The Good, the Bad, and the Ugly of Social Media Crypto

You’ve probably seen that Facebook is supposedly ramping up its Libra crypto project.

Supposedly — because there isn’t a lot of official news about it

What we do know is that Zuck is hiring former Coinbase employees, buying naming rights…. and allowing crypto ads back on the platform so as not to seem totally hypocritical :)

The project will probably involve a stablecoin backed by external venture capitalists to give that extra sense of openness and impartiality. Users will be able to send crypto amongst themselves and advertisers will likely be able to buy advertisements from Facebook with it.

All great, right?

Not so fast! As usual, we think there is more than one side to this story :) Here, we’d say there are three main ones:

• the good,
• the bad — actually that might be a bit harsh; “not that great” or “meh” might be better expressions ;)
• and the ugly.

Let’s start on a positive note:

Cryptocurrency from a social media giant — or any big company with a massive existing user base, for that matter — will boost mass-market legitimization of crypto concepts.

Cryptocurrencies weren’t actually the first “internet money service” that everyone was talking about.

We’d say that would be PayPal, which was started on the simple premise that sending money to someone should be as easy as sending them an email. That sounds a lot like Zuck’s premise that sending someone money should be as easy as sharing a picture with them.

PayPal’s first big success was becoming the payment processor of choice for eBay, the first major peer-to-peer internet sales platform. eBay eventually bought PayPal before it was spun off again after gaining global traction.

Could the Libra project be the Facebook’s equivalent to eBay’s PayPal? For all the goods and services being shifted between Facebook users? Could be, and that would be interesting.

But what is more interesting is to zoom out and look at the current state of fintech, of which PayPal was arguably the first to effectively scale up all those years back. The ecosystem is huge. Skrill, Stripe, Square, are just a few of the big names and more are being added all the time like Curve and Revolut.

So we’d say that best thing about Facebook’s Libra project will be that millions of Facebook users will have a built-in, easy way to get acquainted with crypto.

When everyone and their mother has easy access to crypto on Facebook or WhatsApp — whether or not they actually use that crypto to send birthday money or whathaveyou — it obviously won’t be “just for darkweb criminals” anymore.

And it is this new, improved big-picture perception of crypto that will be the most positive outcome of Facebook’s crypto, in our opinion.

And so on to the not-so-positive, more neutral aspect of this story.

We’re not totally convinced how “hard coded” Facebook’s crypto will be into a “market for X.”

We have a “mini petrodollar” theory about cryptocurrencies that basically involves whether a currency is technically necessary to use in a given market. Strong market and strong technical lock-in means a strong currency.

At first blush, Facebook’s crypto project appears to have a lot going for it in terms of adoption, including:

• It will be a stablecoin, so users can be confident that they won’t lose too much purchasing power because of market fluctuations.
• Facebook has marketplaces where users advertise and find things to sell; this crypto will probably be the obvious (and cheapest, in terms of processing fees?) choice to do so amongst users.
• There is a strong market for Facebook ads, i.e. Facebook sells tons of them and they would now be doing so for this crypto.

But you also have to wonder:

• How strong Facebook’s marketplace actually is, especially considering it is a sideshow to Facebook’s core business of selling ads and user data (!)
• Whether sending money amongst each other in a fuzzily defined, broad market (like Facebook’s marketplace) is the best use case to drive adoption initially for this specific crypto. You might argue that even bitcoin needed a rather tightly defined marketplace (the Silk Road — illegality is a great distinguishing feature!) to really start building up traction and awareness.
• If sellers are going to achieve significant volume in Facebook crypto. For example, are they going to sell so many goods and services with this crypto to be able to turn around and buy more targeted ads from Facebook with the crypto?

Could be yes to everything. We’ll see.

Looking ahead, we think that one year after Facebook crypto launches, more people than ever will not be wondering whether to use crypto but rather about which crypto to use and why.

And we’re not entirely sure Facebook’s crypto will be one of their obvious choices.

Finally, the ugly.

Facebook’s lack of transparency about their business model is pretty ugly — and this crypto project could be some PR smoke and mirrors to cover it up.

As you probably know, Facebook is basically a data company. It generates practically all its revenue with data from users who use its free services. Advertisers pay big money to target these users based on their data.

And that’s fair enough. What isn’t fair is if users aren’t properly informed about the role they are playing in the very profitable business model. A lot of them just don’t care and that’s fine. But there should be greater transparency to support them if they did.

That’s one of the key reasons Facebook got into hot water with regulators not so long ago. There’s also some censorship issues mixed in there, i.e. that Facebook can create “echo chambers” where people only a see certain type of content based on their preferences.

And do you think that it is a coincidence that Zuck is getting into crypto so soon afterwards? We don’t!

Facebook’s basic response — as far as we can tell — to all the government heat is to take a step back from being a content moderator by talking about decentralization, i.e. putting users directly in touch with other users.

And crypto is of course the “poster child” for a decentralized internet. Running a crypto project with money from external venture capitalists gives the impression of being democratic and open source — and looks an awful lot like a pure PR move if you have plenty of your own money to run the project.

As above, it isn’t really clear how Facebook’s crypto project will fit into their overall business model. But maybe more importantly is that it will not compromise their existing business model whose transparency leaves something to be desired.

If anything, Facebook will have even more data about users using the Facebook blockchain, where all transactions might actually be public information!

Ultimately while the project may or not be financially successful for Facebook, if you factor in the positive optics of running a crypto project with outside financing, it could be a pretty good move for a company with a PR transparency problem.

Any way this story unfolds, though, will be good for crypto. The project will be an onramp into the space for millions of people that will start getting curious about other types of crypto projects with other interesting use cases — like BlockStamp!

So good on the Facebook crypto project. Just don’t let it distract you from what is really going on over there.

About BlockStamp:

BlockStamp is a multipurpose Bitcoin blockchain fork developed to promote liberty, transparency, and sovereignty in areas of the digital economy where these fundamental values are most at risk. BlockStamp hosts a radically fair gambling platform, a digital tool for transparently sealing data, a censorship-proof internet Domain Naming System, and the BST crypto coin.