It's on: The U.S. wants to ban big tech from issuing digital money

In June, weighing in on Facebook's upcoming cryptocurrency Libra, Tendermint Labs core dev Sunny Aggarwal told me that the advent of cryptocurrencies has pushed big tech, the crypto space, and nation-state governments into a gridlock that will be the "big battle of the next decade."

Judging by a new draft proposal, currently circulating among the Democratic majority that leads the U.S. House Financial Services Committee according to Reuters, this battle has begun.

The bill, bluntly named "Keep Big Tech Out Of Finance Act," aims to "prohibit large platform utilities from being a financial institution or being affiliated with a person that is a financial institution."

Make no mistake, this is about Facebook

While the bill speaks in general terms, it's quite clearly aimed at Facebook and Libra. The "large platform utility" is defined as a technology company with "an annual global revenue of $25,000,000,000 or more" and one that is "predominately engaged in the business of offering to the public an online marketplace, an exchange, or a platform for connecting third parties."

If one had to define Facebook in two sentences, those two would work perfectly. Note the bit that says the "large platform utilities" can't even be "affiliated with" a person that is a financial institution. Libra (both the blockchain and the digital coin) is governed and owned by the Switzerland-based Libra Foundation, where Facebook is just one of founding members, but this bill appears to prohibit such a venture, too.

Furthermore, the proposal specifically mentions cryptocurrencies, saying that the "large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Board of Governors of the Federal Reserve System."

Finally, has it been violated, the proposal sets a fine of "not more than $1,000,000" per day.

The proposal has a long way to go before it becomes law; it'd have to pass the House and then the Senate, likely meeting opposition from Republicans along the way.

But it is very clear proof that there's a number of U.S. politicians who hold the view that outright banning Facebook's Libra initiative -- and all similar initiatives like it -- is the right move.

The proposal appeared just days after U.S. President Trump blasted Bitcoin and other cryptocurrencies as well as Libra on Twitter.

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"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," he wrote.

The separation of tech and finance

Though it's just a draft, the document raises some important points. First, it seems oddly specific, targeting not only tech companies, but only big tech companies above a certain revenue level and only those which are either online marketplaces, exchanges, or social networks. This implies that the purpose of the bill is not to prevent a certain type of behavior, product or service, but to stop a certain type of product or service from becoming too successful.

The proposal prohibits establishing, maintaining, or operating digital money. The draft does not offer clear definitions for these terms, but it implies that Facebook is forbidden from having anything to do with the Libra coin itself. However, depending how "operate" is defined, Facebook may be allowed to run its Calibra wallet, which allows users to send/receive digital currency, as long as someone else is in charge of the Libra coin. This distinction may prove crucial should this or a similar proposal be passed into law.

Generally, thanks to the wonders of cryptocurrencies, the lines between tech and finance are getting increasingly blurry, and keeping the two separate will become even harder in the future. Should it pass, a bill like this might disincentivize efforts such as Libra in the near future, but can the floodgates remain closed forever?

I've asked Libra for comment and will update this article when I hear from them.

UPDATE: July 16, 2019, 8:25 a.m. CEST A Libra spokesperson told me the following via email: "The Libra Association and its members are committed to working with policymakers and regulators to achieve a safe, transparent, and consumer-friendly implementation of Libra. We recognize that blockchain is an emerging technology, and that policymakers must carefully consider how its applications fit into their financial system ​oversight. We welcome public policy dialogue and are committed to engaging in thorough discussion with legislators and regulators ahead of Libra’s launch."