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Regulating Facebook with Libra Might Be Challenging

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Jun. 18 2019, Updated 7:40 a.m. ET

Facebook’s cryptocurrency

As we discussed last week, Facebook (FB) is expected to launch its cryptocurrency on June 18. The company will probably take the whitepaper route made mainstream by the creator of Bitcoin. Facebook has teamed up with Visa (V), Paypal (PYPL), Mastercard (MA), and Uber (UBER). A host of other companies also joined the consortium by paying $10 million in fees. While cryptocurrencies haven’t lived up to their promise, Facebook’s entry is different. Even Bitcoin will welcome Facebook into the industry.

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Dominant force

With 2.4 billion users across Facebook’s platforms, the company has the scale to make its own cryptocurrency mainstream. Imagine what could happen if advertisers pay Facebook in its currency and users make exchanges using the same currency. Facebook could pay its suppliers and employees in the currency. Facebook could create an online and offline network of merchants who accept the currency. The possibilities are endless for Facebook.

Regulation

However, lawmakers and regulators are watching Facebook. The company didn’t do enough to curtail fake news and protect user data. Facebook might be harder to regulate with its own currency. Facebook will likely have a harder time tracking fund flows. There might be challenges determining who’s paying for the advertisers on Facebook.

The consortium’s arrangement with highly regulated players diversifies the risk. Only time and the whitepaper will tell if Facebook will become too powerful to regulate with its own currency.

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