The Breakdown - Crypto Daily 3@3 - 7.17 | Libra Hearings Day 2 Recap - House Financial Services Committee

Episode Date: July 18, 2019

On Day 2 of Libra hearings, Facebook's David Marcus testified in front of the House Financial Services Committee. And boy oh boy, it could not have been more different than yesterday. Today was massively more substantive, thoughtful, and holy crap was there a lot of comparison between Bitcoin and Libra...with Bitcoin coming out on top again and again. This day will go down as one of the most significant in Bitcoin's history.  Watch the video version at https://www.youtube.com/nathanielwhittemorecrypto

I highlighted a lot of background information about Bitcoin and about the, you know, immutable, distributed ledger and the benefits of that. Decentralization versus centralization. You know, a lot of people in this space will use a phrase that you may be familiar with. There's Bitcoin and then there's Shetcoin. Are you familiar with that phrase and what people might mean by that? I am. So could you elaborate on how people would differentiate the two? Absolutely. I think the idea here is Bitcoin has had a...

Well, welcome back to the Crypto Daily 3 at 3. For our listeners who are joining us via audio, what you just heard was Congressman Warren Davidson from Ohio entering the word shit coin to the congressional record in the part two of the Libra, the Facebook Libra Congressional Hearings. So yeah, so we're We're back here again. I wanted to do another quick recap, just like I did last night. Kind of just my summaries, my thoughts of what went down

and what happened yesterday or what happened today. And so kind of I wanted to start with, I think, the big banner flag issue before getting into a few of the key themes. And that's where that whereas yesterday was just an absolute Facebook Bass Fest, right? It was over and over and over again. We can't trust you.

how could you even consider doing this? Why do you have to do it? It was basically a non-starter in the Senate that Facebook was the company that was proposing this project. Today was not that, A, B, it was more than not that, numerous times over and over, from the very get-go,

the example of Bitcoin and cryptocurrencies in general, but particularly Bitcoin, was held up as better, as more understandable, as fundamentally, architecturally, structurally, unlike Libra in a way that these congressional officers approved of. It was the story of Bitcoin, not Libra, today in Congress, which I don't think anyone saw it coming. Certainly, I didn't. I had no expectations that it would be like this. In fact, I thought there was going to be more food throwing in Congress than there would have been in Senate. but that was not the case. Today was by and large, more measured, more thoughtful, more engaged.

Even the people that I didn't necessarily agree with, I thought had done more preparation than yesterday. There was radically less gotchaism and trying to just score political points. Now, of course, there were some. Anytime you see this, you're going to have some people who use their five minutes to just make their speech and, you know, get off on their high horse and kind of wander off. But man, by and large, it was a much better, much more productive conversation. And so, yeah, let's go through a few of the themes that I think we're driving that. All right. So, as I said, kind of theme number one was that this wasn't Facebook bashing day. I don't know if they had just watched what went down yesterday and decided that there was enough of that.

But it was definitely much more measured, much more thoughtful, much more kind of like the things that they were bringing up were specific and serious, right? Which was really, really nice to see. So that's kind of theme one. Theme two, questioning the unbanked idea. So one of the things that Libra has made really clear in its marketing materials, in its congressional testimony before the Senate yesterday, is that it has this motivation that is not just profit-seeking, but that is about bringing financial services, better, faster, cheaper financial services to folks who don't have access to them.

So they talk a lot about remittances. They talk about the unbanked. They talk about the underbanked. And there were a lot more questions about this in Congress today than there was. yesterday. I think in part because, you know, a lot of these congressional officers and this committee in particular deal with issues of the unbanked and the underbanked. So they really wanted to push on Libra to find out they wanted questions, answers to questions like, do you need a bank account to open a Calibra wallet? Are you going to need a state issued ID? Right. All of these things

impact how they're going to proliferate this service. Do you need a smartphone? How much data is it going to use? Right. Like these questions are all legitimate. And, you know, Libra has a lot of answers to these questions. But it was a much better line of questioning, I think. It feels to me like those are the right questions to ask. Now, there's one thing that I think if I could wish for anything when it comes to Facebook, you know, I think that David Marcus has done an unbelievable job from the standpoint of patiently and thoroughly responding to a lot of questions, a lot of antagonism. You know, in some ways it felt like part of his political job for the last couple days has been to deal, you know,

know, pay for the sins of the Zuckerberg, so to speak. And, you know, A plus for that. What I do wish is that given how much of the argument, and I believe the legitimate passion for the folks in this project comes from this idea of the unbanked, the underbanked, remittances, et cetera, I really would like them to have a much bigger command of the numbers, right? When folks asked how many of these unbanked are there in the U.S. that are currently Facebook users that this might help. There were a lot of kind of like, well, I don't know. I'd have to get back to you on that. Like this is an opportunity, I believe. If Facebook and Libre are going to make this a centerpiece of what they're going for, they have to own it. They have to be leading that. They have to have these

conversations on demand, right? And of course, it's only been 30 days. They had a million things to prepare for. So this is less a critique of right now and more a suggestion for the future. It feels really important. If this is going to be the lead of your argument, you got to own it. So that's my one thought on that. But I think that it's good that those questions are coming up, right? Okay, theme three, the threat of China. So we talked about yesterday how China was nowhere in the conversation, almost nowhere, right? David Marcus brought it up once intimating, that if, you know, they didn't do it, then someone else would, that the cat was out of the bag when it came to digital mobile money. And right now the U.S. was not in a leadership position, and it stood to lose the kind of global

battle for that to powers who have maybe a different set of values. That was the language that was used yesterday. That language was from Marcus repeated numerous times today over and over and over again. And what's more, a number of the sort of the Congress people who were asking him questions filled in the dots a little bit, talking explicitly about services like Ali Pei, asking explicitly if Chinese state-backed institutions

would be able to be Libra members, which we're gonna get into in just a minute in the governance question. But so China was much more there today. Now still, I believe it was there, than I would have thought. It seems to me that if you are trying to kind of convince U.S. regulators that it's important to throw your lot in with a project that you're, you know, have some questions about the specter of, you know, what is emerging as at least rhetorically and rightly

or wrongly, kind of the big geopolitical threat of the 21st century to American economic dominance seems like a good strategy. But who knows? Maybe that's going on behind the scenes. Maybe there's a specific calculus that that's not the right strategy. It's just notable to me. But definitely more of that today than there was yesterday. Theme four, political neutrality and censorship. So for anyone who's paying attention to U.S. politics, for the last, you know, year, but especially for the last few months, the issue of political neutrality among social media platforms, censorship among social media platforms and deplatforming among social media platforms,

have become really hot-buttoned topics. There's a whole social media summit that was like a thing the other day at the White House. And really this is, you know, it's basically conservatives accusing social media sites like Facebook of a liberal bias and not being safe space. And Trump has made this point ad nauseum at this point, right? And so the interesting thing was this came up today. And I think that there are a lot of folks who feel like, you know, maybe to the extent that this is an issue, it's ultimately the domain of private companies. These social media platforms are private companies who get to decide what the rules of playing there are. And if you build your economic engine there, if you're an entertainer who's on those platforms,

you're playing by their rules. You're taking the risk that they don't like what you do and you're off. And until someone makes the argument, which could be coming, could be down the line, that these social media sites have transcended the realm of private companies and are in fact public utilities that need to be regulated as such, private companies are going to do whatever they want. Now today, Sean Duffy, the congressman from Wisconsin, started his testimony by holding up a $20 bill and asking, who gets to use this? And his point, of course, that he articulated was, murderers get to use it.

Evader, tax evaders get to use it. Anyone gets to use it. This dollar doesn't draw judgments. It doesn't make political judgments. It doesn't make moral judgments. It is completely neutral and censorship-free. And when he pushed, he tried to get Marcus to say that the use of Libra would be that same way. and Marcus wasn't willing to make that commitment, in part because it's pretty clear that he didn't have a mandate from Facebook to make a lot of commitments.

And in part because he said that, listen, the Libra Association is going to make a lot of those judgments. And it was interesting because, like I said, I think there are a lot of folks for whom they feel like this question is at least a little bit in America, just a great, like a political device, a political rhetorical device that's going to get a lot of people excited. it feels a lot more important when you're talking about money. It feels like by taking on this idea of a currency that is transnational is going to be used across jurisdiction, Facebook is suggesting itself to playing by a really different set of rules. It doesn't feel like just a private company that gets to decide who gets to use it or not. I think that there are a lot of folks. I noticed a lot on Twitter who really stood up and listened to that neutrality and that anti-censorship argument.

I think it was kind of a profound moment. And it wasn't just Duffy who made it, but that was the moment where it really hit. So that was a really important theme from today that I think is going to come up a lot. And you're going to see. Which gets actually the kind of theme five, governance questions. So I would say that there was one of the biggest underlying themes throughout the day. And the biggest questions, the biggest thing that people felt unresolved on was how Facebook was going to answer questions about how it's going to make decisions, right? how it was going to determine what happened next.

So this manifested in a bunch of different ways. Obviously, that kind of question of censorship and who gets to use it was one. But the bigger ones were who all is in this 28-member consortium, or later someone called it a cartel of corporations that are in the Libre Association. Who gets to decide who the rest of them are? What are the criteria? Why are their board members that are shared among so many of these organizations? What happens if one of these members buys another one of these members? Do they get two votes effectively?

And on top of that, how is it possible that Facebook, if they've selected all of their own voters effectively, they've made the decision about who's going to be in the association to start, how can they say with a straight face that those organizations are going to provide checks and balances on them? A lot of this came down to what is the checks and balances on you, Facebook? And the answer that was very clear was that a 100-person megacorporation, you know, with some charities thrown in association, was not really cutting it for these congressmen and congresswomen as an answer to that question. So I think what you're going to see actually in a lot of ways over these conversations is one of the biggest and most significantly staked governance debates that we've had in cryptocurrency, period, writ large, right? it's governance and and it may be that Libra lives or dies based on governance assurances that they give that they give Congress so that's going to be really interesting to watch six a six themes the threat to central banks and the US dollar this came up a hell of a lot more today than it did yesterday and you know it came up from a bunch of different folks right so one of the things that

came up over and over and over and over again on Marcus's part was that they were working very hard to not be competitive to the U.S. dollar, that it was not meant to kind of threaten central banks, that they wanted to work with central banks to make sure that their sovereignty was not impinged upon by this. They wanted to work with those existing currencies. A lot of people were just going to the logical conclusion and talking about that this was a threat. And, you know, some of them are the usual suspects that you've seen. So Brad Sherman, who, by the way, feels this way as well about Bitcoin in all cryptocurrencies. He's an equal opportunity Hater has made it extremely clear in very direct and aggressive, frankly, language that he believes

that the greatest source of U.S. power is the status of the dollar is the world's reserve currency. And he sees it as his job and he sees it it's Congress's job to fight any threat to that, that it creates every opportunity for things like sanctions and the ability to keep the government afloat in times of crisis and so on and so forth. So that was, I mean, profoundly clear. For anyone who's in the crypto space and wonders if this is going to be a combating line for our industry, the answer is yes. But there are a lot of folks who are not as hostile as Sherman who also believe that this is a really serious issue. And the interesting thing, I guess, and maybe this will bring me to theme seven, the distinction between BTC and Libra.

One of the biggest areas, and I kind of mentioned this before, I think. So last week, Fed Chair Jerome Powell, when asked about, did he see cryptocurrencies, threatening the status of the dollar as the world's reserve currency. And he said maybe if they get to a standpoint of mass adoption, but right now we're not seeing that. It's not even close to that. Right now, more people are using Bitcoin as kind of a store value like a digital gold. It's not really threatening that currency status in the same way. But Libra, with 2.2 or whatever it is now, billion installs just sitting there waiting, was a fundamentally different threat. That narrative seems to have really hit and have really been accepted and adopted in Congress in a major way.

We heard that over and over and over again today, this idea that Bitcoin, again, good, Libra bad, Libra a threat to central banks into the U.S. dollar because of the scale of the audience that Facebook gets to stick it into. So really interesting, I think really important for where Bitcoin is and more positive for where Bitcoin is in the U.S. US regulatory regime than we would have thought, which brings us to our last point. One of the things that I felt like yesterday watching this is that this format is so hard for really productive conversations because it's basically just a whole bunch of people with their own political agendas yelling at and trying to put on the spot and trying to gotcha the person who's on the other side

of the hearing. And, you know, David Marcus didn't have a chance to say at any point, well, listen, you know, we had to domicile in Switzerland because there's no regulatory clarity, right? You've got three different organizations in the IRS, the CFTC, and the SEC who all think about cryptocurrencies differently, right? To one, it's a commodity, to one, it's a property, to one, it's a security. Like, what is the business supposed to do? What are companies supposed to do other than spend millions of dollars and tons of time with lawyers in Washington? Someone joked, you know, that the bull market for crypto for the last couple years has been in the lawyers, and I don't think they're wrong. One of the things that was the

coolest to see today by far was a number of different Congress people asking, what does it take to get regulatory clarity in the U.S.? Should there be a new body? Should there be an actual new regulator that's specifically designed for cryptocurrencies that's better at knowing and understanding this new type of asset? If not that, what are the answers? What does Switzerland offer? Not antagonistically, not in a gotcha way, but what does Switzerland offer that the U.S. doesn't? This came up a number of times I think from Davidson, from Patrick McHenry and from North Carolina. It was really, really powerful to see. And I think that one of the most amazing outcomes of this would be to see what it would take for Congress to basically say,

what sort of regulatory clarity is needed for this to be domiciled in the U.S. instead? Can we get there? Can we meet in the middle where the U.S. has actually figured out its crypto regulatory regime such that this can happen here? That wasn't something that before today I even thought would have been in my wildest dreams in the conversation. And it probably still isn't. There's probably too many different interests. There's probably too many different combatants. But the fact that it's coming up is really powerful.

And I think it represents a sea change. So with that, I want to kind of move just and wrap up with a few pull quotes from this that I thought were particularly cool. And then we'll get out of here. So we've got Tom. Emmer. So Tom Emmer from Minnesota was super aggressively crypto. And you could see that a lot of these folks, they had worked on things like the Token Taxonomy Act and were clearly focused on on actual kind of productive conversations around the blockchain. But Tom Emmer, he said, he kicked it off with, I'm glad that after 10 years, Congress has decided to pay attention to this technology

that could like the internet upend society. So talk about coming out of the gates hot. He then followed it up with basically, but like, oh, damn, Facebook, why are you doing this? He basically said cryptocurrency is incredibly important, but Facebook is going to screw it up for everyone, which was an aggressive but kind of remarkable statement. You had Congressman Denver Riggelman from Virginia who was talking about digging into the Rust GitHub repos and like looking at where contributors were from and talking about how, one of the main contributors are from Nigeria, and what does that mean from a counterintelligence standpoint,

which is crazy, right? So this is kind of the is this real life moment, like David after dentist. You had Davidson, who he said, people are leaving the U.S. to build crypto projects, not to avoid U.S. regulations because the U.S. regulatory regime is not clear. So he was early in the testimony and made that point, which was super, super exciting. That was echoed by Patrick McHenry later on during the panel discussion,

where Meltemir's, who obviously all of us know and love and were really excited to kind of have representing this industry was there as part of the expert panel after Marcus. And he basically asked her, like, what the hell do we need to give crypto entrepreneurs to get the regulatory clarity that keeps them here? I think that's a really powerful line of discussion. And yeah, so finally, I want to leave on what I think is maybe the most remarkable clip. from the whole affair. So I'm going to mute myself, and I'll leave you with this. I'll sign off after.

Yeah, so let's do it. Change is here. Digital currencies exist. Blockchain technology is real, and Facebook's entry in this new world is just confirmation, albeit at scale. The world that Satoshi Nakamoto, author of the Bitcoin white paper envisioned and others are building is an unstoppable force.

We should not attempt to deter this innovation and governments cannot stop this innovation and those that have tried have already failed Change this pretty unbelievable, right? So this was this is the ranking member of this committee or one of the ranking members of this committee Patrick McCannery from North Carolina saying that the industry the the the world that Satoshi imagined and other people are building is an unstoppable force I don't think anyone in the crypto industry in the crypto space woke up today and thought they were going to hear those words out of a congressperson and I'm still digesting it but listen I really appreciate you guys hanging out for anyone who's been on the stream for the last couple days for people who are just listening in really appreciated

it. Yeah, and I guess we'll do another three at three tomorrow and somehow not talk about Libra. So until then, thanks for watching. Thanks for listening. And I will catch you soon. Bye, guys.