Why Facebook’s GlobalCoin Will Be Like Facebank-Credits, Not Like Bitcoin
By on ALTCOIN MAGAZINE
Facebook’s Project Libra, the Facebook-coin project, is top secret. Coinbase made a summary of “everything we know” about the project the other week, and it is a rather short article. So this post is necessarily of a speculative nature. Still, looking at what Facebook is and does, and at the properties of cryptocurrencies, I think it is safe to make some predictions.
1. GlobalCoin Will Not Be Permissionless
Apparently, Facebook wants to enhance its apps (Instagram, WhatsApp, Messenger) with payment options. As WeChat and others have shown, this can be done without any cryptocurrency or blockchain technology whatsoever. Alternatively, Facebook could have chosen to support Bitcoin (or Litecoin, or one of the dozens of other candidates). That would have been a great endorsement of Zuckerberg’s claim that “the future of Facebook is privacy”.
Instead, Facebook has chosen to develop and issue its own coin. The whole concept of “own coin” is foreign to the world of cryptocurrencies. In Bitcoin (etc) there is no bank or any other monetary authority. The issuance of the coin is governed by software alone. Anyone can spend or receive bitcoins without permission: no bank account, no KYC, no identification. Just like cash. And just like with cash, no bank can prevent a transaction, or roll it back. Bitcoin as a payments system is therefore said to be permissionless and censorship-resistant. No one has the power to prevent you from making or receiving payments.
GlobalCoin, as Facebook’s coin apparently will be named, will have none of these characteristics. The coins will be issued by Facebook and will be linked to your Facebook account (and to your phone number, and to everything else Facebook knows about you). Technically, there may or may not be a blockchain behind GlobalCoin, but it is safe to assume that all nodes in this blockchain will run on Facebook’s servers. Ergo, Facebook will have all the necessary means to prevent or roll back transactions, freeze accounts and do all the other nasty banky things that are impossible with real cryptocurrencies.
2. GlobalCoin Will Be A “Stable” Coin
It is widely assumed that GlobalCoin will be a coin of the stable coin subcategory of crypto coins. This makes sense. People will use GlobalCoins mainly to buy stuff that is denominated in their local currency, so they will want their stack of GlobalCoins to have a fixed value in terms of that local currency. And as long as the GlobalCoins are only created when users buy them (and the proceeds are not spent), we will have a risk free, full reserve stable coin.
(There is, however, an interesting challenge in the fact that Facebook is a global company. In a world of flexible exchange rates, a stable coin cannot be stable in terms of all currencies at the same time. Also, the collateral will exist of all kinds of national currencies, and in time a mismatch between assets and liabilities can grow. But these are details, and nothing that a company like Facebook can’t handle.)
3. Facebook Will Harvest Your Data
Of course, it is nice to earn something on the side as a payments service provider, but Facebook is and will be, firstly in the business of selling targeted ads. 98% of its revenues come from advertising (2017). Data on what you buy, and where and when you buy it, is very valuable for successful ads targeting, and compared to its rivals (Google, Amazon, Alipay, even Apple), Facebook has very little of this kind of data.
Therefore, GlobalCoin will not be just peer-to-peer money or online money. Facebook will also want you to use GlobalCoins in your local supermarket, in pubs and restaurants, and to buy train tickets when on holiday. You can look at Alipay en WeChat Pay for the playbook.
4. It Will Be Much Like A Current Account
So GlobalCoin will (maybe) technically be a cryptocurrency, but in all other aspects, it will be just like you have an account with Facebank. Yes, you can make peer-to-peer payments, but not without Facebook knowing. Yes, you buy GlobalCoins, but the exchange rate is fixed and guaranteed, so there is no real difference with depositing money in your PayPal account or your Revolut debit card.
Which leaves one big question: why? Why the crypto? Why does Facebook not simply use the proven and tested databases that all other payments services providers use? Why take the risks of using a relatively young, and in the eyes of the masses rather “shady” technology? The only upside that I can think of is that the crypto implementation allows Facebook to print some extra GlobalCoins “out of thin air”, i.e. not backed by users’ deposits — but with a cash-stock of over $40 billion that is hardly a compelling argument.
