Facebook Should 'Discontinue' Crypto Projects

US lawmakers have urged Facebook boss Mark Zuckerberg to ditch his company’s cryptocurrency plans.

It was announced recently that Novi, a digital wallet, will enter a trial period in Guatemala, allowing cryptocurrency payments. Facebook is also reported to have revived plans to launch a cryptocurrency called Diem.

A letter signed by five Democratic Senators was sent to Zuckerberg outlining concerns about Facebook’s involvement in crypto, and demanding digital currency projects are discontinued.

The letter concludes: ‘Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.

'Immediately Discontinue Nivot Pilot'

‘We urge you to immediately discontinue your Novi pilot and to commit that you will not bring Diem to market.’

The letter from Brian Schatz (D-Hawai‘i), Senate Banking, Housing, and Urban Affairs Committee Chairman Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Elizabeth Warren (D-Mass.), and Tina Smith (D-Minn.) reads: ‘We write to voice our strongest opposition to Facebook’s revived effort to launch a cryptocurrency and digital wallet, now branded “Diem” and “Novi,” respectively. In October 2019, Senators Schatz and Brown wrote to members of the Diem Association’s predecessor, the Libra Association, and expressed deep concerns about the risks the project posed to consumers and the financial system. Facebook subsequently shelved Libra amid regulatory scrutiny, but you did not address our concerns before resuming this endeavour.

‘On multiple occasions, Facebook has committed not to launch a digital currency absent federal financial regulators’ approval. In prepared remarks before the House Financial Services Committee in October 2019, you said that Facebook would “not be a part of launching the Libra payments system anywhere in the world unless all US regulators approve it.” More recently, David Marcus, the executive overseeing Facebook’s digital currency efforts, said, “[w]e are definitely not going to launch without the proper regulatory framework.”

‘Despite these assurances, Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape - not only for Diem specifically, but also for stablecoins in general. The agencies that oversee the US financial system are studying the risks that stablecoins pose to financial stability. Accordingly, they are considering how to address these inherent risks and clarify regulation and supervision of these products.’

'Facebook Cannot be Trusted'

It continues: ‘You have not offered a satisfactory explanation for how Diem will prevent illicit financial flows and other criminal activity. The intergovernmental Financial Action Task Force warned in a report to the G-20 finance ministers that stablecoins’ “propensity for mass-adoption makes them more vulnerable to be used by criminals and terrorists to launder their proceeds of crime and finance their terrorist activities.” The President’s Working Group on Financial Markets said in December 2020 that stablecoins “are likely to attract illicit actors and, without appropriate mitigation measures, allow evasion of key public policy objectives.”

‘Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient. We urge you to immediately discontinue your Novi pilot and to commit that you will not bring Diem to market.’

CNBC carried responses issued on behalf of Facebook and Diem.

The broadcaster said Facebook claims to have already addressed many of the concerns raised by the senators. The social media giant had said that Novi and Facebook accounts are kept separately to ensure privacy and protection and added that the wallet was built to be completely secure.

Privacy Top of Mind for Customers

The statement is reported to say: ‘We know privacy is top of mind for Novi customers, so it will always be top of mind for us. We prioritise the security and privacy of people’s information by encrypting sensitive financial information'. If we determine a transaction is unauthorised, we provide a full refund back to a person’s Novi balance. People’s Novi accounts and Facebook accounts are separate.’

CNBC added that Diem had highlighted it is not part of Facebook, which is just one of two dozen members of the Diem Association. The association is a network of ‘merchants, payment service providers, social impact partners, and other entities’ that are ‘dedicated to building a blockchain-based payment system that supports financial innovation, inclusion, and integrity’.

A statement carried by CNBC adds: ‘Diem welcomes the opportunity to engage with members of Congress on the robust controls we have spent two years building into our payment system.

‘Unfortunately, today's letter from lawmakers to Facebook misunderstands the relationship between Diem and Facebook. Diem is not Facebook. We are an independent organisation, and Facebook's Novi is just one of more than two dozen members of the Diem Association. Novi's pilot with Paxos is unrelated to Diem.’