Walking the fine line between innovation and accountability

Almost everyone will agree the technology industry needs to be held accountable through regulation, but we are starting to wonder whether the sticky fingers of bureaucracy are getting too involved.

In today’s world, regulators and governments can’t do much right. Industry has proven it cannot be trusted in the light-touch regulatory environment of yesteryear, while the red-tape mazes woven by bureaucrats have often create significant challenges of their own. It is an equation which walks the tightest of tight-ropes, and we wonder whether civil servants are starting to over-compensate.

The latest example involves Facebook and the creation of its own cryptocurrency. In a letter from the House Subcommittee on Financial Services, Congresswoman Maxine Waters, who acts as the subcommittees Chairwomen, has asked Facebook CEO Mark Zuckerberg to pause developments on Libra until appropriate investigations have been concluded.

“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” Waters stated.

“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Some might suggest this is a sensible move to protect consumers while others will point to an already bolted horse; cryptocurrencies have been operating for some time now. This is not necessarily a reason not to investigations but asking a single company to pause its R&D plans, as opposed to the segment on the whole, seems rather heavy-handed.

Of course, what is worth noting is that Facebook is a company which should be under the scope of scrutiny more than others. Numerous scandals over the last two years have demonstrated this is not a company which can be trusted to play nice in the light-touch regulatory environment.

But you have to wonder, are the politicians over-compensating for a poor approach to technology regulation? Politicians, especially in the US, are becoming increasingly involved in the technology industry. What impact will this have on innovation, exploration and the creation of new services?

The technology, or the internet-based technology industry to be more specific, is a young one. Facebook was founded in 2004, Amazon in 1994, Twitter in 2006, Google in 1998 and Uber in 2009. In fact, the modern internet as we know it today is only 25 years old. Realistically, this is an embryonic industry with so much left to explore.

However, it always worth exploring the other side of the argument. With so much left to explore, who knows what dangers lurk in the dark corners. We’ve barely scratched the surface of the potential of the internet and look at the number of privacy scandals which have emerged. Cambridge Analytica grabbed all the headlines, but numerous companies have been operating under a cloud of obscurity when it comes to monetizing personal data and monitoring the movements of users.

There certainly is evidence the technology industry needs to be held to higher standards of accountability, but this is where the conundrum presents itself; where should the line be drawn?

The technology industry has thrived in recent years mainly because the innovators of Silicon Valley have largely been left to themselves. This light-touch regulatory environment has led to the emergence of the fail-fast business model and numerous breakthroughs which have arguably made our lives better. Some might argue against this point, but we have faith in technology.

However, the fail-fast business model solely relies on the concept of exploration. Technologists are testing ideas which have not been conceived before and therefore are not under the restraints of regulation. Ideas have been tested and the good ones are taken forward. But it is the freedoms granted to innovators which has led to the success.

If the technology industry is being tied up in more red-tape, will this progress continue? Would internet banking have emerged if lawmakers had been paying more attention? Would Google Maps be the success it is today? Would Uber have revolutionised the way we get home from the pub?

We are not suggesting the technology industry should be offered free-reign to do whatever it wants, but where should the line be drawn? How much freedom should be offered and how much involvement should regulators have in the development of embryonic ideas?

An excellent example of this point can be taken from the grilling Facebook CEO Mark Zuckerberg testimony to Congress in the wake of the Cambridge Analytica scandal. Facebook and Zuckerberg were rightly held accountable for actions during this period, though on the other side of the interrogation, politicians demonstrated they were not up to speed when it comes to technological developments.

If the House Committee on Financial Services wants to hold an investigation to understand cryptocurrency, how long will it be before it arrives at a conclusion? Weeks? Months? Years?! And should Facebook be singled out? Should this investigation not be industry-wide, otherwise you are only preventing a single company from being competitive.

This is an incredibly complex equation to balance, and we wonder whether bureaucrats are over-compensating for perceived inaction during yesteryear, or if ill-prepared politicians are attempting to secure PR points by wading into a contextually relevant debate.

US lawmakers formally demand a halt to Facebook’s Libra cryptocurrency

As threatened a couple of weeks ago, the House Financial Services Committee has called for Facebook to halt its cryptocurrency plans.

The demand came in the form of a letter signed by the Chairwoman of the Committee Maxine Walters and a few other members of the House of Representatives that share her concerns. The letter was addressed to CEO Mark Zuckerberg, COO Sheryl Sandberg and CEO of Calibra, the company Facebook created to exploit the Libra opportunity, David Marcus.

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet,” opened the letter. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”

The letter went on to detail quite how worrisome this disruption to the established way of things is and how little Facebook has done so far to allay these worries. The main concern seems to be similar to that attached to all cryptocurrency, that it will provide liquidity to ‘bad actors’. The difficulty of the US poking its nose into an organization based in Switzerland seems to be the main national security concern. They also spend a paragraph reviewing Facebook’s dodgy privacy track record.

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” concludes the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Facebook and its partners must have anticipated this kind of reaction when they made their announcement. The Libra project is so grand in its scope and ambition they couldn’t possibly have expected authorities to adopt a laissez faire attitude, even if Facebook had a spotless reputation. It’s also hard to see how Facebook can do anything other than comply with the request and prepare itself for an exhaustive oversight process. Don’t expect to see Libra in the wild anytime soon.

US politicians alarmed by Facebook’s cryptocurrency masterplan

The announcement of a new currency led by Facebook has caught the attention of US law-makers and not in a good way.

The Chairwoman of the House Financial Services Committee, Maxine Waters, is alarmed by the prospect of a massive company with a patchy track record when it comes to data protection and censorship having control of a global currency. She published the following statement on the matter soon after the unveiling of Libra.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” said Waters. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a FTC consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.”

Waters isn’t the only representative to express concern and at least one Senator has joined the party, as you can see in the tweet below. Regulators are going through a period of realising they were very slow to acknowledge the magnitude of social media and they should be keen to show they’ll be less complacent about money than they were information. It seems likely that Facebook will have to jump through a lot more hoops to launch this product than it has had to previously.

Facebook leads corporate cryptocurrency initiative Libra

Social media giant Facebook has announced the launch of Libra, a ‘stablecoin’ apparently designed to revolutionise the digital payments market.

Such ambition would be highly questionable if it weren’t for the fact that Facebook has managed to get loads of other blue-chip companies involved, including Visa, Mastercard, PayPal and Coinbase. This gives the project a sense of scale and legitimacy that it wouldn’t have if this was just another gimmick to help Facebook exploit its users once more.

“Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world,” blogged Facebook CEO Mark Zuckerberg. It’s powered by blockchain technology and the plan is to launch it in 2020. This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone.”

Blockchain is a pretty complicated business, so to get how this works we recommend you go to the Libra site, read the Libra white paper and watch the videos below. Libra is described as a ‘stablecoin’, which means its value is pegged to regular currencies and thus won’t fluctuate like Bitcoin famously does. There’s also talk of almost no fees, so it will be interesting to see what incentive all the members of the Libra consortium have to participate.

Facebook’s own interests will be represented by a subsidiary called Colibra, which will produce a digital wallet that will be available in Facebook’s messaging apps as well as its own standalone one. “From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost,” said the announcement. “And, in time, we hope to offer additional services for people and businesses.”

This seems like a very ambitious project, the motives for which are still somewhat unclear. The narrative is all about extending financial services to the unbanked, but you have to assume Facebook expects to monetise this service eventually. The prospect of a company that unilaterally excludes any users it disapproves of being in control of a global currency is chilling.

 

Facebook gets big name backers for crypto project – report

Facebook has reportedly enlisted the support of a dozen organizations to underpin its cryptocurrency project and help keep the social media giant honest.

The majority of the blockchain project is being kept firmly under wraps, though the Wall Street Journal is reporting numerous technology heavyweights have been convinced to support the efforts. The likes of Uber, Visa, PayPal and Booking.com will allegedly each contribute $10 million to the project and then form a governance body which will oversee the cryptocurrency.

For the last year, Facebook has been working on the blockchain project to create its own digital currency. The digital currency will certainly help encourage more transactions on the social media platform, as well as enable Facebook to reach out to potential customers who do not have traditional bank accounts. Facebook has also claimed the creation of such an asset helps it to pivot to an organization which is more defined by privacy.

While the financial contributions towards the project and the governing body would be welcomed by Facebook, the support of these respected brands also tackles another challenge the social media firm is facing; trust and credibility.

Thanks to a few high-profile scandals and renewed enthusiasm across the world to tackle the data privacy violations from Silicon Valley, Facebook is lacking credibility. Mark Zuckerberg has been exposed as somewhat of an emotionless robot during investigations and testimonies, while fresh evidence keeps emerging suggesting the company does not care about the privacy right of its users.

Trust in Facebook is at a low-point at a time when it needs it most. Asking people to trust the firm with their digital profiles is one thing, but then suggesting they trust Facebook to be reliable and responsible with their money is a completely different question.

In bringing on brands which the consumer trusts with money, Facebook is crafting a PR win. The consumer trust in these brands might rub off on the social media giant, while it can also point to the fact its control and influence over the digital currency will be diluted through the presence of an oversight committee. If it turns out to be true, it is a clever move from Facebook.

Facebook buys into the cryptocurrency buzz – report

Reports suggest Facebook is in the process of developing its own cryptocurrency, with plans to launch in as many as a dozen countries as early as Q1 2020.

According to the BBC, not only has the product been given a name, GlobalCoin, but CEO Mark Zuckerberg has met with Bank of England Governor Mark Carney. The cryptocurrency could be unveiled to the world by the end of the year, with plans to kick off operations during the first quarter of 2020.

It would appear this is one of the more radical ideas from Facebook to differentiate its business, removing the dependency on the increasingly under-fire data sharing economy. With the general public, regulators and governments all taking more pro-privacy stances, the fundamentals of the data-sharing economy are coming under-threat. Numerous companies will face significant disruptions with the introduction of stricter regulations, though Facebook is one of the most exposed to the threat.

While the idea of virtual currencies is not particularly new, real-world applications will escape the imaginations of most. In this example, Facebook may want to move towards a more dominant position in the digital economy, enabling purchases through its various different products. Cryptocurrency will become an important facet of this process, firstly to encourage people to purchase through the products instead of going directly to the advertiser, and secondly, allowing people without bank accounts to engage in eCommerce. There is the potential to inspire confidence in purchases from previously unknown websites and vendors.

Although it is a perfectly reasonable ambition for Facebook executives to hold, there will be numerous sceptics around the world. Facebook has not necessarily shown itself as a particularly resourceful custodian of personal information; asking people to trust them from a financial perspective would require a huge amount of credibility in the brand. This might prove to be a stumbling block for the social media giant.

Another factor to consider is how unregulated the cryptocurrency market currently is. In the UK, cryptocurrency is not recognised as legal tender, while many in the general public have little understanding of the concept. Both of these factors might undermine confidence in any virtual payments system, at least in the immediate future.

This is not the first time Facebook has ventured towards the world of virtual currency however. In 2011, Facebook introduced Facebook Credits, which it hoped would replace traditional means of paying for in-app products on the platform. In 2012, Facebook announced it would no-longer use its own money system and officially canned the project in September 2013. A lack of traction with the general public undermined the idea.

Hints were also dropped of Facebook’s ambitions in May 2018, when the firm announced it had hired David Marcus. Marcus, who previously was a member on the board of directors of Coinbase and President of PayPal, has been leading blockchain projects in the business.

Zuckerberg has not been shy about his ambitions to enter the financial fray, telling the audience at a developer conference last month the payments world was an attractive one. For Facebook, this is a logical move. Considering the widespread adoption of its platforms (Facebook, WhatsApp and Instagram) and consumer trends to favour digital purchasing over real-world transactions, it is in a good position.

The platform also needs to become more attractive to consumers. Trends over the last few years suggest people are spending less time on the core platform. The introduction of more functional features, such as eCommerce, could be a way to diversify the business. However, the focal point of the argument moving forward will be around security.

Facebook will need to prove that the cryptocurrency is firstly secure, but also that its own data storage and processing capabilities meet the privacy and data protection demands of today’s digital society. This is where it might fall short of expectations.

AT&T starts accepting cryptocurrency to pay bills

AT&T has announced it’s the first US operator to accept cryptocurrency from its customers to pay their bills.

Now forward-thinking AT&T punters can use bitcoin and that sort of thing to reward AT&T for providing all that lovely connectivity if they feel like it. Specifically they can do so via the BitPay platform, which AT&T considers ‘a respected cryptocurrency payment processor’, when they pay online and through the app.

“We’re always looking for ways to improve and expand our services,” said Kevin McDorman, VP of AT&T Communications Finance Business Operations. “We have customers who use cryptocurrency, and we are happy we can offer them a way to pay their bills with the method they prefer.” BitPay doesn’t seem to have made a public statement, but it’s presumably pleased.

This seems to be part of a growing trend, at least among US tech-related companies. Earlier this year mega distributor Avnet said it had embraced BitPay to the corporate bosom. “We’re working with BitPay to facilitate secure blockchain payments for all types of customers so they can focus on developing their products, not how to pay for them. Whether it’s Bitcoin or Bitcoin Cash, we can handle it,” said Sunny Trinh, VP of demand creation at Avnet at the time.

Not everyone thinks this is such a great idea however. TNW notes that connecting one of your bitcoin addressed to your phone number, and thus your personal data, might not be for the best. It also reminds us that a UK locksmith which started accepting bitcoin four years ago has yet to enjoy a single cryptocurrency transaction. So this move seems to be more about future-proofing than responding to any immediate demand from the market.

JP Morgan launches its own cryptocurrency but don’t get too excited

JP Morgan has created the first cryptocurrency to be backed by a U.S. bank but you can’t buy any and it’s not obvious what the point of it is.

“The JPM Coin is based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts,” said an announcement based on gibberish-based grammar. In essence this seems to be a digital mechanism designed to speed up the movement of money within JP Morgan’s systems, nothing more.

They gave the exclusive to CNBC, which also got to chat to Umar Farooq, head of JP Morgan’s blockchain projects, who likes to start his sentences with ‘so’. “So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction,” he said. “The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.

“Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”

So in essence JP Morgan is offering to exchange their client’s dollars for cryptocurrency tokens representing exactly the same amount, which it reckons they’ll be able to move around more easily. This is quite a different concept to something like bitcoin, which has seen massive fluctuations in its value against the dollar. One JPM Coin will always be worth one dollar.

JP Morgan’s Q&A sheds a bit more light on the matter. It has much more in common with stablecoin than cryptocurrency in that it’s strictly pegged to the dollar, so it’s basically a digital IOU. The big difference is that JPM Coin is private and only available to JP Morgan institutional customers. Once again: the main point of it is to reduce settlement times, nothing more.

Right now JPM Coin is still in its prototype phase and the stated use-case feels like a bit of an anti-climax for people hoping this signifies the next phase of the cryptocurrency revolution. Maybe the such a public endorsement of the technology by a big establishment name will catalyse something, but it’s unlikely to be the kind of total financial autonomy for the individual dreamt of when bitcoin first arrived on the scene.

AT&T faces $224 million legal battle over cryptocurrency theft

Precedent means a lot in the legal world, and with large segments of cryptocurrency still unexplored, there might be a few keeping an eye on AT&T’s progress in this interesting case.

In a filing made to the US District Court in Los Angeles, cryptocurrency investor Michael Terpin is suing AT&T for $224 million following the theft of $23.8 million in cryptocurrency tokens. While AT&T did nothing directly associated with the theft, Terpin is holding the telco accountable for SIM swap fraud.

“Somebody needed to sue AT&T for fraud & gross negligence in letting criminals SIM swap. I just did,” Terpin said on Twitter.

SIM swap fraud allows nefarious individuals to trick service providers into transferring a subscriber’s phone number to a SIM card which is in that persons possession. Once the fraudster has access to the SIM, the new device can be used to reset passwords and access online accounts. With some services still reliant on phone-based authentication, it can be a very effective way to drain accounts or move assets.

The practise involves a lot of research, as security questions asked on the phone can defeat this scheme, though considering the questions are usually quite obvious it isn’t fool proof. With so much of our lives online, enough Googling on an individual would certainly build a profile. In this case, as the founder of BitAngels Terpin would have been interviewed numerous times and had countless articles written about him. The profile could have been bulked out further.

Once this profile has been built, the fraudster would call the service provider claiming a lost phone and asking the account be transferred to a new SIM in that persons possession. Assuming the security questions could be answered, the fraudster would then effectively have free reign over the victims virtual identity.

In this case the end result was the loss of cryptocurrency tokens. Alongside recovering the $23.8 million, Terpin is also seeking $200 million in punitive damages. The complaint details AT&T had been previously contacted about such instances of fraud, and since not enough has been done to prevent fraud, it should be held accountable.

The dangers of online identities have been well-publicised, but as there have been few major, real-world examples of the dangers, many ignore the risks. In truth, we do not know how dangerous it can be to freely publicise such vast quantities of personal information online for anyone to see. This is just one example, but as fraudsters probe for weaknesses, we suspect such stories will become more common.

The issue here is about negligence and indirect contribution to the scheme. This is the position AT&T finds itself in. For the telco world, it could be viewed as critical for AT&T to win this case and set precedent.

As this is one of the first mainstream cases, judges in the future will use this as an example to make rulings in the future. If AT&T finds itself on the losing side, telcos throughout the US may find themselves much more exposed to the nefarious activities in the dark corners of the internet.

The internet offers wonderful opportunities for many around the world, but every now and then it is worth being reminded there are dangers in the un-explored regions of the web.