Facebook. Photo: Shutterstock

Cryptocurrency took a big step toward mainstream acceptance when social media giant Facebook Inc. announced its intention to launch a digital currency called Libra.

In its white paper released Tuesday, Facebook revealed details about the blockchain technology and the organizational structure governing Libra. While Facebook's announcement may help bring cryptocurrency into the mainstream, the introduction of Libra will likely face challenges from skeptical policymakers and toughening cryptocurrency laws.

Libra is an asset-backed cryptocurrency powered through a permissioned blockchain that only a group of organizations deemed the Libra Association can access. The group, which among others includes Mastercard, PayPal, Visa, Lyft, Spotify and Uber Technologies Inc., is tasked with finding a solution to transition Libra to a permissionless blockchain to offer broader access.

Eventually, the association's primary role will be to coordinate the open-source community to develop and define the “technical roadmap” of the Libra network, according to the white paper.

To be sure, Libra will likely face apprehension from regulators given that its parent company Facebook is contending with a number of data breaches and privacy-related court actions. However, Facebook created a separate subsidiary Calibra to build and operate Libra and ensure separation between social media and financial data.

“[Facebook] made clear they aren't going to share information [between] the Facebook side of the business and the Libra side of the business, and that makes sense,” said Patrick Burke, a Phillips Nizer partner and former deputy superintendent at the New York State Department of Financial Services. “But it would be naïve to think that law enforcement will not be interested in the identities of some of the folks who have Libra wallets, particularly if there are indications that some Libra wallets might be involved in money laundering, sanctions evasion or other criminal activity.”

Burke said Libra will likely face heightened cryptocurrency regulations given that G20 nations  agreed to adopt the anti-money laundering and cryptocurrency standards drafted by the Financial Action Task Force. The FATF standards are expected to set stricter operating procedures for crypto exchanges, including passing customer information to other service providers when transferring funds, according to a CoinDesk article.

Meanwhile, the U.S. federal government seems anxious to find out how Facebook will handle protecting consumer financial information with its new venture. In a May letter from the U.S. Senate Committee on Banking, Housing and Urban Affairs sent to Facebook founder and CEO Mark Zuckerberg, the committee questioned how Facebook's cryptocurrency will meet all of its legal and regulatory requirements and ensure data privacy and consumer protections.

The committee didn't soften its concerns after the official announcement of the coin, with the committee's ranking member Sen. Sherrod Brown tweeting Tuesday, “Facebook is already too big and too powerful, and it has used that power to exploit users' data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.”

Yesterday the committee also scheduled a July hearing regarding the new cryptocurrency.

Burke noted that as cryptocurrencies become more popular, inevitable complaints will arise and the government will step in. But Libra's association and founding members might be able to provide expertise to ensure the cryptocurrency meets consumers' and regulators' needs.

“My guess is that they really want to take advantage of the know-how that a PayPal, Visa or Mastercard has in terms of doing billions of payments a day,” Burke said. “The real downside of a lot of cryptocurrencies is they really don't have all the bandwidth to be a major payment system in the world.”

“If they can integrate that coin into the level those companies operate in the world, you are a big player,” Burke added.