There is a real and epic battle being played for the future of money with a winner still far from certain. Until now, it’d been mostly going in Ripple’s (XRP) direction and maybe to an extent Stellar Lumens (XLM); but it sure looks like Zuckerberg’s about to beat them all to the punch.
As we all know now, Facebook is set to unveil its own cryptocurrency called GlobalCoin; with a whitepaper due to be published on June 18. FB’s crypto-play will allow users all across the world to process crypto transactions through Facebook’s social media channels. Since, Facebook is one of the largest social media platforms in the world; this move is sure set to make waves in both the crypto markets and the corridors of old money.
A summary of what’s been reported:
- Name: GlobalCoin (as claimed by BBC News);
- Token: Stablecoin pegged to a “basket” of multiple international fiat currencies;
- Utility: Facebook’s GlobalCoin will be transferrable with zero fees via Facebook products including Messenger and WhatsApp;
- Governance: Facebook is looking to create an independent foundation to oversee its cryptocurrency. It’s asking companies to pay $10 million to operate a node that can validate transactions in exchange for a say in it’s governance. According to reports, node operators may derive financial benefit besides getting access to reams of data (purportedly).
What Zuckerberg’s done/(doing) looks like a page straight from WeChat’s playbook. In doing so, it is morphing itself from Social Media channel into a true “Platform as a Market” with the aim of dominating multiple lines of businesses and disrupting so levels of established players across a multitude of different markets. All as it seems, without breaking a sweat.
WeChat, the Chinese equivalent of Facebook, Messenger, Instagram, Twitter, YouTube and Google all rolled into one “Super App” allows users to do all the standard activities such as send and receive messages and pictures, share location and play games. In addition, users can also do literally dozens of other things too, such as: in-store and online shopping using a digital wallet, transfer money to friends or businesses, catch up on reading blogs, newspapers, magazines, articles, order weekly groceries, pay utility bills, buy a whole range discounted products and services.
WeChat is now used by more than 900 million Chinese people daily and facilitates over $10 trillion in payments each year. From a user perspective, WeChat has made living life really easy, frictionless, simple and quick. If you live in China, you can, realistically, use no other app but WeChat all day.
What We Know So Far
The cryptocurrency has been designed to be a stablecoin — a token designed to have a stable price to prevent discrepancies and complications due to price fluctuations during a payment or negotiation process.
This has been confirmed by Facebook’s Head of Financial Services & Payment Partnerships for Northern Europe Laura McCracken in a recent interview with a German magazine, stating that GlobalCoin would indeed be pegged to a basket of currencies rather than a single one. This design, led by former PayPal president David Marcus, has even impressed the federal Commodities Futures and Trading Commission which called it “very clever.”
Pegging GlobalCoin to a diversified fiat currency basket should provide it with ample price stability. In traditional finance, “basketing” has long been a method of diversifying risk and guarding against volatility. The coin should work by rebalancing the composition of the “basket” according to market fluctuations, thereby enabling on-chain swaps between the assets making up the basket.
However, whether a basket is comprised of fiat currencies or other digital assets, the underlying pegged currencies will inevitably experience fluctuations in price which will almost certainly have an impact on the overarching crypto.
The thing to recognise here is that stablecoins are only as “stable” as the legacy system they derive their value from.
Crypto, on the other hand, has its unique value because it is censorship resistant. It allows for value transfer and running of decentralised applications in a structure that is robust against state and well-funded actors attacking it. As soon as you try to jam “stability” into this, you are going to be compromising these underlying value drivers and once you do that, you may as well be centralised.
A centralised cryptocurrency? Satoshi would be turning over in his grave at the very thought of this (if he were dead, that is).
In saying this though, Facebook, with its 2.5 billion global users, more than $40 billion in annual revenue and greater experience navigating regulatory issues than other tech company, may actually have a better chance than any other company out there in making a stablecoin that sticks.
Under the hood
According to a recent report by The Information, “Facebook’s digital token is designed to function as a borderless currency without transaction fees and will be aggressively marketed in developing nations where govt-backed currencies are more volatile”. What an interesting statement, “aggressively marketed in developing nations.” — does FB actually expect developing nations to just cede monetary sovereignty or just sail past government regulators?
Well no…but besides having billions of users at hand, Zuckerberg has been busy building relationships.
As a result of this, Facebook has access to some of the most important policymakers in the world, such as Bank of England governor Mark Carney and the US Treasury. The social network has been actively seeking the blessing of governments, central banks and regulators and partnering with financial intermediaries and money-transfer firms for some time now.
In recent months, the social network has courted dozens of financial institutions and other tech companies to join an independent foundation that will contribute capital to form a $1 billion basket of multiple international fiat currencies and low-risk securities that will serve as collateral to stabilise the price of its digital currency and to help govern it; according to independent reports.
How will it coax Enterprise to pitch in towards this billion-dollar basket? By licensing out the right to operate nodes on its new cryptocurrency network, charging companies $10 million apiece for the privilege. Node operators will also then be allowed to send a representative to the independent foundation.
Facebook hopes to launch its network with 100 nodes, generating $1 billion in licensing fees. Thereby, using these fees to back its cryptocurrency with a basket of currencies. By introducing this level of “decentralization” to the governance of the project by involving both private and public sectors, Facebook may be hoping to avoid regulation related to the company holding too much power over its global currency.
Essentially, for all this talk about independent foundations and decentralisation…it sure looks like an ol’fashioned permissioned chain to me with Facebook choosing all the nodes and their degree of influence.
Data is the new gold
The amount of Facebook data collects about us is staggering. Their revenue model is predicated on essentially leasing out our online profiles to companies looking to sell us goods and services. Which is why some analyst are proclaiming that Facebook has better macroeconomic data than the Fed and more credit data than most banks. They even appear to be collecting data from non-users in through their browsing history and from their friends.
Transaction data is a powerful tool. Think about this…every dollar you spend with GlobalCoin will be tracked and sold. Facebook is the behemoth that it is because it has the best ad targeting of all social networks; GlobalCoin will only enhance this; by the order of several magnitudes!
GlobalCoin will turn Facebook from an incredibly powerful centralised network, tracking its users’ behaviour for the benefit of advertisers into one that knows where and how you spend your money. Facebook are relying on our complacency and our yearning for something simple that works. Something that even grandma can understand.
Ultimately, GlobalCoin will be a clever way for Facebook to own your transaction history and lead you towards purchasing intents; whether yours or that of an advertiser’s. In the hands of a business with Facebook’s reach, the unintended consequences could be significant.
As Bloomberg so eloquently puts it, “More than 2 billion users spending one currency, controlled by one billionaire. What’s to worry about?,”
Bitcoin Enabler or Killer?
It would be fair to assume, the launch of GlobalCoin will change the whole landscape of finance and payments. However and more importantly, it will immediately expose Facebook’s over a billion monthly active users to the world of cryptocurrency. In essence, this may be the biggest ever on-ramp for fiat money to flow into crypto; and by crypto, I mean Bitcoin.
The general public, having held back owing crypto due to the lack of easy access methods and shortage of services related to them in the real world to perform everyday activities will now have direct interaction with how crypto works and, more importantly how to transact with it. As @CaitlinLong_ states:
This normalising of digital currency will make the transition to permissionless crypto seem less daunting for the general public. Thereby ensuring that bitcoin is primely placed to onboard the masses when they tire of GlobalCoin’s limitations, Facebook’s privacy concerns and data abuses.
We all know that Facebook doesn’t have a stellar reputation for transparency (or accountability), preferring to use smug arrogance in the face of leak after violation after leak. Only time will tell for how long users will user put with this.
It’s now more than evident that GlobalCoin is designed to turn the entire crypto and financial spheres upside down and to give Facebook the total global domination it so craves.
My closing question to you is: Do you really want to become a willing citizen of the de-facto sovereign stateless nation of Facebook? Or have we been living here all along without even realising it?