slash Nathaniel Widemore Crypto. I'll post all these links, obviously, as well. Thanks for hanging out. Thanks for watching. Thanks for listening. And I will see you soon, guys.

Peace.