Facebook (FB) will face challenges launching its new cryptocurrency project because it “let the public down,” according to a top crypto CEO.
Brad Garlinghouse, the CEO of cryptocurrency company Ripple, told Yahoo Finance UK: “This new world order of digital assets, they’re grounded on trust. People trust bitcoin, they trust ether, they trust XRP.
“Whatever you may think about Facebook, on the trust vector they’ve let the public down. I think that creates some headwinds and you’ve seen that manifest itself in the regulatory engagement.”
After much speculation, Facebook announced in mid-June that it plans to launch a new global cryptocurrency called Libra next year.
The company said the cryptocurrency will be decentralized and administered by the Libra Association, a Swiss-based non-profit that so far features 27 other companies including PayPal (PYPL), Visa (V), MasterCard (MA), and eBay (EBAY).
The launch was met by and immediate backlash by regulators around the world. The G7 group of nations launched an immediate inquiry, Congress called Facebook to answer questions on the project, and US Representative Maxine Waters called for an immediate stop to the project until regulators could ensure it was compliant.
Garlinghouse said Facebook “underestimated” the reaction and said the timing was likely a factor in the backlash.
“It’s a little bit like Boeing, which has got its own problems going on right now, announcing in the middle of the 737 Max crisis, ‘We’re going to build a new double-decker airplane and we’re going to do that right now,’” Garlinghouse said. “Why would you do that? With Facebook, in light of other things going on at the moment, I think it’s interesting that they went full monty into this one.”
Facebook has been in the crosshairs of global regulators and politicians over its handling of data and lack of transparency. The company was recently fined a record $5 billion by the US Federal Trade Commission for “deceiving” users about data safety.
Those within the cryptocurrency industry have also questioned whether Libra will truly be a crypto project given Facebook’s central involvement and the way the project is structured.
“At the end of the day, as I understand it, they’re going to put deposits in an account,” Garlinghouse said. “Whoever controls that account, controls Libra. You can’t call it decentralised. Somebody is going to have a name on that account.
“In contrast, you can fork bitcoin, you can fork the XRP ledger. If you forked Libra, whoever controls where the deposits flow controls Libra.”
However, Garlinghouse said Libra has “been a really positive event” for Ripple. Ripple is a company closely linked to the cryptocurrency XRP (XRP-USD), which is in the top 5 cryptocurrencies globally by market cap.
Ripple uses XRP to help banks and other financial institutions go fast and cheap international payments.
“The best week we ever had selling into banks was the week they [Libra] announced,” Garlinghouse said. “The CEO reads about Facebook’s entry through the white paper and they ring up and say: what are we doing about this? They say: oh we have a pending contract with Ripple.
“In many ways, I think it’s been a good thing for the industry in terms of bringing attention and maturity. Had you told me four and a half years ago when I joined Ripple that the President was going to be tweeting about crypto and Facebook was going to be launching, I wouldn’t have believed you. In some ways I think it’s been really, really constructive for the industry.”
Garlinghouse said he “can neither confirm nor deny” if Ripple was approached by Facebook to be one of the founding members of the Libra Association.
“I know David Marcus [the Facebook VP in charge of the project], I’ve known him for a long time,” Garlinghouse said. “I consider him a friend, we happen to live in the same neighbourhood, I see him walking around. So yeah, I’ve talked to David a little bit about [the project].”
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at@OscarWGrut.