Facebook is having a tough time convincing the US Senate Banking Committee about the prospects of its planned cryptocurrency Libra, say news reports. Committee members have called Facebook "delusional" for launching the plan, reported the BBC.
The company made tall claims on user security when it announced the project in June.
"When it launches, Calibra (Facebook’s proposed crypocurrency wallet) will have strong protections in place to keep your money and your information safe. We’ll be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behaviour," it said at that time.
However, Facebook admitted Libra could be hacked by fraudsters and scammers because of the lack of built-in consumer protection processes, reported The Telegraph.
David Marcus, the Facebook executive leading the project, told the US Senate committee that the governing council of the cryptocurrency will delegate fraud prevention steps to other companies that set up digital wallets to hold Libra.
Senate committee member Sherrod Brown said that Facebook does not deserve the trust of the regulators, as shown "through scandal after scandal", the BBC reported. Senator Martha McSally explicitly stated that she does not trust the company, chiding it for launching the new business instead of "cleaning up your house", the report said.
Criticism has been streaming in from the day the launch was announced. The loudest of them all was from US president Donald Trump. Cryptocurrencies are not money, their value is highly volatile and "based on thin air", he tweeted.
"Unregulated Crypto Assets can facilitate unlawful behaviour, including drug trade and other illegal activity. Similarly, Facebook Libra’s "virtual currency" will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all banking regulations, just like other banks, both national and international," his tweet continued.
Libra is a payment tool, not an investment, said Marcus in his testimony to the Congress. "People will not buy it to hold like they would a stock or a bond, expecting it to pay income or increase in value. Instead, Libra is like cash. People will use it to send money to family members in other countries, for example, or to make purchases."
However, a major concern left unaddressed is the demarcation between Libra, which is an open-source cryptocurrency platform, and Calibra, the wallet service provided by Facebook, noted the BBC report. While Facebook does not have much control over Libra, Calibra very much remains in Facebook's pocket, the report explained.
"Although Facebook claims that it will keep the distinct data sets at arm's length - it is hard to believe that consumer habits will not be tracked in order to allow Facebook to better serve ads," said Ray Walsh, digital privacy expert at ProPrivacy.com.
"After all, that is how the firm produces the majority of its revenue streams. Facebook has proven, time and time again, that it is not to be trusted with consumer data and it seems unlikely that it does not plan to exploit as much consumer data as it is legally permitted. Facebook's whitepaper claims that it will not source transaction data from the Libra Blockchain without consumer consent. For the time being, no privacy policies or Terms of Service are available for Libra coin," he added.
On the other hand, supporters of Libra are growing.
Libra critics are mostly from the established financial sector who are merely defending the traditional system, which has its share of ailments, said Simon Rodway, solutions consultant for Entersekt.
"They’re either dismissing Libra as noise, or decrying it as a vehicle for potential terrorist activities – something, they say, that regulators won’t allow to happen, despite Calibra openly reporting its intention to work with said regulators and policymakers to ensure the platform is secure, auditable and resilient," he said.
The anti-money laundering systems currently in place have been largely unable to stop the vast amounts of laundered funds from moving around, he added.
Cryptocurrencies are already part of the global financial system, said Nigel Green, CEO of financial advisory deVere Group.
"They are here to stay. And their influence is set to grow exponentially. They should face the same scrutiny and meet the same standards and requirements as the rest of the financial system," he said.
The present scrutiny is a step in the right direction for establishing a robust global regulatory framework for the wider crypto market, he added.