Hi Friends,
There was a hearing yesterday on the Senate floor where David Marcus testified about Facebook’s plan for Calibra, with the Libra cryptocurrency.
The discussions lasted almost 2.5 hours and I listened to most of it out of curiosity. I had a number of takeaways that were worth noting, but I don’t want to make this post so big that no one reads it so I will focus on one issue only – the tax issue.
One of Facebook’s main arguments for Libra is that it will help the unbanked and poor, but this argument is fundamentally flawed simply on the tax reporting issue alone.
Since Libra will be classified as a cryptocurrency, and the IRS considers cryptocurrency to be property subject to capital gains transactions, each sale will need to be reported on their tax return. Since Libra is a stable value coin, there should be no real gain or loss on the transaction, but that doesn’t prevent the reporting of it. This will add so much complexity to their tax return, the poor will not be able to do their taxes any longer using the IRS free forms or they will see increased costs if they use a tax software or a tax preparer.
These complexities and extra costs alone thwart the argument that it helps the unbanked and poor.
With so many solutions to transfer money these days – Venmo, Paypal, or any other of the multitude of options – Libra is no game changer and very limited useful purposes.
Essentially, you trade your dollars for a digital coin that you can trade for a dollar later – similar to if you put your dollar in the bank and held it electronically and pulled it out later. However, Facebook’s Calibra will be happy to hold your dollars and make interest on it, while giving you a digital coin that does not pay interest. They will also be happy to collect transaction fees on transfers and monetize your personal data.
In my opinion, the winners here are Facebook and their partners, and the losers are the users.
That is my take on it all – what is your take?
Brian
Note: image source //cnet3.cbsistatic.com/img/92skNGXd8f-5JYoFEC-UXjoEd1w=/1092x0/2019/06/18/189e4379-27a6-4cdc-93b3-ee50af076a81/libra-association-founding-partners.png