Crypto in the real world: The many issues raised by Facecoin
When you hear the word 'Bitcoin', what is the first thing that comes to mind? Investors typically think of the various positions they can take in order to increase their cryptocurrency holdings and, thereby, generate wealth. Non-investors probably think of cryptocurrency in the real world. That is to say how bitcoins and litecoins can be used to pay for goods and services. It is in the real world arena where most of us live in relation to cryptocurrency.
Maybe you are regular Coinbet.com visitor who uses our site to find the latest Bitcoin casinos featuring our favorite slots. Perhaps you also use your coins to pay for taxi rides in London or buy shoes from an online store owned by a French company. At any rate, you use your bitcoins in the real world.
The point of bringing this up is to discuss the possible future of a new coin released by none other than Facebook, the social media giant that engenders such diverse emotions among its users. According to the New York Times and other sources, Facebook engineers are hard at work building a cryptocurrency platform they hope to release later in 2019.
Sources indicate that the coin - which we will call Facecoin for the purposes of this article - will be in some way related to WhatsApp and targeted initially at Facebook's Indian audience. As the thinking goes, there are millions of people in India who use WhatsApp as their primary mode of communication. What's more, most electronic financial transactions that occur in India today go through mobile payment systems.
Making WhatsApp a payments hub
If you haven't connected the dots yet, allow us to do it for you. Facebook owns WhatsApp. WhatsApp currently has millions of subscribers in India and tens of millions across Asia as a whole. If they can interest those users in using their own cryptocurrency to transfer money among themselves, Facebook can make money by turning WhatsApp into a payment hub.
The idea appears to be one of embedding Facecoin into WhatsApp as a means of being able to send money around the world. If it catches on in India, Facebook would likely expand into South Korea, Japan, and across other strategic locations in Asia. From there it could potentially reach upwards of 300 million WhatsApp users across the globe.
What would this mean practically speaking? Let us say you have an Indian student studying in London. He needs money, so he texts home and makes a request. Family members send him what he needs via Facecoin. He doesn't have to wait hours or days because the transaction is seamless through the WhatsApp payments system.
Imagine an Indian doctor who decided to stay in the U.S. after graduating medical school. She continues sending money home to family in hopes of helping them improve their standard of living. Once again, she doesn't have to rely on a bank transfer or international wire. She can send Facecoin instantly to her family using WhatsApp.
Facecoin will be a Stablecoin
As we all speculate about what Facecoin will eventually be, it looks as though it will not be a true cryptocurrency in the purist sense of the word. Instead, it will be a Stablecoin. And even at that, it will not be backed by a single currency. The New York Times says Facebook has plans to link the coin to a number of different currencies traded by the International Monetary Fund (IMF).
The Stablecoin approach seems reasonable given that Facebook doesn't want the liability of having to support its own coin in the event its value becomes too volatile. Having said that, it makes no sense to back it with multiple fiat currencies either. Wouldn't it be better to simply peg it to the U.S. dollar? After all, the dollar is the world's preferred reserve currency.
It could be that Facebook doesn't want to rely on a single fiat for stability. The powers that be may see more stability in linking their coin to numerous fiat choices so that in the event one falters the other two could pick up the slack. It is a good thought in principle, but it does not work well in practice.
At any rate, it is what it is. The point here is that Facecoin will be a Stablecoin. We assume Facebook thinks that adopting this model will give WhatsApp users the confidence to embrace it.
The remittance question
At this point you might be wondering what's in it for Facebook. Why would they put so much time and energy into developing their own cryptocurrency when they could just as easily partner with an online payment service to facilitate WhatsApp payments? That is a good question for which there is no solid answer.
It seems to come down to remittance. As it currently stands, remittances are a multi-billion-dollar market even without Facebook sticking its nose in. But the remittance market is not necessarily a friend of the consumer. Why? Because of the associated fees.
If you are a PayPal user who regularly receives payments and transfers from others, what gets attached to almost every transaction? A fee. We expect that, because that's how PayPal makes its money. But suppose Facebook could make remittances cheaper using its own Stablecoin with considerably lower fees attached. They could theoretically steal business from the PayPal's of the world by making transactions cheaper.
The only downside here is actually being able to convert Facecoins into fiat. Otherwise, the value of WhatsApp payments is limited. Think of it this way: if the only purpose for holding Facecoins is to be able to send payments between fellow WhatsApp users, consumers are not going to need them all that often. The coins only have value when people need to send payments to other WhatsApp users.
Convincing merchants to accept WhatsApp payments may seem like a solution, but it's not. Any digital coins they accept have to be convertible to fiat if they are to have any value. As you know, merchants are awfully fussy about fiat. They want it because it is legal tender. Cryptocurrencies are not.
Security is another concern
Another concern with Facecoin is security. Facebook can claim all day long that it is committed to user security, but such commitments mean nothing until the company proves it. And yes, Facebook has a long and sordid history of being very liberal with user data and simultaneously lax with the security of their own network.
There are two things about security every Facebook and WhatsApp user should be concerned about. First is the actual security of Facebook's networks. How likely is it that hackers will not immediately target Facecoin the moment it's released? Not very. With hundreds of millions of users around the world, WhatsApp automatically becomes a target as soon as coins start changing hands.
The second concern is one of data protection. Facebook users obviously want the company to find ways to guarantee that their information will not be stolen by hackers. But that's not all. Users also want assurances that Facebook will not attempt to monetize their information. And we all know how well that has gone in recent years.
There is genuine concerned that even a modicum of success for Facecoin would give Facebook yet another monstrous data stream they could find ways to monetize. Realize that and any and all WhatsApp transactions could be tracked and analyzed by the app's parent company. That means Facebook could be tracking everything you do with your digital currency on WhatsApp.
True decentralization required
It would seem as though the only way to address security concerns is to make Facecoin truly decentralized and completely private. Put the blockchain out there in the community and let miners and individual coin owners run the show. Make it private, like Monero, by hiding any and all data that could otherwise be tracked and analyzed. In other words, make it a truly decentralized platform.
What are the chances of Facebook doing that? It's anyone's guess, but you have to ask yourself how Facebook would benefit from Facecoin and a WhatsApp payments system if it was completely decentralized and kept separate from the rest of Facebook.
Facebook is a business first and foremost. They do what they do to make money. And if they cannot make money on something, they don't do it. If you need any evidence, look no further than the failed Facebook Credits, Facebook Gifts, and Facebook Messenger Payments.
None of those other three payment ideas lasted more than a couple of years. Why? Because Facebook discovered they couldn't make enough money to justify keeping them going. If they do not want Facecoin to suffer the same fate, they have to find a better way to monetize it. That will not happen if they truly decentralize Facecoin and turn it over to the community.
We suspect that one of the things driving Facebook is a desire to create a dominant and global payment system. It is a wonderful idea in theory, but it doesn't seem very practical at this time. People love freedom. It's hard to imagine they would embrace Facecoin and WhatsApp to the exclusion of every other form of payment out there.