The Breakdown - SPECIAL EDITION: An Opinionated Recap Of Zuckerberg's Libra Testimony Before Congress

Episode Date: October 23, 2019

Facebook CEO Mark Zuckerberg testified before Congress today, nominally about Libra but actually about a lot of things. In this (opinionated) recap of the testimony, we look at: What was different vs. the same in FB's narrative What was different vs. the same in Congress' questions The negotiation factors moving forward Highlights Predictions  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. What's going on, guys? It is October 23rd, 2019, and we are doing a special Libra edition. Mark Zuckerberg testified before Congress today. So obviously a huge day in the history of not only Libra, but cryptocurrencies and cryptocurrency and cryptocurrency regulation in the U.S. as well, although you wouldn't always know it from the line of questioning that we saw. from Congress. So today, instead of doing our normal three at three, I'm just going to focus on that. I did like an infinity long live thread watching the whole six-hour thing as I was trying to do other work as

well. So I spent a lot of time watching other things that were going on. And so what I want to talk through is one, what was new from Zuckerberg's positioning, two, what was different or the same in terms of what Congress was saying? Three, what are the negotiating chips now, right? What are the future kind of balls that we're going to see push back and forth. Four, what were some of the best moments, little highlights? And five, just some quick predictions that ended off. So let's start with what was new from Libro. What was the same or different, right, in terms of their positioning? And I think the first thing I would say is I think there was actually less unbanked. There was still the lead of the argument. The raise on debt for this is to help people who the

financial service system weren't helping. However, they didn't beat it. beat that horse to the same way as David Marcus did. Perhaps that was because there was this skeptic, they got such skepticism around it before, but that's clearly, although it is very much a part of what their narrative is and right at the top of Zuckerberg's advanced testimony, it didn't keep coming back to it other than he just feels like innovation should be able to go create new solutions for these populations.

So I would say a little less unbanked. Same amount of Libra isn't us who are a part of it. I think that this is obviously the benefit this time around in this argument is that the Libra Association now actually exists in Switzerland. It has a five-member board, which is different. It has 21 actual members who've started it. So you saw that kind of the same consistent narrative through line of Libra isn't us. We are a member of Libra and we're Cah Libra. more there was a lot of Facebook defensiveness this time right so Facebook is clearly on its back heels in this testimony and this is kind of why I think that Facebook didn't want Zuckerberg to have to be called in is that instead of focusing on Libra a lot of this was about it was a referendum on Facebook again right and even with the first set of testimony from from David Marcus we saw still it was so much a

testimony on Libra, but now the face of, or sorry, the testimony or referendum on Facebook, but in this case, Facebook had a face, right? This Zuckerberg is the face of Facebook. He is the one who people saw in the social network. He is the one who people have read quotes from, right? So it's a whole different level of Facebook acrimony. So a lot of this testimony was, we've worked hard to address your concerns on a whole slew of issues from data privacy to diversity. We should be allowed to proceed with this. It shouldn't be a non-starter that Facebook gets to do this. So obviously we saw more of that. And finally, the last more, we saw a lot more China is a threat, right? So in the first couple testimonies that Marcus gave, it was a little bit more danced around,

right? We kind of referred or he referred vaguely to foreign actors. Obviously, since that's happened, China's been much more vocal about their plans for a digital yuan. Zuckerberg was referencing that quite a bit. So that that narrative line of China being a threat rose much higher. And I think that has to do both with what's changed in terms of China seeing Libra as a threat and aggressively responding, but it also has to do with the political climate

and leveraging that a little bit more. It's not even impossible to me that they wanted to save that kind of the strongest line for further testimony when Marcus came the first time. So that's kind of part one. What was different or new from Libra testimony? Now let's move. move on and talk about what was new or different or the same from Congress, right? So what was,

what was Congress feeling or what did we hear that was different than before? So first, let's start with the same. Same. There was big skepticism around banking the unbanked. We heard it, I don't know, four, five, six dozen, six times today. Just a lot, a lot of skepticism around the sincerity of the goal of banking the unbanked. Now, of course, there was the opposite side, some people who didn't think it was really Congress's job to be the belief police and make assessments about whether they were sincere in that desire. But a lot of folks who are pointing to other areas where Facebook hasn't shown a commitment to this population and asking why it was different. So again, this is kind of why I think that maybe they backed off that narrative a little bit in

terms of how hard they pushed it, is just that we got that same level of skepticism. Another same was I think that there's a really serious. contrast or combativeness between the idea that Facebook on the one hand, and this was in Zuckerberg's testimony, wants to affirm the role of the U.S. and the dollar in the global order, but on the other hand is using a basket of currencies and basing the Libre Association in Switzerland. That has been unresolved, and I think that we saw it kind of in the same light, right? That was being flagged before and it's still flagged now. And in fact, if anything, it might have grown a little bit, But that contrast between the words coming from Facebook that they care about the U.S.'s role and the dollar's role in the world economy,

contrasted with the idea of setting up shop in Switzerland and having the dollar only be a part of the basket of currencies was on display here. Same. We heard again people saying, Facebook, listen, you don't have the trust to do this. Like, you haven't earned the right to do this. You barely earn the right to stay unbroken up, right? So that was the same. We heard that again. More, there was a lot more emphasis on the diversity track record. And part of that was kind of the incorporation of the housing committee piece of this and the role in the housing services industry. But it seemed to me that this was this was kind of the most common thread, particularly from the Democratic side of the aisle in this assessment, was Facebook's kind of, in their estimation, abysmal track record on diversity. And, and you know,

know, I will say that the unfortunate thing is I do think that there's actually an important point here, which is that if you're trying to make a payment rail for everyone, you have to be committed to everyone. That is a reasonable point. What is your commitment to making sure this is for everyone when in the past we've seen that everyone hasn't been kind of gotten the same mandate or the same treatment within Facebook? It got reduced, I think, to silly gotchas and punchlines around how many people, you know, what's the, what have the, what have your hiring policy's been or how many people, you know, how many these Libre Association members have women or minority leadership. And like, again, these aren't unimportant points. But when

we reduce them to five minutes of gotchas, they don't hit with the same authority. So I was a little disappointed, not that there was a focus on diversity, but that we weren't connecting the dots more with Facebook's future obligation to be a global leader if this money system is really for everyone. So, so, but we saw more of it. That's that the one thing that's undeniable. Another more, asking about the dollar's threat to the global, this Libre's threat to the dollar as the global reserve currency. You know, I think that in previous, previous times, that only came up once or twice, maybe from Brad Sherman, who, who really has very strong feelings that this is what all cryptocurrencies are ultimately trying to do, is to undermine the

US dollar as the global reserve currency. That came up a lot more. Not surprisingly, given that you had people like Mark Carney from the Bank of England who are calling for the end of the U.S.D. as the global reserve currency and the design of a Libra-like synthetic digital, synthetic hegemonic currency in the time since last Zuckerberg spoke before Congress, or David Marcus spoke before Congress. So there was a lot more question of that. Since we last saw a Facebook representative or a Libra representative in Congress, two congressmen have written letters to Jerome Powell, the Fed Chair, suggesting a U.S. digital. dollar that came up although with not a lot of satisfactory discussion to be honest it seemed like they I don't know it was weird French Hill who's a Republican from Arkansas I believe was one of the two people who wrote this letter and he brought it up but then spent a bunch of his time talking about other things and didn't

really get to this question of would a US digital dollar just be better it was a very fast answer Zuckerbrook only had time to kind of answer it in the most basic terms and then Bill Foster his co-author didn't bring it up at all so it's a little weird that you know the digital dollar did come up more, certainly because it came up at all, but it didn't really have the space that I would have expected it to. Finally, there was obviously, you know, in terms of this global reserve status question, there was a lot more on China. A lot more people who are looking at this kind of China fear and larger questions of currency wars and trade wars and were kind of viking with that, particularly from the Republican side of the aisle. Obviously, that's a, you know, nervousness around China and China's role is a, I'm not going to go so far.

to say winning narrative, but it's certainly a narrative that people can't not pay attention to. So that was kind of the sames and mores. There's one final more, which I think is both, it's as disappointing as it is predictable, which is the political footballing of Libra. Right. So when this first came out, in some ways, people were just wrapping their heads around this. All of a sudden, they were forced to take cryptocurrency and stable coins and all these new terms seriously, right, in a way that they hadn't before, even if they kind of like, you know, fielded it out to an intern to check out a little bit. Libra meant a rapid kind of uptake in that. And so people's, those first hearings were like a couple weeks after the Libra Association was announced and people were just

catching up. And realistically, there was a, it was a bipartisan concern, let's see, right? It hadn't yet fallen into easy political lines. That's pretty much gone, right? In the sense that Democrats really use this as a chance to build on the anti-tech narrative to have a big business battering stick and really kind of try to like their their main points were about you know there were many people who brought up just how much money in power should Facebook have in general how much money in power should Mark Zuckerberg have in general which again it's not that this is an illegitimate line of questioning it's that it Lieber just slipped very easily into into the kind of the the standard, the rest of issues. So if you were hoping for Libra discussion,

or Libra-specific discussion, you might have been disappointed. And it was the same on the Republican side. You know, it was Republicans saying, look at how mean the Democrats are, where the party that likes you, I mean, in so much, right? And by the way, go innovation. But it didn't just stop there. There were a lot of Republicans who tried to use this as belief, like basically on the one hand said, you know, look at those mean Democrats that are trying to get you to censor speech. I want you to commit to not censoring speech. There was one Republican bar, I think it was, who tried to put Zuckerberg on the spot to say, hey, will you commit to not blocking any ads from Donald J. Trump or supporting Donald

J. Trump? Which is like, again, it's like, one, I think any time that you are, have a five-minute slot that you're supposed to be fact-finding and gathering information and getting to talk directly from a person of relevance and importance to a particular new thing that's happening, Don't use that as a chance to try to get a gotcha commitment that you hold over their head later. I mean, maybe you should. Maybe I'm wrong. Maybe it's political tactics 101. In fact, it is kind of organizing tactics 101.

But like, piss off with that, man. It's so frustrating to watch that, especially after six hours. So, you know, my recommendation is maybe it works politically, but there's a whole lot of us that it turns off when you do that too. So like I said, as predictable as it is disappointing was the political footballing of this issue. I think it's big enough that I'd like to see more, I don't think it falls easily into political lines and I hope it doesn't just get reduced to them. But let's move on to number three, which is what are the negotiating chips, right? So in some ways, all of these testimonies are political theater. And they're a chance for politicians to catch a sound bite, which, by the way, goes back to the political footballing and the gotcha tactics that we talked about before.

but there are a chance as well to that's part one is the political theater part two is getting a sense for where you want to start the conversation that happens behind the scenes outside of these political forums outside of these public forums and a lot of what you do when you're listening to six hours of this crap is you try to figure out where where do we actually pick up the conversation after and I thought there were a few areas which were interesting indicators of that to me Number one and biggest in some ways was Zuckerberg repeatedly affirming that they will not move forward without regulatory approval. So he said this to one person and another person tried to clarify and he said it again and then another person. And he said it like at least three or four times that they will not move forward without regulatory approval.

And then when people ask what if the Libra Association were to try to move on without regulatory approval, Zuckerberg even said, well, we try to do everything we could to get them to see it our way, which we think they do by the way. but we'd be forced to leave the association. He actually said those words that if the regulatory hurdles of the U.S. were not met, that they would be forced to leave the Libre Association. That seems like a huge announcement, huge concession. One that is so big, it actually, well, we'll see when my predictions, it's prediction second, but I think it's an astoundingly big deal, basically.

They were willing to say that. So that's number one. Number two, we're already seeing some changes that have been made, right? So one, Congressman asked about the idea of dividends or profits for the Libre Association members, and he noticed that that had been removed from the website. And Zuckerberg said that the investment dividend concept was either undergoing some major evaluation or reevaluation or it was just gone entirely. So that's something that I hadn't even actually noticed.

So you've already seen that to some extent there are these concessions that have already happened. A third piece, which is we had read about a couple days ago, but which came up again here, is that they may be willing to do the basket of currencies thing differently, right? So this is one of the two big, big points with the, that, like I said, that congressmen are holding up, congressmen and women are holding up as a problematic with this idea that somehow this is pro-America. is this, on the one hand, Switzerland and on the second hand, this basket of currencies. And the Zuckerberg echoed earlier statements this week from David Marcus that maybe a better approach is actually one-to-one pegs of local government fiat currencies, which, by the way, is basically what Binance's Venus Project, that was a reaction to Libra was suggesting.

So interesting to see that that's clearly, they're clearly signaling that that is a conversation they're willing to have and probably something that they're willing to do. So I would be very surprised, I think, in some ways to see the basket of currencies thing survive the full gauntlet of U.S. regulatory scrutiny. One that I think is a negotiating chip that the U.S. will like, oh, I guess one more, sorry, excuse me, guys, one more thing on the basket of currencies thing. Zuckerberg also said that to the extent that it was a basket of currencies, he wouldn't think it unfair for the the U.S. to demand some amount of minimum threshold that can't be undercut, right? Because people

were concerned that it doesn't matter how much the U.S. dollars percentage starts with what matters is in the future what it's going to be, right? Can the Libra Board decide that, you know, now the dollar is not as strong, so they want to go from a half to a third of the basket, which has major effects for the basket, or major effects for the U.S. dollar, rather. So again, basket of currencies on the table. Zuckerberg said that, you know, maybe they negotiate a per remnant minimum. Finally, or not finally, but next, one of the things that I think that regulators might push for that I don't know where Facebook will land is KYC for all wallets, not just KYC for the Calibre wallet.

And this is something that I think we'll come back to, but it came up, right? That people were asking, you know, will there be anonymous on ramps to this? because if so, they have a real problem with it. So that wasn't necessarily something that Libra and Facebook and Zuckerberg were signaling as a negotiating chip, but something they might have to deal with. And five, the big thing was Switzerland. Switzerland is, it was, again, not something that Zuckerberg was signaling as a negotiating ship at all.

He stayed strong. He didn't make any commitments on that. He kept saying that it was the right place to be for an international organization, but it kept coming up with the U.S. government. So we'll come back to that in the predictions moment. Let's move over to just a couple of best moments. One of the congressmen compared Zuckerberg very favorably to Donald J. Trump. And unfortunately, you only had the view from the official live feed of the congressman at the time.

But then later you could see on the like the C-SPAN feed, Zuckerberg just staying as tight-lipped as possible. Like basically saying you could see in his head over and over again, don't say anything, don't say anything. Don't make a face. Don't make a face. Because it's obviously such a heated comparison. But a couple times or a couple congressmen later, Juan Vargas asked him, he couldn't resist asking him what he thought of that comparison. And then before Zuckerberg could get himself into major trouble, he was like, basically he was like, dude, I'm fucking with you. You don't have to answer that. Don't worry about it.

Because he was like, you could see him building up to be like, how do I diplomatically answer this? So that I think was just a moment of levity in a six-hour hearing, which you really need. Second, Patrick McHenry, you know, he was the one who had that amazing statement about Satoshi Nakamoto in the first hearings that we heard, basically saying that what Satoshi Nakamoto unleashes an unstoppable force in the world. It was a really profound moment. I thought he had another one of those profound moments, although, you know, because it didn't reference Nagamoto, it's not going to have necessarily the same uptake. But he said, he really nailed that I think that these hearings were to some extent a referendum on technology.

companies more broadly. He said, maybe it's not about Libra, not about housing ads, not about Facebook at all. It's about the larger question. And fair or not fair, you're here to answer for the digital age. I thought that was just such a perfect summary of what I think is going on. And by the way, like, I think that that also that fair or unfair or not fair point is really true. Like, it almost doesn't matter whether you think Zuckerberg should have to or not. It is simply the consequence of living in an era where the communications infrastructure that is privately owned is so massively more powerful than anything we could have ever imagined, right? Like, it is just in the same way that, that Zuckerberg didn't ask for, to unlock these secrets that were so powerful from a business perspective that have catapulted him to the realm of the most powerful and, you know, wealthy financial tycoons in the world, Titans in the world. You know, it almost doesn't matter whether he would have wanted or not to have to answer for the digital age. Here he is. So I think that is, but it's worth us all. as we think about this, as we try to contextualize it, as we try to do our best to make our way through it,

to understand what's going on, that this isn't just a conversation about Libra, that this isn't just even a referendum on Facebook. This is a referendum of modern forces and modern forces that have changed so rapidly that almost all of us are racing to catch up with it. So I thought that was a really profound moment. And then one more, I've got to throw it to Warren Davidson. I'll find it down here in just a second. So Warren Davidson has spent a ton of time in and around this community. He's the one who entered the word shit coin on the congressional record in testimony with Meltem. And so he had another great quote today where he, so yeah, there's 58 tweets into my thread. I said, first mention of Bitcoin from Warren Davidson. And he made a joke. He was like,

listen, I bet you are, bet you're wishing your Satoshi Nakamoto today. And he said, hard to subpoena Satoshi Nakamoto. So that was another great moment of levity, but also of more profundity underneath, obviously for those of us who are hanging out in the Bitcoin world. But finally, let's wrap up with just a couple predictions. This one's already going along. But again, it's a huge day, so kind of important. So predictions and reflections. I've kind of shared some of my reflections throughout the way. Big surprise for those of you who watch regularly. But like if I could wave a wand and have all of the grandstanding and showmanship and all this crap flushed out and more real conversation, even hard stuff, even stuff that is that, you know, I viscerally disagree with on a base level or

things that make me incredibly frustrated. I wish that that was what the substance of this conversation is. Of course, we live in a media age. And in fact, you know, Facebook has made, has been a major factor in that. But, so we don't get that. You know, these conversations, I hate it when important conversations like free speech are reduced to gotchas. So that's like a matter reflection, but it's also, let's be realistic and it's always going to be like this. So the best that we can do is try to really shine a light on the people and the conversations that are doing their best. But I think that the predictions that I have.

So one, I think that the basket is on the shakiest ground. I think that that basket is not long for this world, this idea of a basket. I think maybe they'll try to walk down the path of having the, having the, like a minimum commitment to the U.S. dollar as part of the Libra Association, but I would be surprised. I mean, they are signaling pretty strongly that the basket of currencies is something they're willing to trade off to get this done. So that's prediction one. Prediction two, I think that there will be a major push, major, major, major, major pressure to guarantee KYC on all Libra wallets, not just Calibra. and I think that they will ask the Libra Association to put major, or the Facebook to put major pressure on the Libra Association to do that.

And I don't know how that shakes out. I think that it might be a test of what control Facebook really has, but I really believe that the, you know, forget every FUD narrative that we feel like is a real thing in the Bitcoin and the crypto industry. terrorist money, drug dealer money, money laundering money, that is the FUD narrative that has been with this industry since the beginning and continues to be here now. And so giving their official approval to something where someone's going to go build the Hamas and Hezbollah wallet is going to be too much for a lot of people in the stomach. So I think that they will want to see the export of KYC across all Libra wallets. That's one of my predictions. Number three, we have not heard the last of this Switzerland issue. And I don't know how this resolves because, like I said, Facebook did not seem to give any give on this.

You know, they didn't seem to have any real willingness to discuss this or bring this to the Libra Association, which could be them being coy, that could be them being smart and political and keeping things close to the chest. But I think that U.S. regulators, when the argument is we want to be the innovator as the U.S., I think that it might need to be not just pegged to the U.S. dollar, also built in the U.S. And, you know, I do think also that the Libro Association, if they wanted to stay in Switzerland, is going to have to have a better answer than that's where international institutions go, because guess what? There's a hell of a lot of international institutions that are based in New York City as well. So, you know, I don't know. I think that that's one, like I said, we haven't heard the last of Switzerland. In fact, we're that Patrick McHenry, I think, was actually trying to give

Zuckerberg an opening to say we had to go to Switzerland. because of regulatory clarity that he didn't take. So I also wouldn't be surprised if they do want to stick with Switzerland to see that come back up again. But, you know, that's one that we have not heard the last of. And then finally, this is one I have less conviction of that I think that there'll be a push for K.C for all wallets. I would be surprised if that didn't come. But I feel like it wouldn't surprise me. Let's put it this way.

That's the amount of conviction that I'm willing to give it. It wouldn't surprise me if there is. a plan B with Libra in terms of Facebook as a whole. And I don't think that this is the main motivation. I don't think this is why I certainly don't think this is why any of the Libra team members are doing this. And in fact, I think that even this possibility would be incredibly frustrating to them. But I do feel like on some level, at some part of Facebook's executive leadership, there may be a plan B motivation for Libra that is not just the unbanked and it's not just payment rails and it's not just the supremacy of the U.S. dollar and it's not even the supremacy of

Facebook as a service. But that is Facebook showing that they can hear concerns and not proceed if they can't meet them in order to not be broken up in other antitrust legislation. You know, this is not the only thing going on with Facebook right now. It came up numerous times today that there are people who feel like Facebook needs to be broken up, that Instagram needs to be pushed off. Obviously, you have Elizabeth Warren who's starting to break out in the Democratic primaries who has come out incredibly strongly the Facebook needs to be broken up. That is a way bigger issue than whether the lever goes through to them. If you're just talking about from a board level, from a shareholder level, from what Zuckerberg has to actually go to bed thinking about every night, it's a bigger deal.

And what gets me thinking that there may be this back of the mind plan B to show how well they can cooperate and that they can be regulated and that they will say, okay guys, you're right. We can't get this done right now. We really appreciate the time. We're going to keep doing other things. It really feels to me like they may be having that as a backstop. And the thing that makes me think that is this idea that the really strong argument that they will not move forward without regulatory approval. It's so out of character to commit to that when it's not even clear, as many congressmen and women pointed out, what regulatory approval has to look like. So those are my predictions. One, basket is on the shakiest ground. Two, I think we're going to see a push for KYC in all wallets. Three, we haven't

heard the last about Switzerland and four, that there may be this backup plan in the back of some of their minds, maybe even that they don't want to admit, that they're trying to play nice with Congress so they don't get broken up. And Libra might be the sacrificial lamb. What do you think, guys? That's my take. I'm really interested to hear what you guys have to say. Do you think this was a win for Facebook, for Libra, for the cryptocurrency industry in general? Tell me what you think and thanks for watching so anyways guys i will be back with a normal three at three tomorrow but until then peace