Today, Facebook officially released a white paper on its Libra project. The white paper states that “ Libra's mission is to create a simple, borderless currency and financial infrastructure that serves billions of people , working to create a new decentralized blockchain, a low-volatility cryptocurrency. And a smart contract platform."
The white paper also states that the Libra currency is based on the “Libra blockchain”, a unit known as “Libra” and that Libra will be fully supported by real asset reserves. For each newly created Libra cryptocurrency, there is a basket of bank deposits and short-term government bonds of relative value in the Libra Reserve to build trust in its intrinsic value. The purpose of the Libra reserve is to maintain the value of the Libra cryptocurrency stable and ensure that it does not fluctuate over time. This is consistent with previous reports.
Facebook described the stable token “Libra” as being able to transfer funds globally “ as easy, cost-effective, and even safer as sending text messages or sharing photos .” The initial verification node for the “Libra blockchain” was The Libra Association, composed of more than 20 “distributed companies, non-profit organizations, multilateral organizations and academic institutions in different geographical regions”, clearly indicates that the “Libra Chain” is only one of these licenses. The "members" can participate in the chain of management. As stated in the white paper, “Libra will start in the form of a licensed blockchain.”
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In response to regulation, the White Paper stated, “ We believe that working with the financial sector (including regulators and experts in various industries) to cooperate and innovate is to ensure a sustainable, safe and credible support framework for this new system. The only way ."
But despite this, Facebook is about to launch a stable token, perhaps creating a new regulatory minefield for the Internet giant that has already attacked US and European lawmakers in protecting user privacy.
Although the cryptocurrency project called Project Libra has not yet been officially launched, it has also led to extensive discussions. It may become a major e-commerce tool for Facebook users. Libra tokens will be created on Facebook, Messenger, Instagram, WhatsApp and other platforms. A payment ecosystem based on cryptocurrency. But like other cryptocurrencies such as Bitcoin, Facebook's upcoming new cryptocurrency may become a tool for money launderers and terrorist financiers, a potential risk that has caught the attention of legislators and regulators .
Facebook's cryptocurrency allows users to purchase products from influential people on Instagram faster and easier than using cash, while keeping the entire payment process in the company's social media space. It is reported that for Facebook's shareholders, it is important that the company can profit from the processing fee for each transaction and the interest on the reserve that supports the stable token.
Merrill Lynch analysts said in a June 14 report: "Facebook can use its cryptocurrency as a payment mechanism to eliminate friction between its services. We think this is an important move for the company because it Established a more private messaging ecosystem with e-commerce capabilities."
The cryptocurrency that Facebook plans to launch is initially expected to be available in 12 countries, including the United States and the United Kingdom. According to media reports, the use of such digital assets will not require a bank account, and its value will be linked to a series of mature currencies supported by the state, such as the US dollar and the British pound. The operation will use Switzerland as its base.
But as the company takes this big step toward a highly regulated financial industry, it will face regulatory oversight. Experts say that the most worrying thing is that Facebook's cryptocurrency is likely to be involved in money laundering through the company's main website and its platforms, WhatsApp and Instagram.
Charlie Delingpole, CEO of Anti-Money Laundering ConsultingComply Advantage, said: "The role of Facebook's cryptocurrency in money laundering will be similar to its role in spreading fake news, which could lead to explosive growth in terrorist financing."
Earlier, according to the Guardian, Bank of England Governor Mark Carney met with Facebook founder and CEO Mark Zuckerberg in April to discuss the Facebook plan.
In the following month, US Senators Mike Crapo (Idaho Republicans) and Sherrod Brown (Ohio Democrats), the two top members of the Senate Banking Committee, wrote to Zuckerberg asking about Facebook's encryption. How the currency system will work.
“What measures would you take to ensure that it meets all legal and regulatory requirements to cater to financial regulators?” the two senators asked in a letter dated May 9. A Mike Crapo spokesperson said that the senator had not received a reply from Facebook.
The Trump administration is cautious about digital currencies. Last month, US Treasury Secretary Steven Mnuchin said his department was monitoring cryptocurrencies to cut off funds for illegal activities.
Earlier this year, another Treasury official said that cryptocurrencies were a tool used by criminals to store value more and more. The cryptocurrency is a "highly" concern for US national security and sanctions enforcement.
A digital asset industry lawyer who asked not to be named said that in the next few months, the US Senate and House of Representatives may hold a congressional hearing asking Facebook executives to give an answer on how their cryptocurrency products work.
The European Union has set strict rules for payment companies, and a new set of regulations will be introduced next year, which coincides with the need for Facebook to build momentum for its cryptocurrency products.
The fifth anti-money laundering directive AMLD5 in Europe came into effect on January 10 this year, placing stricter requirements on identifying beneficiaries of transactions, collecting and sharing relevant information, including for digital assets and prepaid card operators.
Over the years, banks around the world have faced tens of billions of dollars in fines for alleged “anti-money laundering” misconduct.
Jay Zhou, chief marketing officer of Loopring, said: "Some regulators have fundamentally opposed cryptocurrencies and bitcoins from the very beginning. They will definitely regard (Facebook) cryptocurrency as a possible use. Money laundering tools. It will depend on Facebook to prove whether their views are wrong."
For its cryptocurrency products, Facebook will be required to comply with applicable laws such as currency transfers for companies such as banks and Western Union.
Sarah Brennan, a partner at Lipfes Mathias in Buffalo, New York, said Facebook may need New York State's "BitLicense" as part of its regulatory checklist. [Note: BitLicense is a generic term used by the New York State Department of Financial Services (NYSDFS) to issue business licenses for virtual currency activities based on regulations designed for the company. ]
BitLicense is issued by the US Department of State Financial Services and is currently distributed to cryptocurrencies such as Circle Internet Financial and Winklevoss Twin Brothers Gemini Trust Co. But any company that wants to trade in digital currency may need approval from New York.
The Financial Times reported earlier this month that Facebook has negotiated with the US Commodity Futures Trading Commission (CFTC) on its proposed digital currency. If Facebook wants its cryptocurrency to be traded by someone unrelated to the company's platform, then Facebook will need to communicate with the SEC. Brennan said that if Facebook's cryptocurrency product is designed to be transferred to a third-party digital wallet, the SEC will seek to regulate Facebook's cryptocurrency as a security.
Regarding Libra's measures in response to regulation and anti-money laundering, we still have more details that require Facebook to disclose more details .
Author: Matei Rosca