Jun 18, 2019

Facebook's mellowed-out crypto

Illustration: Rebecca Zisser/Axios

A decade after Bitcoin was born in a declaration of liberty from central banks and anyone else's control, Facebook is about to announce a new currency that sheds much of the crypto-world's counter-culture origins in hopes of actually being used.

Driving the news: For a year, Facebook has secretly developed a crypto-currency it calls Libra. As early as tomorrow, it will reportedly unveil its concept in a white paper. But if Libra is to gain the mainstream ubiquity for which Facebook is known, it will be because it jettisons some of the central principles that have united crypto purists.

The big picture: When Bitcoin was created in 2009 amid the financial crash, many of its first apostles defended it as a rejection of the central control of money. As if to punctuate that philosophy, its creator, Satoshi Nakamoto, generating the first Bitcoins, embedded a Times of London article about a Bank of England bailout of British financial institutions.

A roller-coaster has followed:

  • Over the subsequent years, very few people used Bitcoins for actual purchases. Instead, they traded them wildly, pushing up the price to a peak of more than $19,000 in December 2017.
  • By a year later, the price had plunged below $3,300.

But more recently, crypto's revolutionary air has in part given way to pragmatism. Among a new crop of crypto actors is Facebook, seeking to attract the masses into a proprietary payment system, a long-lived aim of the big social platforms.

Facebook 's idea is a payment system based on a type of crypto-currency called "stablecoins," which are linked to government-issued currencies, per the WSJ. That linkage is what accounts for their name — they are meant to be as stable as a basket of the world's main currencies.

  • Though created five years ago, stablecoin trading has surged in just the last 18 months or so, rising almost seven-fold last year, per the WSJ.
  • Embracing them, Facebook has gathered together a consortium of big, establishment players to govern Libra, paying $10 million each into a pot to be part of the new currency, report the WSJ’s AnnaMaria Andriotis, Peter Rudegeair and Liz Hoffman.
  • The consortium, the WSJ reports, will include Visa, Mastercard, PayPal and Uber, in addition to Stripe, a travel site, and MercadoLibre, an Argentine e-commerce firm.

Facebook did not respond to an email. But oddly, news of Facebook's plans has fed a Bitcoin recovery. Since April, Bitcoin's price has risen above $9,200.

  • Doubts have been raised: Itay Goldstein, a professor at the Wharton School at the UPenn, expressed caution about Libra. "It is not at all clear that this stability can actually be maintained under stress. I would be skeptical of that," he told Axios.
  • Other experts tell Axios that Facebook could encounter credibility problems linked to its string of privacy and political scandals since 2016.
  • "I think Facebook has lost a lot of trust in the court of public appearances," said Michael Imerman, co-director of the Financial Engineering program at Claremont Graduate University. "When it comes to financial transactions, trust is paramount; so therefore I think this loss of trust in Facebook has the potential to hinder the acceptance and growth of their new cryptocurrency."

The bottom line: Facebook has a shot but the jury is out on whether Libra really will become significant commercially. "Anything FB does is significant!" said David Hoffman, a law professor at UPenn. "But I honestly don't know about Libra until it's been released and you get a sense of its market uptake. I don't know why FB would be that good at payment system innovation."

Go deeper

Federal court temporarily halts "Remain in Mexico" program

Migrant wearing a cap with U.S. flagin front of the border between Guatemala and Mexico. Photo: Jair Cabrera Torres/picture alliance via Getty Image

The 9th Circuit Court of Appeals upheld a lower court's earlier injunction on Friday, temporarily stopping the Trump administration from enforcing the Migrant Protection Protocols (MPP) — known as the "Remain in Mexico" policy.

Why it matters: Tens of thousands of migrants seeking asylum have been forced to wait out their U.S. immigration court cases across the border in Mexico under the policy. The Trump administration has long credited this program for the decline in border crossings following record highs last summer.

Go deeperArrowUpdated 2 hours ago - Politics & Policy

Coronavirus updates: WHO raises global threat level to "very high"

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens.

The World Health Organization raised its global risk assessment for the novel coronavirus to "very high" Friday, its highest risk level as countries struggle to contain it. Meanwhile, National Economic Council director Larry Kudlow this morning tried to reassure the markets, which continued to correct amid growing fears of a U.S. recession.

The big picture: COVID-19 has killed more than 2,860 people and infected about 83,800 others in almost 60 countries and territories outside the epicenter in mainland China. The number of new cases reported outside China now exceed those inside the country.

Go deeperArrowUpdated 3 hours ago - Health

Bernie's plan to hike taxes on some startup employees

Illustration: Sarah Grillo/Axios

Sens. Bernie Sanders (D-VT) and Chris Van Hollen (D-MD) introduced legislation that would tax nonqualified stock options at vesting, rather than at exercise, for employees making at least $130,000 per year.

The big picture: Select employees at private companies would be taxed on monies that they hadn't yet banked.