Here's why Facebook will probably never release a cryptocurrency

28 March, 2019

There is a buzz reverberating through the cryptocurrency world right now as people attempt to speculate when Facebook might release a cryptocurrency. Facebook's blockchain intentions are well known, and it is just assumed by many that those intentions will eventually result in a digital currency Facebook will use to get its foot into the financial sector.

Will it ever happen? It is possible, but not likely. Unless Facebook intends to establish an entirely separate division aimed specifically at dominating the financial sector, there is no purpose or incentive for the company to create a cryptocurrency. A digital token, maybe, but not a cryptocurrency in the same vein as Bitcoin or Litecoin.

JPMorgan Chase is an example of another company with high hopes for blockchain but very little incentive to create a cryptocurrency. And yes, that is true even though the company is one of the most dominant in the financial services industry. JPMorgan Chase could make very good use of a token for handling internal transactions. Yet there would be no point to them creating an actual cryptocurrency.

The difference between Tokens and Coins

Cryptocurrencies like Bitcoin and Litecoin exist due to blockchain technology and distributed ledgers. It is blockchain that created bitcoins and a distributed ledger that accounts for them once they are mined and put into circulation. It turns out that both blockchain and distributed ledgers can be used to do all sorts of things that have nothing to do with cryptocurrency, buying, or selling. That is where Facebook and JPMorgan Chase come in.

The two companies can most definitely take advantage of the strengths of both blockchain and distributed ledgers to run their businesses. They can use the two technologies to improve and expand their businesses as well. But they do not need cryptocurrencies or digital coins to do so. Some of their operations can be facilitated with the use of tokens while other operations don't require any tokenization at all.

This brings us to the difference between tokens and coins. It is not a minor difference at all. In fact, what makes tokens and coins different explains why Facebook will probably never release a cryptocurrency.

A token in the blockchain world is anything that represents value. You can tokenize any asset within a distributed ledger system for the purposes of recording and tracking transactions. A coin, on the other hand, is a very specific kind of token.

Where a token can represent anything of value, a coin can only represent a cryptocurrency. So on the Bitcoin network you buy and sell bitcoins. You transact with merchants using bitcoins. You might even play slots online with your bitcoins. Those coins represent your ownership of Bitcoin.

Coins as an incentive

When Bitcoin was first released a decade ago, there were tens of millions of coins built in to the code. This was done specifically for the purposes of creating a monetary system. Could the Bitcoin blockchain and ledger have existed for some other purpose? Absolutely. But in order to guarantee that it was only a monetary system, its original developer created bitcoins as a representation of value that would power this monetary system.

Creating coins alone was not enough to make the Bitcoin blockchain usable as a monetary system. So the developer built incentive into the system by rewarding miners. What are miners? They are the people who provide the computing power to verify transactions and maintain the distributed ledger. Miners earn coins as a reward for doing the work they do.

With incentive in place, Bitcoin's developer created a system whereby the distributed ledger is maintained and value is created. This gives people a reason to purchase bitcoins and use them to buy things. The coins create the incentive necessary to keep everything running.

Why is this incentive necessary? Because Bitcoin is decentralized. It is not controlled by any single entity or organization. If it is going to survive, it will only be due to the community keeping it going. But the community needs incentive. Actual bitcoins and the value they represent are that incentive.

Centralization mitigates incentive

We have now come full circle to Facebook and JPMorgan Chase. Any plan by either company to take advantage of blockchain and distributed ledger technology would almost certainly be for private, controlled use. In other words, no one really expects Facebook to create a distributed ledger open to the community and existing on thousands of computer nodes located in various parts of the world.

Facebook is not likely to ever expose itself to decentralization. As such, any blockchain or distributed ledger they do create will be entirely centralized. It will also be controlled by permissions, meaning only certain individuals will have access to the blockchain and ledger. Anyone outside the system and without proper permissions would not be able to access it.

In such a closed and controlled system, a coin is no longer necessary. The business of running Facebook alone is all the incentive the company needs to maintain its distributed ledger in perpetuity. And in terms of distribution, the ledger is only distributed to those parties who need access to it. This essentially creates a digital accounting system that is used on an as-needed basis.

Without an incentive to create a coin, there is no real reason to create one. Should Facebook need some sort of token to represent the exchange of information on its network, they can create that token with a simple adjustment to their code. Said token can represent anything they want it to, whether it be the Facebook equivalent of Monopoly money users spend among themselves or credits for boosting ads.

Reasons to not create coins

You may be of the mind that even though Facebook has no incentive to create coins, it would want to in order to enrich its business. But let's stop and think about that for a minute. Note that Facebook is already doing quite well financially speaking. So the powers that be in Menlo Park have to ask themselves if the benefits of creating a coin outweigh the risks. In short, they do not.

Let us assume Facebook created a coin in hopes that its value would approach that of Bitcoin. How would such a coin reach such a high price? Through supply and demand. Bitcoin is only worth what it is worth because traders want it. The only way a Facebook coin could reach that kind of monetary value is through supply and demand. But that means Facebook would have to release the coin to the public.

That is not necessarily a bad thing in and of itself, but as soon as you release a coin for public trading you also take on regulatory responsibility, security concerns, and everything else that comes with publicly traded coins. You are also relying on the public to purchase those coins the same way they purchase stock.

Ask yourself this: would you rather put your investment money into Facebook's stock or its digital coin? Savvy investors generally agree that there is a lot more stability and value in stocks as compared to digital coins. Why? Because stocks represent actual value in fiat. And like it or not, fiat is legal tender.

Likelihood of Facebook Coin

We have given you a lot to consider in this post. Perhaps after thinking about it, you have reached the conclusion that the likelihood of Facebook or JPMorgan Chase releasing a digital coin is pretty low. If so, your thinking is in line with others who know the difference between tokens and coins. You are in good company.

On the other hand, you might still think there is enough incentive for the two companies to release cryptocurrencies. You are joined by others who believe it is only a matter of time before Facebook and JPMorgan Chase release their coins.

So who's right? There is no way to say for sure. You can make a compelling case on both sides. It really comes down to whether or not companies like Facebook really want to get involved with all of the rules, regulations, and challenges that come with issuing a digital coin in a centralized environment.

Stick with legitimate coins

Our recommendation for the time being is that cryptocurrency investors stick with legitimate coins. Even if Facebook and JPMorgan Chase eventually do release digital coins, it would be better to take a hands-off approach and just wait to see how those coins do over an extended period of time. Jumping in as an early adopter would be too much of a financial risk.

For the rest of us, purchasing litecoins so that we can play slots online is enough - just read the article we wrote on the top 4 litecoin casinos here We are not looking to make millions from crypto as an investment and a store of value. For us, its value as a monetary system is what crypto is all about.

Whether or not Facebook and JPMorgan Chase go on to release digital coins doesn't really make a difference for the purposes of buying and selling. We can stick with Bitcoin and Litecoin to do what we do. That's fine because those corporate coins will probably be limited in their function if they ever are released.