Facebook is on the blockchain train — what can we expect?

We now know that Facebook is developing a cryptocurrency for Whatsapp and is continuing to explore blockchain tech. So what will things look like if Facebook adopts a blockchain and has its own coin?

According to Bloomberg Technology, Facebook is developing a cryptocurrency that will allow users transfer money via the WhatsApp messaging platform, which operates under Facebook’s umbrella.

The giant corporation has shown its interest in cryptocurrencies since 2016, exploring the possibilities of a blockchain-powered platform and digital currency. And now Whatsapp’s cryptocurrency will be soon taking off, starting in India.

Preempting these news, earlier this month Facebook hired a number of new positions, creating a new specialist team for blockchain development, Crypto Insider reports. David Marcus, former president of PayPal and current Vice President of Facebook Messenger, leads this Facebook effort. In May 2018, he left the board of Coinbase in order to “avoid the appearance of a conflict of interest”.

What kind of currency will we see on Whatsapp? What is Facebook’s relation with crypto? What can we expect in the future? And what should we be cautious of?

A Stable Coin

It was revealed that the new cryptocurrency would be a stablecoin, with a value pegged to the US dollar. Bloomberg Technology reports that Facebook is working on long-term strategy, including “a plan for custody assets, or regular currencies that would be held to protect the value of the stablecoin.” The idea is that a digital currency would make daily purchases easier, and a stablecoin would be less volatile than non-pegged cryptocurrencies.

However, although stablecoins are rising in popularity, they have some inherent risks. Bitsonline describes these risks, giving an overall view of the effects on the wider economy:

“When a currency’s value is artificially raised through a peg to a more valuable currency, the more valuable money will disappear from circulation while the money with the artificially increased value floods the market.”

…So, in a world where everyone uses stablecoins, the more valuable money or commodity will disappear from the economy, while everyone spends their artificially valuated crypto-token.

…With merchants, banks, and other financial institutions not bound by law to accept the token at face value, they would refuse to take payments at the pegged value. Thus, people would have to spend their stablecoins at a value greater than the peg — i.e., spending more coins for the same goods and services — or not spend anything at all.”

Stablecoins are being created for mass use. This would definitely be the case for Facebook’s network of phenomenal global reach. Meanwhile, the Bitsonline article concludes that, along with bad economics, “stablecoins have little purpose other than serving as a crypto on-ramp for newbies.”

Native Currency

For now, we know about the cryptocurrency that will allow for payments to be made via Whatsapp. People are also expecting to see Facebook to use crypto technology. Which blockchain-enabled new features can we expect to see on Facebook?

CB Insights, a tech intelligence platform that analyzes machine intelligence, reports that an unnamed Facebook blockchain-group insider said the company was making a long-term bet that would most likely resemble its investments in AI:

“Rather than targeting a specific vertical, such as payments, Facebook’s blockchain group would provide a foundation from which the firm will be able to target an array of possible opportunities.”

Here’s a list of applications or features that would be possible with blockchain technology and a native currency on Facebook. This is not to say all of these will happen, or are even in the interest of the company, but gives us an idea of the possibilities:

• Micropayments between people, for services or content
• Cross-border transactions
• Banking applications
• Pay for ad-free version
• Rewarding users for CPU usage (mining)
• Tipping rather than just liking posts
• Paying businesses directly on the platform
• Expanding the marketplace features
• A crypto wallet
• Exchange services

Mass adoption

With 2.3 billion users worldwide, Facebook could facilitate the biggest mass adoption of a cryptocurrency. With experience in navigating regulatory issues, developed infrastructure, availability of resources, and almost a third of the world population at its fingertips, Facebook undeniably has some serious advantages. If the company decides to distribute and market their own coin, perhaps we will see world’s first truly mainstream cryptocurrency.

However, it appears that Facebook may have lost some of its former glory. The recent year has seen a significant decline of Facebook users. The data scandal provided by Cambridge Analytica in early 2018 was a strong incentive for users to log off. Pew Research Centre shows the statistics of the regression in the United States:

“About four-in-ten adult Facebook users (42%) have taken a break from checking the platform for several weeks or more, and about a quarter (26%) have deleted the app from their phone at some point in the past year. Combined, 74% of adult Facebook users say they have taken at least one of these three actions.”

So, this year Facebook saw many of its users leave the platform. There is a general understanding that Facebook cannot be trusted. At least, many people are more aware of the dangers and are less likely to trust Facebook blindly. Perhaps this will have implications on popularity of the rumored Facebook cryptocurrency.

Privacy

In terms of privacy, blockchain technology could have a significant impact on Facebook’s policies. A blockchain is a distributed database that allows untrusted parties to come to an agreement regarding a shared digital history, without any middleman. CB Insights explains that “if the shared digital history in question were an identity management system — or a database of identifying information — it might shift power and control toward the user and away from the enterprise.”

However, while blockchain technology could boost private data integrity in the Facebook network, it is highly doubtable that Facebook would ever compromise the power that comes with owning the private data of over two billion people.

Isaac Fains, from BTC.com, tweets his criticism of the Facebook romance with digital currency:

From the start of the year till now

Facebook CEO Zuckerberg himself wrote a post in January 2018 about his interest in crypto:

“With the rise of a small number of big tech companies — and governments using technology to watch their citizens — many people now believe technology only centralizes power rather than decentralizes it.

There are important counter-trends to this — like encryption and cryptocurrency — that take power from centralized systems and put it back into people’s hands. But they come with the risk of being harder to control. I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.

This will be a serious year of self-improvement and I’m looking forward to learning from working to fix our issues together.”

There are generally many benefits and innovations which would come with the integration of an open blockchain. However, it is unlikely that Facebook would opt for an open blockchain, which could compromise the company’s power and control. Zuckerberg shows enthusiasm for crypto technologies, but at the same time illustrates his precautions with things being “harder to control”. Facebook will regulate its currency. There will be KYC procedures. It will probably pegged to fiat currency, creating artificial value.

Things are moving fast, even for heavy-footed corporations like Facebook. A Facebook cryptocurrency may be on the horizon, and needs to be considered with caution.

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