The 12 Months Of Crypto: December
Facebook Announces a Cryptocurrency
This is part of a 12 part highlight reel by BlockWorks Group where we review the biggest crypto and blockchain story from each month of 2018.
The Story
In December, it came out that Facebook is developing a cryptocurrency—specifically, a stablecoin—that will let users transfer money on its WhatsApp messaging app, focusing first on the remittances market in India.
According to some folks familiar with the matter, Facebook is far from releasing the coin, because it’s still working on the strategy, including a plan for custody assets, or regular currencies that would be held to protect the value of the stablecoin.
Our Take
Big banks have made their stance on crypto known since before 2016.
Government agencies ranging from the SEC to the CFTC to the IRS have been releasing guidance on digital assets since 2013.
CEOs from a variety of sectors including Healthcare, Fintech, and Supply Chain have launched blockchain-based PoC’s (admittedly with limited utility).
One voice that’s been conspicuously missing from the fray? Big Tech.
Aside from big banks and financial infrastructure providers, big tech is probably the sector seated most directly in the path of disruption from crypto.
This is because crypto’s (still nascent) business model is directly antithetical to Google and Facebook’s.
Facebook is the world’s best advertising platform. Their model is simple — attract users to their “free” platform, gather data on them, and then serve them targeted advertisements. Facebook is the world’s fanciest, most elegantly designed bulletin board.
Crypto networks flip that model on its head.
Rather than profiting off the users of a network, tokens now make it possible to directly monetize the network itself based on the utility it provides.
Here’s the current playbook for software platforms:
- Raise plenty of VC capital (I need my war chest!)
- Build a platform that facilitates transactions of some sort and avoid having fixed assets on the balance sheet
- Grow rapidly by spending TONS on customer acquisition
- Harvest data and behavior patterns
- Monetize with advertisements
The problem for users comes between steps three and five.
Eventually, the growth phase comes to an end and investors (understandably) start wanting to see profits. Suddenly, it’s no longer the company’s priority to design the best possible user experience — it’s to extract value from users.
This is all a long-winded way of saying Facebook can’t (ultimately) win in crypto unless they are willing to entirely uproot their business model.
That’s not (as most crypto news outlets have reported) because of their ailing brand or status as a centralized internet giant. It’s because they have too much stake in a monetization strategy that will eventually become obsolete.
That doesn’t mean they won’t be successful in the short to mid term though. In fact, they probably will be.
Facebook has THE most powerful network effect in the world — over 2 billion people use their platform. They have unprecedented access to human and financial capital, and a demonstrated history of creating and rolling out world-class products.
In all likelihood, Facebook will be instrumental in ushering in the next phase of crypto adoption.
The only thing standing in Facebook’s way is Facebook.
Mark Zuckerberg and Sheryl Sandberg have already demonstrated the lengths they will go to to protect and defend Facebook’s strategy.
It’s the same reason Xerox missed out on personal copiers — it wasn’t that they couldn’t see their utility, they just weren’t nearly as profitable as their enterprise business.
In fact, you could make the argument it would have been flat out irresponsible from a fiduciary perspective for them to pursue such an unprofitable product line.
Facebook’s advertising business faces the same dilemma.
Unless they can do a complete 180, the same strategy that made Facebook one of the world’s most profitable companies will ultimately what will bar it from being a dominant player in crypto.
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