Things are not looking stellar for Libra as several backers have pulled out of the cryptocurrency project as the regulatory pressure against it is mounting.
Payment giant PayPal kicked off the exodus in early October by announcing that it would pull out of the social media titan’s cryptocurrency project.
Now, Mastercard, Visa, eBay, Mercado Pago and Stripe have all revealed that they are leaving the Libra Association, the organization working to launch the digital currency.
While some argue that the departures have left Libra with an uncertain future, David Marcus, the former president at PayPal and current vice-president of messaging products at Facebook and co-creator of Libra, tried to reassure the public about the initiative’s future.
He tweeted, “Special thanks to Visa and Mastercard for sticking it out until the 11th hour. The pressure has been intense (understatement), and I respect their decision to wait until there’s regulatory clarity for Libra to proceed, vs. the invoked threats (by many) on their biz.
“I would caution against reading the fate of Libra into this update. Of course, it’s not great news in the short term, but in a way it’s liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you’re on to something when so much pressure builds up.”
However, his tweets got him into a debate with Nick Szabo, the legal scholar and computer scientists known for his research into digital contracts and digital currencies. “You might want to ask yourself why the pressure has been so intense,” Szabo said. “And read some history that bitcoin pioneers were aware of, for example the failure of e-gold. Your failure to learn from history has caused you to at great cost recapitulate the failures of the past.”
Marcus replied, “Don’t get me wrong. Already had a lot of appreciation for bitcoin well before I started on this journey, but appreciation is growing. Just not a good medium of exchange (yet?).”
Szabo retorted, “Bitcoin works infinitely better as a medium of exchange than de facto banned vaporware.”
“Hard to argue against that,” Marcus said. “Although, it’s a tad more than vaporware.”
The term vaporware refers to a product that is announced to the public but is never officially cancelled despite never being produced.
The backers’ withdrawal comes after two US senate democrats urged Visa, MasterCard and Stripe to reconsider their involvement in Libra. Senator Sherrod Brown of Ohio and senator Brian Schatz of Hawaii wrote to the companies, urging them to consider the risks Libra presented towards the global financial system and to the firms themselves, according to Bloomberg.
Facebook announced Libra on June 18 this year when it announced its digital wallet project Calibra. The Libra cryptocurrency would be developed by the Libra Association, an independent body, of which Facebook is one of the initial group of members.
At the time, Facebook estimated that Calibra would be made available on Messenger, WhatsApp and a standalone app in 2020.
Libra and Calibra was presented as a way to provide poor people around the world access to basic financial services. By tapping into the Libra network via Calibra, Facebook said people and businesses in developing countries would eventually be able to seamlessly send money, pay bills and buy bus tickets.
Some regulators admitted that Libra could help provide a solution to underserved people’s access to payments systems and cross border transactions.
One of them was Benoît Cœuré, executive board member of the European Central Bank. In September he told the German Bundestag that stablecoins like Libra could help solve these issues.
However, he also acknowledged that cryptocurrencies comes with the risk of money laundering, terrorism financing, non-tax compliance and that it would threaten both consumer and data protection as well as fair competition.
In the beginning of September, Bruno Le Marie, France’s finance minister, warned that the cryptocurrency should be stopped as it put “the monetary sovereignty of states [in] jeopardy.”
Le Marie stated that there was a risk associated with Libra as it would privatize how currencies are issued and that this in turn would create the danger for it being abused.
Other lawmakers in both the US and in Europe have expressed similar views.
Last week, Vladis Dombrovskis, the EU’s commissioner for financial stability, financial services and capital markets union, pledged to propose new regulations to protect against the risks of cryptocurrencies like Libra.
It has not all been negative for Libra, though. For instance, Mark Branson, CEO of FINMA, the Swiss independent financial market regulator, spoke at an event in Zurich in the beginning of October.
He said, “I am much more nervous about projects which develop in a dark corner in the financial system somewhere, spread themselves out through cyber space and one day are too big to be stopped. Here is something which is being done transparently.”
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