I just got back from Washington, D.C. And there was one topic everybody wanted to discuss…
This is indeed a national security issue. We will not allow digital-asset service providers to operate in the shadows.
That’s what Treasury Secretary Steven Mnuchin said about Facebook’s Libra cryptocurrency last week.
He added that the Treasury Department has “very serious concerns that Libra could be misused by money launderers and terrorist financiers.”
And Mnuchin isn’t alone.
Federal Reserve Chair Jerome Powell said that Libra “raises serious concerns regarding privacy, money laundering, consumer protection, and financial stability.”
Even President Trump made his feelings about Libra known:
So these high-profile policymakers are taking aim at Libra. But I think it has little to do with concerns over money laundering…
The Facebook Coin
You see, Libra is a stablecoin. A stablecoin is a cryptocurrency that’s pegged to an existing asset. In this case, Libra will be backed by a basket of international currencies.
Libra will be governed by the Libra Association (Facebook, plus a group of 27 other companies). Facebook claims it’ll allow the currency to be governed openly and transparently—and that it won’t give any single company too much influence over Libra.
As a stablecoin, Libra will have low volatility. This will be attractive in countries without stable currencies, like Venezuela and Argentina.
Stablecoins are also attractive for making daily purchases. After all, who wants to use a currency that might fluctuate 10% a day? It’s very difficult to budget for daily necessities with high volatility levels.
So Libra could be used for small value payments and as a store of value in certain markets. And with Facebook’s global user base of 2.4 billion, it won’t take long for the coin to gain adoption.
So why are government officials taking aim at Libra?
Well, the usual line is that it’d be used to finance terrorism or other illicit activities. But bitcoin’s critics have been saying this for years, too.
So let’s think about this rationally…
Bitcoin on the Dark Web
The dark web is a hidden part of the internet. Since you can’t find it with normal web browsers, you need specific software. And it includes online markets for drugs and other illicit goods.
Now, according to a report from blockchain analysis company Chainalysis, $1 billion worth of bitcoin will be spent on the dark web this year.
This will surpass the previous high of $872 million in 2017—which corresponded with bitcoin’s price run up to $20,000.
And there’s widespread perception that bitcoin is primarily used for illicit purposes. But nothing could be further from the truth.
For one, $30 billion worth of bitcoin trades on legal digital asset exchanges every day. And remember, these exchanges verify all users’ identities.
So that’s 30 times more legal bitcoin activity in a single day than illegal bitcoin activity in an entire year.
Plus, a Global Financial Integrity report estimates that up to $652 billion is spent on drugs every year. And up to $1.1 trillion is spent on counterfeit and pirated goods.
These transactions are in fiat currency—with U.S. dollars making up the biggest portion.
So bitcoin is used in just 0.15% of illegal drug transactions each year. And with counterfeit goods, it’s used in less than 0.06% of all illicit transactions. That’s just a drop in the bucket.
Now, I believe we’ll see a similar pattern with Libra. But if the concern isn’t money laundering, then what is it?
New Reserve Currency
Again, Facebook has a user base of 2.4 billion people. That’s roughly 35% of the global population. So Libra would certainly gain immediate adoption.
This would create a multibillion-dollar business for Facebook overnight, thanks to transaction fees.
But it’d also accomplish something else.
Remember, Libra will be backed by a basket of currencies. It’ll be relatively stable and completely fungible. Users will be able to convert it into other digital assets like bitcoin… or into U.S. dollars, yen, pounds, euros, and so forth.
So Libra could rival existing currencies—including the U.S. dollar—and become a global reserve currency itself almost overnight.
We have to appreciate the chutzpah Facebook demonstrated. It’s launching a global central bank (the Libra Association) that it’ll control.
Libra will be a global reserve currency, effectively controlled by one corporation (or let’s say a cabal of corporations), that’s more transferable, fungible, secure, and divisible than any fiat currency on earth.
You can see why the U.S. government might be a little wary of Libra. It could directly threaten the government’s “monopoly” on currency creation.
Some politicians are very open about this, too. Congressman Brad Sherman said this about cryptos in May:
An awful lot of our international power stems from the fact that the dollar is the standard unit of international finance and transactions… It is the announced purpose of the supporters of cryptocurrencies to take that power away from us.
But I have bad news for crypto skeptics like Congressman Sherman…
You see, digital assets are here to stay. There’s no putting this genie back in the bottle. The technology has already been released to the public. Some might even say it’s been unleashed…
And if America doesn’t want to get left behind, we need to embrace blockchain technology—not hide from it.
As part of my work with the Chamber of Digital Commerce, I’m speaking with policymakers to educate them on the benefits of blockchain tech across all industries and applications.
That’s why I was in D.C. recently. We were advocating for a light regulatory touch, so innovation in blockchain tech can prosper in the U.S. and other stable democracies around the world.
The shift from fiat to digital is inevitable.
There will come a day when we walk into a store and see a sign: “We accept Bitcoin, Libra, or U.S. e-dollars.”
The currency revolution isn’t years away… It’s already started.
Editor, Exponential Tech Investor
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