Facebook’s Cryptocurrency

Facebook just announced a Facebook cryptocurrency called Libra.

To me, the timing seems poor. Over the last year or so, Facebook has suffered one public relations black eye after another regarding its privacy policies, it compliance with an order of the Federal Trade Commission, its role in disseminating conspiracy theories and election interference, and its dominance in the social media industry. A Facebook cryptocurrency will, by definition, give Facebook even more private information and even more financial power. Already, regulators and members of the public are shouting “No!”

A few thoughts about what this means:

  • Not long ago, some predicted that cryptocurrencies would lead to a better world, a world that would be more free, more decentralized, where consumers could interact with one another without middlemen. Libra, a cryptocurrency created by one of the most powerful companies in the world, seems to promise exactly the opposite.
  • It didn’t take long to get from idealism to disappointment, but the arc itself is typical of technologies, from radio to automobiles to the internet. We expect technologies to save us, then they don’t.
  • Are tokens securities? Does Howey apply? Facebook’s announcement shows that those questions are small potatoes in the scheme of how cryptocurrencies may re-shape the financial world.
  • Undoubtedly, Facebook is in this for the data. Will consumers care? Probably not.
  • Facebook might be first, but how long can it be before Google and Amazon — especially Amazon — issue their own cryptocurrencies?
  • Regardless of political persuasion, governments aren’t going to allow Facebook or anybody else to compete with their national currencies. We are already seeing opposition from Democrats and Republicans alike, and we can expect more.
  • And the next step: How long can it be before the U.S. dollar itself is given the features of a cryptocurrency, in effect competing with Facebook?
  • The price of bitcoin increased on the announcement, but I think that’s exactly wrong. The announcement shows that bitcoin and other cryptocurrencies will be left behind as big companies take over, just as a few big companies now monetize the once-egalitarian internet.
  • In the same way, I expect the announcement to stifle innovation in the cryptocurrency industry generally, just as the existence of Facebook already stifles innovation in social media and Microsoft once stifled innovation in software. Nobody wants to compete with the giant.

As all six readers of this blog know, I’m a believer in Crowdfunding from a capitalist, ideological perspective. I believe in making capital available to entrepreneurs everywhere, no matter where you grew up, no matter who your parents are, and in making great investments available to ordinary Americans, helping to narrow the wealth and income gaps that do so much harm to our society.

Frankly, Facebook and Libra feel like a step in the opposite direction, toward a world where knowledge and wealth and power are more concentrated and ordinary Americans are so many data points to be monetized. I’m certainly interested in hearing a different point of view.

Questions? Let me know.

Mark Roderick is one of the leading Crowdfunding lawyers in the United States. He represents platforms, portals, issuers, and others throughout the industry. For more information on Crowdfunding, including news, updates and links to important information pertaining to the JOBS Act and how Crowdfunding may affect your business, follow Mark’s blog, or his twitter handle: @CrowdfundAttny. He can also be reached at 856.661.2265 or mark.roderick@flastergreenberg.com

7 thoughts on “Facebook’s Cryptocurrency

  1. Michael Brill

    I’m curious how you come to this conclusion. It seems like the overall trend is that everything will get tokenized and become a market… from buildings to equity to flaming swords to college grad income streams to computing resources, etc. Regulatory issues aside, won’t a simple on-ramp for billions of people be a good thing for crypto overall?

    1. crowdfundattny

      I don’t think so. When Facebook emerged it didn’t make things good for social media overall, when Google emerged it didn’t make things good for search engines overall, and when Amazon emerged it didn’t make things good for e-commerce overall.

      For that matter, there are, what, two major American automobile companies left? How many internet browsers were left after Microsoft?

      We’ve found that especially in the online world, a handful of powerful companies can dominate an industry, which of course stifles competition and innovation.

      But I could certainly be wrong. It’s happened before. 🙂

      Thanks for reading.

      1. Michael Brill

        When Amazon started, there was essentially $0 in ecommerce. Now there is $3 trillion, of which Amazon is around 8%. There are a billion WeChat users, etc. It’s a big world (and invariably, the next wave of technology will undermine incumbents like it always does).

        Continuing the comparison into metaphor, Libra is a car. Crypto is manufacturing. It doesn’t matter if Libra dominates autos because the world still needs airplanes, houses, fidget spinners and left-handed mugs – all of which require dramatically different competencies from what Libra possesses.

        Just as the US Dollar doesn’t replace financial services as a concept, Libra won’t replace crypto.

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