What is cryptocurrency?


NICK EICHER, HOST: Coming up next on The World and Everything in It: cryptocurrencies.

Facebook executive David Marcus faced two days of questioning on Capitol Hill last week. He was there to defend the company’s plan to launch a new digital currency. They’re calling it Libra. But lawmakers on the House Financial Services committee derided the so-called “Zuck Buck.” That’s Zuck, as in Facebook founder Mark Zuckerberg.

MARY REICHARD, HOST: Cryptocurrencies have so far remained part of the internet underworld. But Facebook could make them mainstream. That has lawmakers and regulators extremely nervous. Joining us now to explain why is WORLD Radio news editor Leigh Jones.

REICHARD: Good morning, Leigh!

LEIGH JONES, NEWS EDITOR: Hi, Mary!

REICHARD: Can you start by explaining what cryptocurrency is?

JONES: Well, I’ll try. [laugh] Basically, it’s a form of digital money that can be bought and sold, and used to buy and sell things, just like real money. But there are a couple of big differences. First, it’s not tied to anything concrete.

REICHARD: But neither is the dollar, right?

JONES: That’s true. And that’s one of the things that cryptocurrency advocates will say in its defense. Money issued by nations like the United States is not tied to gold reserves or anything with an intrinsic value. Essentially the government that issues the currency sets its value. But that value is backed by the entire national economy.

National currencies are also controlled by a complex set of regulations. And that’s the second big difference between them and cryptocurrencies.

REICHARD: Meaning no one’s regulating their value and circulation?

JONES: Well, no one and everyone. Cryptocurrencies are theoretically regulated by the people who hold them. They use a decentralized system for tracking and approving transactions. It’s called blockchain. We need a lot more time than we have now to explain the details of how that works. But the most important thing to know is that it’s not controlled by a single entity like a central bank.

REICHARD: So how many people are using cryptocurrencies?

JONES: One study reviewed by Bloomberg showed users nearly doubled last year. They totaled about 35 million people. That sounds like a lot, but remember we’re talking worldwide. So it’s still a very niche market. And those users are spread across a lot of different currencies. Probably the most well-known is Bitcoin. But there are thousands of others.

REICHARD: And now Facebook wants in on the action.

JONES: Right. The company announced in June that it plans to release its own cryptocurrency. They’re calling it Libra. And they’re billing it as a way to give online purchasing power to people who don’t have bank accounts. Of course Facebook hopes a big chunk of those purchases will happen through its platforms. And with 2.4 billion users, even a small slice of those transactions could generate significant revenue for the company.

REICHARD: That sounds like a good business model for Facebook! Why are lawmakers and regulators so worried?

JONES: Well, cryptocurrencies allow buyers and sellers to remain completely anonymous. So lawmakers are worried Libra will be popular with criminals. That’s something that can and surely does happen now with other cryptocurrencies. But Libra has one key advantage for people trying to stay off the official radar, so to speak.

Let’s listen to a bit of last week’s House Financial Services Committee hearing. That’s where lawmakers grilled Facebook exec David Marcus over Libra, or as Congressman Brad Sherman calls it, the “Zuck Buck.”

SHERMAN: Keep in mind that for Bitcoin, 46 percent of the transactions, according to one academic study, are for drug dealers and other nefarious operations. Hamas advertises they want Bitcoin contributions. Bitcoin, however, has a problem. There’s no off ramp. There’s no way to just go buy something with Bitcoin. You can, eventually, with a Zuck Buck.

Lawmakers are also worried about Libra’s structure. Facebook plans to back the currency with a reserve of real money and government securities.

Lawmakers worry that stockpile could eventually supplant the Federal Reserve. Here’s Democrat Maxine Waters—she chairs the committee:

WATERS: Ownership of government assets on such a massive scale, without proper oversight, threatens to concentrate government influence in the hands of a few elites. Ultimately, if Facebook’s plans come to fruition the company and its partners would yield immense economic power that would… that could destabilize currencies and governments.

REICHARD: So lawmakers are clearly worried. What do they plan to do about it? 

JONES: Facebook plans to roll out Libra within the next year. Some lawmakers have already called the company to delay that timeline. Facebook has refused. So the next step could be regulation of some sort that would prevent tech companies from getting into banking.

And it’s worth noting that Democrats aren’t the only ones worried about this. President Trump tweeted warnings about Libra. Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin have also criticized the plan. And at a recent meeting of G7 financial heads, French Finance Minister Bruno Le Maire likened Libra to the development of a whole new state, without the controls that normally go with it.

REICHARD: It sounds like Facebook has its work cut out for it!

JONES: It certainly does.

REICHARD: Leigh Jones is WORLD Radio’s news editor. Thanks for explaining all of this for us!

JONES: You’re welcome!


(AP Photo/Andrew Harnik) Facebook CEO Mark Zuckerberg’s face is visible on a mock “Zuck Buck” depicted on a screen behind David Marcus, CEO of Facebook’s Calibra digital wallet service.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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One comment on “What is cryptocurrency?

  1. Cody says:

    Hi,

    Two comments from a daily listener who is not a crypto currency expert.

    • my understanding is that Facebook is leading this effort, but the libra currency will be controlled by a large board and Facebook will only have one seat there, along with many other companies.

    • I think this is not a “mined” crypto currency. The amount out there is based entirely on how much is bought. So it’s controlled by the community using it.

    The world as we know it coverage seemed to miss that and emphasize otherwise. Might be a gap in my understanding though.

    Thanks,

    Cody

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