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Initially, regulators and politicians respond like Cronus. They huff and puff — threaten, delay and perhaps even block some of the innovations proposed by Libra, Etherium, EOS, and other crypto projects. Eventually, though, the world will get what it wants: simpler, cheaper forms of digital financial instruments. The question is not whether, but when and by whom that demand will be served.

After Facebook published the Libra Whitepaper, David Marcus, the very capable former CEO of Paypal, began making the rounds in the media and Congress to explain it. Both have been met with skepticism and sometimes open hostility. On the more constrained side of the spectrum, Federal Reserve Chair Jerome Powell observed that: “(Libra) is something that doesn’t fit neatly or easily within our regulatory scheme.” Adding, “we do support responsible innovation in the financial services industry as long as the associated risks are appropriately identified and managed.” On the other hand, Rep. Maxine Waters, Chair of the House Financial Services Committee went much further, demanding “Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these risks and take action.” Subsequently, a House proposal to effectively ban Facebook from engaging in the Libra project emerged, called the “Keep Big Tech Out of Finance Act.”

Chair Powell’s recognition that the current regulatory scheme is incongruous with natively digital financial instruments makes the most sense. For years, blockchains and crypto token issuers have either ignored or attempted to hopscotch around an alphabet soup of global agencies and laws. As Powell notes, good governance would seek to both protect the public interest and enable innovation in natively digital financial instruments to flourish in the United States.

Lacking in the debate thus far is evidence that the real, mainstream interest of consumers is understood by lawmakers. For example, Marcus indicated that millions of small businesses operating on Facebook would gain the advantage of lower transaction costs. Similarly, buyers and sellers engaged in small to medium size transactions around the world can benefit greatly from natively digital currencies, connected to self-executing smart contracts. Ultimately, Congress should act to nurture domestic innovation, while protecting the public interest. To do so, it should look to organize around three principles: 1) trust, 2) control; and 3) cost.

Trust. Trust is oxygen to financial systems; all depend on trust as their essential element. Perhaps the most important and lasting improvement to global markets was the establishment of securities and banking laws during the great depression of the 1930s, including the Securities and Exchange Commission (SEC). The cornerstone of trust became disclosure. Anti-money laundering and fraud protection similarly hinge on disclosure. Digitally native financial instruments, as software supported by databases, can facilitate far more disclosure than offline cash and costly legacy banking models.

Control. Because Libra plans, at least initially, to operate within a permissioned blockchain, and because it will be governed by a known set of already regulated entities, governments should be able to exercise some degree of control over the network. This stands in stark contrast to purely decentralized blockchains, like bitcoin. Certainly, as the dust settles beyond the initial posturing and cooler policy-making heads emerge, this “the devil you know is better than the one you don’t” logic should become clear. Purely from the point of view of a regulator who wants to maintain some degree of control, the emergence of quasi-centralized blockchains like Libra would seem to be a net positive trend.

Cost. This is the easiest benefit to achieve, from a public interest perspective. Trillions of dollars of annual transaction costs may be saved by moving to native digital financial instruments. Like most creative destruction, these costs will be replaced by new revenue opportunities. For example, transaction volume will rise as more participants (like the “unbanked”) enter the market. Further, reductions in friction tend to drive market growth and in this case, that growth will certainly be cross border and global by design.

No matter what, like Zeus, natively digital financial instruments, smart contracts and blockchains, will eventually rule. Hopefully, when that happens, trust, control and costs will be in the right hands, with the right oversight, to operate for the public good.

Originally posted on Medium: Are Regulators Going to Devour Crypto Baby Libra?

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

Charley Moore
Charley Moore
Founder and CEO, Rocket Lawyer

Charley is the Founder and CEO of Rocket Lawyer Incorporated. His experience as an attorney representing startups exposed him to both the high cost and high value of great legal advice. So, he started Rocket Lawyer to deliver high value legal services at a price nearly everyone can afford. Today, Rocket Lawyer is one of the most widely used legal services in the world, with operations in the United States and the United Kingdom. Charley has been engaged in Internet law and business since beginning his career as an attorney at Venture Law Group in Menlo Park, California. He represented Yahoo! (IPO), WebTV Networks (acquired by Microsoft) and Cerent Corporation (acquired by Cisco Systems) at critical early stages and was the founder of Onstation Corporation (acquired by The Cobalt Group). Charley graduated from the United States Naval Academy (BS) and the University of California at Berkeley (Juris Doctorate). He served as a U.S. Naval officer and is a Gulf War veteran. He currently serves on the board of directors at Matriculate.

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