The vast sea that is cryptocurrency is littered with shipwrecked projects that looked good on paper but ultimately never managed to sail. We are all familiar with Bitcoin, Ethereum, and Litecoin, but there are thousands of others no one has ever heard of simply because they just aren't traded. Many of them do not even have coins in circulation. So, could Facebook's Libra be the next failed project?

While a complete and total failure is not likely, the Libra envisioned in Facebook's original white paper may be finished before it even launches. If Facebook has any hope of realizing all of the goals outlined in their white papers, management is going to have to find a way to get by U.S. regulators. Doing so could be tougher than anyone at Facebook imagined.

On a more positive note, Libra's many critics are pretty much unified in their belief that government scrutiny of the Facebook crypto has finally put U.S. lawmakers in a position of having to deal with cryptocurrency on a wide scale. Libra is forcing them to come to grips with the fact that crypto is here to stay. It is forcing them to admit that regulatory clarity is needed.

Tense congressional hearings

All of the concern now surrounding Libra comes from the U.S. Senate Banking Committee's recent hearings on Facebook's entry into financial services. To say those hearings have been tense is an understatement. Lawmakers have made it clear that they are not big Facebook fans in general, and they are quite suspicious of Libra and Calibra.

Things have looked so bad for Facebook in recent days that Blockstream's Samson Mow has declared the project "so screwed." Other industry experts have been equally vocal, with at least two predicting that any success found by Libra could have devastating effects on the rest of the cryptocurrency industry.

The growing chorus of industry criticism is ultimately what has the attention of lawmakers. At least in the U.S., they are now sitting up and paying attention. This could lead to both good and bad things, depending on how you view government regulation of cryptocurrency. But before making a decision, it is worth looking at the things people are most concerned about.

Permissions and censorship

A key component of cryptocurrency is its permissionless existence. If you don't know what that means, just think about your workplace. You have the authority (or permission) to do certain tasks. Those in management positions above you have additional authority, and so on, all the way to the top. Ownership ultimately possesses final authority over every aspect of the company's operation.

There is no such hierarchy in cryptocurrency. A true cryptocurrency is permissionless and decentralized. There isn't a single person or entity pulling the strings. Certain people are not locked out while others are given access. At least that is the way things are supposed to be in principle.

Libra critics are alarmed because language in Facebook's white paper says that the project will "gradually transition to a permissionless state." That seems to indicate Libra will not start out that way. And if it doesn't start permissionless, there are no guarantees it will ever reach that stage.

Why is this a problem? Because a system based on permissions is one that can also engage in censorship. Let us say the Libra Foundation, the pseudo-independent body Facebook allegedly says will control the project, decides that it does not want Libra in any way associated with a group of people whose political views seem too extreme. Will they attempt to prevent that group from acquiring Libra assets?

Preventing individuals or groups from participating in a cryptocurrency trade is just one form of censorship. Facebook could practice another form of censorship by gradually making it more difficult for people to use other coins within its applications. They could prevent outsiders from attempting to contribute to Libra's code in order to improve on it.

There are all sorts of ways to engage in censorship. But the one thing they all have in common is that they are exponentially more difficult to pull off when a cryptocurrency is truly permissionless and decentralized.

The Libra Foundation's makeup

U.S. regulators are as concerned about the Libra Foundation's makeup as they are permissions and centralization. Although we do not know individual names in particular, we know that corporations like Visa, PayPal, and eBay will be represented in the Foundation. In the eyes of lawmakers, this automatically creates a conflict of interest inasmuch as Foundation members may put the interests of their own companies before actual Libra users.

They make a good point. It is hard to be impartial when you are running a corporation whose sole purpose is to generate profits. As a side note, what we now know about the Foundation's makeup is pretty solid proof that Facebook is not launching Libra as a social justice project. Their goal here is to make money.

Making the whole arrangement even more suspicious is the belief that large corporations being represented on the Foundation would make censorship even more likely. How so? Pick any controversial figure in the world and ask companies like PayPal and eBay to show their support for that individual. If the person's beliefs align with those of his or her corporate masters, everything will be fine. But heaven forbid he or she is on the wrong side of the political spectrum.

A PayPal or eBay isn't going to take any chances with its reputation. If corporate Foundation members have to choose between maintaining a good public image and censoring an individual or group with whom they disagree, the latter will be the more palatable choice.

Concerns of monopolization

Centralization and censorship are legitimate concerns, but they are by no means the sum total of what has U.S. lawmakers up in arms. There are plenty of other things to worry about, including Facebook's ability to monopolize the market. There are fears that Libra could spell real trouble for Bitcoin, Ethereum, and a few others.

Lawmakers have repeatedly brought up the fact that Facebook all but monopolizes social media. With roughly 70% of the market in hand, Facebook has been able to control the direction of social media for years. They have had the ability to link multiple apps to further their dominance in the social media space. In short, Facebook is to social media what Google is to internet search.

It is clear that lawmakers do not like the current dynamic. They understand that Facebook's social media dominance heavily influences the information people are exposed to. Facebook influences everything from what people think about politics to what they buy when they go looking to expand their wardrobes. The net effect is that Facebook is a king maker of sorts.

The concern here is that Facebook will leverage its monumental resources so effectively that they will shut out every other cryptocurrency. If that were to happen, cryptos like Bitcoin and Litecoin would no longer have any utility. And without utility, they are nothing more than paper assets not worth holding. Can you say crash?

Data privacy and security

Capping it off are genuine concerns over Facebook's commitment to data privacy and security. Long before the Libra and Calibra white papers were published, Facebook's reputation among lawmakers was shaky. Company executives had already made multiple visits to Capitol Hill to explain their policies relating to data privacy and security.

Lawmakers are rightly concerned that Facebook hasn't taken any real steps to change the way it does business. They are concerned that a company unable to protect sensitive user data isn't going to be any better at protecting financial data. They are concerned that Facebook's willingness to sell sensitive data makes it quite likely they will do the same with Libra's data.

Where security is concerned, Facebook is a highly attractive magnet to hackers. With billions of users on board, hackers see Facebook as the motherload. Rest assured they are working overtime to breach Facebook wherever they can. Are they likely to stop once Libra is launched? Obviously not. If anything, they will double their efforts.

Plenty of convincing needed

It is too early to announce the death of Libra. But by the same token, it would be foolish to predict its success at this point. There is too much going on in the regulatory arena to know one way or the other. If there is one thing we can say with great confidence, it is that U.S. lawmakers need a lot more convincing.

Meanwhile, lawmakers around the world have taken a largely hands-off approach to cryptocurrency. Libra has changed that. Facebook's global reach into the lives of billions of people is forcing regulators to take the Libra project seriously. It is forcing them to take a hard look at a regulatory package that would protect consumers against a corporation with an already questionable past.

Whether or not lawmakers will be convinced that Libra is okay remains to be seen. At least in that regard, Mow was right in his assessment that Libra is "so screwed." Facebook has a lot of work ahead of itself if it hopes to convince lawmakers it is not a threat to either consumers or world financial systems.