Facebook Libra cryptocurrency hearing highlights social network's trust problems
Some US lawmakers think Libra is a "bad idea."
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David Marcus, who leads Facebook's blockchain efforts, testifies during a hearing before the Senate Committee on Banking, Housing and Urban Affairs.
US lawmakers on Tuesday expressed skepticism about Facebook's plans to launch a new cryptocurrency called Libra in 2020, highlighting the trust issues that continue to plague the world's largest social network.
Numerous senators told Facebook's blockchain boss David Marcus during a congressional hearing that they simply don't trust the social network given the company's bad track record when it comes to privacy and security. The lawmakers brought up a list of Facebook scandals, including how the social network was exploited for election meddling and played a role in furthering hate speech that fueled a genocide in Myanmar.
Sen. Sherrod Brown, an Ohio Democrat, compared the social network to a toddler playing with matches.
"Facebook has burned down the house over and over and called every arson a learning experience," Brown said. Launching a cryptocurrency, he said, is a "bad idea" and Facebook is "dangerous."
Marcus defended the social network's cryptocurrency plans and vowed not to launch Libra before addressing regulatory concerns. He signaled, though, that Facebook will continue to move forward with Libra and its plans to build a digital wallet called Calibra to store the currency.
"If America doesn't lead innovation in the digital currency and payments area, others will," Marcus said before the Senate Committee on Banking, Housing and Urban Affairs.
That comment appeared to resonate with some lawmakers, who said cryptocurrency could help lower the costs of sending money and open access to capital.
"I just think we should be exploring this and considering the benefits as well as the risks and take a prudent approach," said Sen. Patrick Toomey, a Pennsylvania Republican who sits on the Senate banking committee. "But to announce in advance that we have to strangle this baby ... in the crib, I think is wildly premature."
Marcus said Facebook is launching the cryptocurrency along with 27 other partners, but that answer didn't seem to assure lawmakers that they should trust the social network. He also said that the Libra Association that will govern the coin is headquartered in Switzerland "not to evade any responsibilities of our oversight" but because it's home to international financial organizations. Facebook would make it easy for users of its digital wallet Calibra to move its financial data to another digital wallet, he said. But it will not embed other digital wallets within Messenger and WhatsApp, which will work with Calibra.
During the testimony, Marcus said the Swiss Federal Data Protection and Information Commissioner would regulate the association for privacy issues. However, a spokesman for the FDPIC told the CNBC financial news network that it hadn't been contacted by the Libra group.
"We expect Facebook or [Libra's] promoters to provide us with concrete information when the time comes," Hugo Wyler, the head of communication at the FDPIC, told CNBC in a statement. "Only then will we be able to examine the extent to which our legal advisory and supervisory competence is given."
Facebook didn't immediately respond to a request for comment. CNBC reported that a Facebook spokesman had confirmed the social network hasn't reached out to the Swiss regulator yet.
Lawmakers also raised concerns during the hearing that the cryptocurrency would be exploited by terrorists and used for money laundering. Calibra users would have to verify their identity by providing a government-issued ID, Marcus said.
Some of Marcus' answers to questions didn't include many details.
Sen. Robert Menendez, a New Jersey Democrat, asked Facebook how it will keep data from its digital wallet separate from the social network.
"The way that we keep the Calibra data separate from the rest of Facebook is that actually within our infrastructure we have separated the data from the rest of Facebook's infrastructure," Marcus responded. Facebook has vowed not to use Calibra data for ad targeting.
Marcus' remarks come as US lawmakers and nonprofits press the company to answer questions about the project, including why they should trust Facebook's vow that it won't use data from its digital wallet.
Earlier this month, the Economic Policy Institute, US PIRG and other nonprofits, as well as five Democratic lawmakers, sent the company two separate letters asking Facebook to pause its plans to develop a new cryptocurrency. Last week, President Donald Trump criticized Facebook's cryptocurrency plans, remarking that it'll have "little standing or dependability." Jerome Powell, chairman of the Federal Reserve, also said last week he had concerns about how the social network's cryptocurrency would affect financial stability and what consumer protections would be in place.
Marcus is scheduled to testify before the House Financial Services Committee on Wednesday.
Originally published July 16, 9:10 a.m. PT.
Update, 10:32 a.m. PT: Includes more remarks from the hearing.
Update, 2:40 p.m. PT: Adds reports about Swiss regulators.