What is Facebook Planning with Globalcoin?

What We Know

Facebook is about to enter the cryptocurrency market with a new project called “Globalcoin”. Substantiating the rumor that it had been planning its own version of currency, this year the social media company registered a new company called “Libra Network” in Geneva, Switzerland. The Wall Street Journal reported that Facebook has been working for over a year on the project, talking to payment processors like Visa and Mastercard to help with adoption. A series of new hires, including the former president of Paypal, hinted that it had plans to develop a crypto payment product in the near future. A BBC report from late may revealed that the worldwide media and messaging platform would roll out its own version of crypto “in about a dozen countries by the first quarter of 2020.”

Details about Globalcoin are slim, but a few have been released. It is expected to run on a proprietary blockchain and be tied to the value of the US Dollar, making it a “Stablecoin.” As a centralized currency, Facebook would be able to control all aspects of the blockchain, enabling it to oversee transactions including reversing suspicious payments. The coin will integrate with all Facebook platforms, including Messenger, WhatsApp, and Instagram. These mobile platforms have over 2 billion user worldwide, allowing a large percent of the world’s population to gain immediate exposure to the cryptocurrency landscape.

A key component of the project is that Facebook will allow transactions on their blockchain to make payments with zero fees, a rarity in crypto. Users will be able pay for goods on Facebook’s Marketplace, send money overseas with WhatsApp, and tip their favorite Instagram influencer at no additional cost. In addition, rumors have leaked that Facebook will incentivize the use of Globalcoin similar to Visa and Mastercard offering credit card rewards.

Who Will Use It

The implication behind these uses cases is substantial. With a native currency, Facebook could eliminate payment fees from third party payment processors like Venmo, Paypal, and money transfer companies. Interestingly, it has been rumored that Facebook held talks with Western Union, a company that moved $300 billion in 2018, as a possible rollout partner. Using Globalcoin would allow Western Union to send global payments more quickly and at a fraction of the cost, giving it a competitive advantage. If Facebook charges Western Union a licensing fee this would create an additional form of income for the company, as the world bank estimates the current global money transfer and remittance market is valued at close to $700 billion.

This crypto adoption is a change in Facebook’s stance on cryptos as a whole. In early 2018 Facebook banned all ads relating to cryptos, mirroring a similar actions by Google. At the time it was theorized that this ban was a result of Initial Coin Offerings (ICO’s) that promised unsustainable returns without oversight or governance. While some ICO’s did release working products, there were a many that either ran out of funding or simply absconded with investor funds. In hindsight the advertising ban could have been a way to keep users from learning more about cryptos as Facebook began its research into blockchain technology, controlling the flow of information and eliminating exposure to potential competitors.

At this point it remains to be seen if Globalcoin will be publicly traded, or will remain a private blockchain. One report from CNBC states that Facebook met with both Coinbase and the Gemini exchange on custodial solutions for Globalcoin. Coinbase and Gemini are two of the most well known cryptocurrency exchanges. If these exchanges decide to trade Globalcoin on the open market, it could become a competitor to other stablecoins likes Tether and the Gemini Dollar. Perhaps more importantly it could begin to be used as a store of value in countries with weaker currencies.

From an outside observer it appears that Facebook is adopting a similar strategy to the Chinese mobile platform, WeChat. In addition to sending messages and making calls on the network, WeChat users can use the app to send money to users, pay utility bills, and “top up” their debit cards. In 2015, WeChat allowed users to qualify for a loan up to $30,000 via text message. As long as users can make payments through WeChat, they will never need to step foot in an actual banking establishment. Ironically this is one step closer to Bitcoin’s use case of “Banking the Unbanked,” or allowing individuals to act as their own financial institution. This is a big opportunity if Facebook can create similar solutions, as the current use cases are either unknown or under development in the current crypto market.

What About Bitcoin?

Bitcoin should not be negatively affected by Facebook’s entrance into the cryptocurrency market, or by any other stablecoin. In fact many stablecoins, like Tether, are bought in order to pay for other cryptos like BTC. The release of additional Tether in the past has actually resulted in an increase of the Bitcoin price. The use cases between the two are also completely different; Globalcoin will be used by people in the Facebook network on everyday purchases, while Bitcoin still functions effectively as digital gold due in part to higher transaction fees. These fees make sending small amounts of Bitcoin relatively expensive; at the time of this article the average cost of a Bitcoin transaction was approximately $3.00. While these fees are reduced significantly using the Lightning Network, Bitcoin will struggle to gain use outside of the crypto industry until Lightning and other Layer 2 protocols become widespread. Looking outside of Bitcoin, the only cryptocurrencies that may be affected by Globalcoin are XRP and other projects whose value propositions are speed and adoption by banks.

How Facebook intends to leverage its market dominance for Globalcoin is still under question, but there is no doubt that it will have a massive effect on crypto as a whole. Its name recognition and influence will allow its cryptocurrency to be pushed onto the devices of billions of users and arguably push adoption forward more quickly than any previous project. Interestingly enough, there is already a project called Globalcoin available on the Yobit exchange. At the time of writing, it was up over 500%.

-Kaltoro