Not for the first time, Facebook has been asked to put its cryptocurrency project, Libra, on hold. The US House Financial Services Committee has written Facebook a letter asking the company to put Libra on hold while the risks and benefits of the proposed cryptocurrency are fully assessed.
Facebook has been asked to do this before and failed to comply so the question must now be: will the company ignore this letter and go ahead with a project that could turn the payments world on its head.
The reason for the request is, it seems, not just because it is Facebook but because of the potential size of the project. And it is not just the US that is concerned, many other regulators have voiced their concerns too. Banks, too, are staying clear – for now.
One major concern is about security.
During the first three quarters of 2018, according to Business Insider, $1 billion was stolen from cryptocurrency exchanges. Potentially Libra could have trillions of dollars of their customers’ money on deposit, without the rules and safeguards that banks are forced to have. And there is, of course, a worry that the very fact that it is Facebook will attract hackers far more than a less prominent company.
This road bump comes at a time when Facebook is ‘reaching saturation’ in markets such as the US and Europe. Zuckerberg now says that growth will come from developing economies.
In fact, it is not that growth is slowing, it is that users are not using the app in the way that Facebook would like. In the UK interactions have dropped by a third in the past year, according to research by Mixpanel. If Facebook usage drops by a third, Instagram would have to double in size to make up the shortfall. A year ago, with users beginning to drop and the company’s guidance to investors being somewhat gloomy, $120 billion was wiped off its share value.
It may be that Libra is Facebook’s attempt (last ditch or otherwise) to find value in the face of declining users and an advertising world which is being threatened because it has failed to keep up and brought a bad name to many parts of the industry.
It may be that Libra has been in the plan for a long time and it may be the case that if Libra had appeared two years ago it would not be the focus for so much scrutiny.
Clearly, it is not going to be plain sailing before it is launched and many licenses and many regulators are going to need to be convinced.
Of course, it may be that Facebook ignores the letter from the US House Financial Services Committee as it has before.
And that could a) get nasty and b) test the strength and determination of both Government and large and well equipped company – to breaking point.