Why Indonesia could be the perfect model for crypto adoption
The more we learn about Facebook's plans for Libra, the more apparent it becomes that the minds behind the project have taken the time to think things through. This is no haphazard foray into cryptocurrency. Facebook knows full well what it is getting into and what it hopes to accomplish. And that leads us to the topic of Indonesia. If Facebook's plans for Indonesia come to fruition, the region could be the perfect model for global cryptocurrency adoption.
Regular readers of our blog are familiar with the fact that all the major cryptocurrencies have struggled with the adoption issue. While there are plenty of investors willing to put their money into digital assets, major players like Bitcoin and Litecoin have been unsuccessful in convincing consumers and merchants to use digital coins as an alternative monetary system.
Yes, you can visit a Bitcoin casino and use your digital coins to play any games you wish. You can use crypto to pay for helicopter tours in Australia and a taxi ride in London. But compared to the number of merchants who do not accept cryptocurrency, those who do are barely a drop in the proverbial bucket. Facebook aims to change that, and it has a solid strategy for doing so.
A crypto for the people
Facebook's introduction of Libra has signaled a drastic departure from cryptocurrency norms. First and foremost, Libra will be a stablecoin rather than an independent cryptocurrency asset. It will be backed by a variety of fiat currencies along with a basket of government securities. This is significant all by itself.
Putting so many different assets behind Libra will not only contribute to its stability, it will get multiple governments involved are virtue of relying on their good faith and credit to prevent Libra from crashing. This could set the stage for future involvement once regulators finally decide they need to do something more than just talk about cryptocurrency.
Second, Facebook intends to leverage the strength of its social media infrastructure to make sure that Libra succeeds. They intend for Libra to become the default digital coin and one that eventually competes with fiat. Facebook has essentially created what could very well be a crypto for the people rather than one for investors.
Now, do not assume that Facebook is doing this out of the kindness of its heart. Like every other big corporation, Facebook's underlying motivation is profit. The company stands to profit from Libra by tying it to every other economic opportunity it is already involved in.
Make no mistake; they will monetize Libra one way or the other. But that is not a bad thing. Cryptocurrency is all about economic freedom. That freedom extends to the ability to make a profit. If it is the profit motive that eventually leads to global cryptocurrency adoption, that's fine.
Launching in Indonesia
Getting back to Indonesia, the region's native language of Bahasa was one of seven Facebook chose to publish its Libra white paper in. This is no coincidence. According to CoinDesk contributor Leigh Cuen, Indonesia's Facebook audience is the fourth largest in the world. Better yet, Indonesian Facebook users rank first when it comes to post engagement.
Users engage at a rate of more than 4%, coupled with the highest rate of online shopping at 86%. The icing on the cake is the fact that 10% of Indonesia's population already owns cryptocurrency. Put those three factors together and Facebook has a gold mine just waiting to be accessed.
Indonesians are already intimately familiar with Facebook. They are comfortable with its network, likely to engage with quality content, and not afraid to use their assets to make online purchases. What more could you ask if you are trying to launch a brand-new cryptocurrency with built-in adoption potential?
Another thing Indonesia has going for it is the mobile payment model. Mobile payments in the region have been gaining momentum for a number of years now. As people get on board the mobile payment train, it becomes easier to introduce them to a digital asset that can be sent and received electronically.
Currency for the underbanked
Facebook's white paper makes it clear that the company hopes to introduce Libra as an alternative currency in regions where high numbers of people are underbanked. As the thinking goes, underbanked people are not likely to embrace the traditional banking system unless there is some strong incentive to do so. Give them an equally strong incentive to adopt an alternative monetary system instead, and you can win their minds.
The underbanked population is underbanked for a reason. The traditional banking sector has no hopes of bringing them on board without making systemic changes. That is not likely to happen, which leaves the door wide open to organizations like Facebook willing to go down the cryptocurrency road.
Indonesia sticks out here because it has one of the largest underbanked populations in the world. Some 97 million Indonesians who otherwise could have used traditional banking services in 2017 chose not to. Facebook officials believe they can tap into this, which is why they chose Bahasa as one of the languages for their white paper.
Leveraging social media for Libra
There are plenty of positives about Facebook targeting Indonesia as one of the key markets for Libra. But not everything is as it seems. There are some negatives as well, including the fact that Facebook has demonstrated it cares little about privacy in the region. Indonesia's government has already clashed with Facebook over WhatsApp and Instagram, going so far as to restrict access to the two platforms earlier this year.
The government's contention was that Facebook was not respecting user privacy or taking action to prevent its social media apps from becoming conduits for misinformation. Their disagreement with Facebook stems from spring protests over election results.
Like they did here in the U.S. a few years ago, Facebook sold data from more than 1 million Indonesians user accounts to Cambridge Analytica. That data was used to formulate targeted political campaigns.
The point of all this is to say that Facebook intends to leverage its social media dominance to support Libra in every way it can. Don't be surprised if Facebook is already tracking every financial transaction Indonesian users make online. Don't be surprised if they start putting the pressure on merchants - both online and off - to accept Libra as payment for goods and services.
If Facebook can convince enough of its Indonesian users to adopt Libra as an alternative monetary system, they can then use their numbers as leverage in negotiating with merchants. And if they can get merchants on board, the rest will take care of itself. That appears to be the plan.
A wrench in the works
Indonesia offers what appears to be the perfect model for pushing cryptocurrency adoption. However, there is a wrench in the works already. That wrench is the fact that the Libra Foundation - the pseudo-independent foundation Facebook created to manage Libra - has a very limited membership. None of the foundation's current members have any ties to Indonesia. That means Facebook doesn't have any direct partners in the region.
This could make it difficult for them to launch Libra in Indonesia as aggressively as they would like. Furthermore, Facebook is going to have to convince Indonesia's government that WhatsApp and Instagram are not threats. Without those two apps at their disposal, it would be difficult to push Libra among Indonesia's younger social media users, some 70 million of which are already on WhatsApp.
WhatsApp is also pretty popular among Indonesian businesses. Upwards of 90% of small- and medium-sized businesses in the region consider the app a crucial tool for communicating with customers. If Facebook is to succeed with Libra in Indonesia, WhatsApp is going to have to be part of the equation.
So, what have we learned from Facebook's plans for Indonesia? First, that the sheer number of Facebook, WhatsApp, and Instagram users in the region automatically give Facebook a vast audience for Libra. They will not need any sort of grass-roots campaign to introduce their new coin to regular users. Simply offering the coin through their social media channels will be enough.
Second, we have learned that Indonesia's exceptionally high volume of underbanked consumers makes the region very susceptible to cryptocurrency adoption. The underbanked population still needs to be able to pay for things in our tech-driven world, and cryptocurrency makes it possible.
Finally, we have learned that Facebook plans to leverage its social media dominance in Indonesia to push for widespread adoption of Libra there. We wouldn't expect anything different. Facebook is already a major force in determining what Indonesian internet users do online. It would only be natural for them to utilize their dominant presence in the region to get Libra rolling.
Even a modest amount of success with Libra would set the stage for other tech companies to follow suit. As for pure cryptocurrencies like Bitcoin and Litecoin, what Facebook does in Indonesian could lay the groundwork for their efforts in countries where cryptocurrency already enjoys fairly good adoption.