- Facebook this week will face the most significant challenge to its plans to start a cryptocurrency called Libra in congressional hearings that will target its design, privacy measures and possible effect on the U.S. economy. David Marcus, the leader of the Facebook digital currency, will appear before the Senate Banking Committee and House Financial Services Committee Tuesday and Wednesday to answer questions about Libra, Bloomberg reported.
- The hearings follow mounting criticism of the project from across the political spectrum. Treasury Secretary Steven Mnuchin said the use of cryptocurrencies to finance malicious behavior makes them a national security issue, while Rep. Maxine Waters (D-Calif.) drafted legislation that would block Facebook from operating Libra, The Wall Street Journal reported.
- Marcus has sought to defuse criticism, including statements from President Trump and Federal Reserve Chairman Jerome Powell, in testimony released before the hearings. Marcus said in prepared remarks that Switzerland's financial watchdog will oversee Libra's governing body, and that Libra won't replace national currencies or diminish the role of central banks in the global financial system.
Facebook's plans for a cryptocurrency have stoked fears that the social networking giant is growing too powerful to govern effectively. The company has been embroiled in repeated privacy scandals that culminated this week in a Federal Trade Commission fine of $5 billion, a record-breaking amount that critics said was inadequate to dissuade the company from future abuses. The company is on track to generate more than $22 billion in profit on $70 billion in revenue this year, making the fine easily manageable.
Facebook's announcements about Libra indicate how the company is thinking about how to diversify its revenue from digital advertising, a market that's showing signs of maturation. Facebook's yearly ad sales growth slipped to 26% in Q1 from 38% in the prior quarter, and the company faces growing competition from newer digital advertising entrants like Amazon. Ad revenue growth rate among key social and messaging companies dropped in Q1 this year to an annual rate of 26.2%, compared to 52% in Q1 2018 as user growth stalled in key regions like North America and Europe, per researcher WARC.
Facebook, which also owns WhatsApp and Instagram, announced earlier this year that it would focus more on private, encrypted messaging, responding to a barrage of data privacy scandals, including Cambridge Analytica, that caught the attention of lawmakers in the U.S. and abroad.
On paper, cryptocurrencies, which are built on the ledger-based blockchain system, provide a lot of the values Facebook seeks, such as immutable data and a transaction system where all parties must verify a payment before it's completed. However, the bipartisan backlash demonstrates that its planned "pivot" might be easier said than done.