The Capital
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The Capital

Social Networks Are Trying To Become Payment Systems

By IMBA-Exchange on Altcoin Academy

Facebook Mark Zuckerberg in the reporting for the second quarter of 2019 said that he could close the project of issuing his own cryptocurrency due to problems with the regulator — US Securities and Exchange Commission (SEC).

Photo from the source

Initially, it was assumed that Facebook would acquire its own currency and payment system through the social network and messenger next year. Facebook has become one of the few companies that are forced to follow the path of approval of the blockchain project by the official authorities. The latter have many questions, and it is not possible to solve them yet.

Currency in the Basket

In mid-June began testing the digital currency, the Libra project, Facebook, which was joined by Visa, PayPal, Uber, and Booking.com. A new direction for the development of blockchain technology mark Zuckerberg introduced last spring and was invited to lead the former President of PayPal David Marcus. This choice of the founder of the world’s largest social network indicates the seriousness of his intentions: Marcus has established himself as one of the best experts in the field of building payment systems, and therefore it is very expensive.

It is assumed that Libra will be in demand as a means of payments or money transfers through WhatsApp and Facebook Messenger. But the main difference between Libra and other cryptocurrencies is that the digital currency of Zuckerberg will be stable and correspond to a basket of currencies such as the dollar, Euro, yen, and pound sterling. It is assumed that the new cryptocurrency will be controlled by Libra Association — a group of 25 companies, including Facebook.

In General, this is contrary to the ideology of the cryptocurrency market, according to which crypto-currencies appeared so that finances could escape from someone’s control, including state bodies and law enforcement institutions. However, such a scheme can bring Libra as a tool for carrying out calculations to the first place in popularity in the crypto world.

Nowadays the bulk of the payment is made in bitcoins or ethers, that is, the most liquid cryptocurrency. But they have two huge minuses. The first is the high cost of converting bitcoin and Ethereum into “Fiat”, that is, familiar to the world money — dollars and euros. Now the cost of” cashing out “ the world’s major cryptocurrencies is about 5–7%.

Bet on Stability

The second disadvantage is the high volatility of bitcoin and Ethereum: daily currency fluctuations against us dollar of 10% do not look anything unusual. Therefore, the recipient of the payment will lay inflated in relation to the current rate of cryptocurrency to the dollar, and the payer is not satisfied with this situation.

Libra should be deprived of such shortcomings. Moreover, the new cryptocurrency will react weakly to speculative and short-term movements of the world’s major currency pairs, such as the Eurodollar, dollar — pound, and yen-dollar. On the other hand, the stability of the currency will not attract the attention of speculators or investors, since the success or failure of the project will not affect the value of the token. However, large investors will be able to use Libra as a protective tool along with gold and platinoids in a period of global instability.

There is another question: what will earn the project? Until this moment not voiced. It can be assumed that the main income will bring the Commission for the transfer of funds and remuneration for the conversion of Libra into other cryptocurrencies or money familiar to all. And it is possible that payments via Facebook will be cheaper and faster than through traditional banks. Given that the potential customers of the new service will be about 3 billion people, the company may well set minimum prices for such operations.

In fact, if the project is launched, Facebook will become a new major and globally significant Central Bank: the company will be able to issue currency and set its rate, as well as to control the calculations of this currency.

Authorities Yet Against

It is this moment that is one of the stumbling blocks for the recognition of Libra by the world’s leading States. On July 18, exactly one month after the start of the Libra test, French Finance Minister Bruno Le Mayor expressed the consolidated opinion of the G7 Finance Ministers:

“Projects such as Libra present great difficulties — both technical and political. Technical difficulties lie in the fact that there are rules in the financial field that must be followed by all. These are the rules for combating money laundering, rules for combating the financing of terrorism, rules for the protection of personal data. These rules must be followed by all financial projects, but today this is not the case of the Libra project, which has not submitted provisions on compliance with these rules… Political problem — we cannot accept that a private company creates its own currency without any democratic control.”

In General, the causes of discontent in many ways look far-fetched — no world emission center has any “democratic control”. In the case of Facebook, the proposed methods of managing and controlling Libra resemble our Federal reserve system. There is no doubt that Facebook will join the rules and requirements of the regulatory authorities to combat money laundering: the ability to control the illegal circulation of financial assets is one of the main requirements and the US authorities in order to approve Libra. Us Treasury Secretary Steven Mnuchin generally said that the turnover of cryptocurrencies should be under the same strict control as the banking sector. But how to achieve this so far, apparently, no one knows.

Another important issue is the protection of e-wallets and the entire payment system from hacking. So far, Facebook is not doing very well with this issue: at the end of July, the company agreed to pay a record fine of $5 billion for American companies that leaked information about their customers.

Note. If Zuckerberg will still be able to create a cryptocurrency approved by the authorities and a system of payments through social networks, it will be a revolution in the global payment system. But the Bank lobby will definitely create problems for this project because of fears of losing a significant part of the income.

Money Laundering Issues

Everything suggests that Zuckerberg will seek to find a compromise with the authorities. Some analysts say that during the hearings of the new Facebook project in us Congress in July, David Marcus moved away from the original concept, according to which Libra was supposed to be a practically decentralized currency, beyond the control of regulatory authorities. According to the latest version, Libra Association will control the legality of payments and prevent attempts to launder criminal capital or terrorist financing. How it will look technically, Marcus did not say.

It can be assumed that the algorithm for tracking suspicious transfers and payments will be similar to that used in banks. Such programs have already been developed and are being used. But the problem is that a lot of respectable transactions fall under the established criteria, but the system automatically blocks the funds on them and then the payer and the recipient of the funds have to prove the legality of the payment. It is the regulation of the banking sector around the world that makes even law-abiding citizens use cryptocurrencies as a means of payment.

The practical benefits of joining the new Facebook project to the requirements of the fight against shadow capital will not be enough. Criminal funds are perfectly laundered through classic banks, where the fight against financial crimes has been conducted for a long time. Finally, there is bitcoin — a fully decentralized cryptocurrency that no one can control or prohibit transactions. To receive bribes and to transfer money into bitcoins much safer than any “Fiat” currencies. In addition, the cryptocurrency is almost impossible to withdraw.

Facebook Vs. Telegram

In theory, Facebook could not agree on a new project with any regulatory authorities. This way went Telegram Pavel Durov, who, I must say, has advanced in this matter much further. It is assumed that the cryptocurrency of the Telegram Open Network blockchain platform, called Gram, will be able to pay for purchases, as well as make payments.

However, this path is closed for Facebook for a simple reason: the company’s shares are the “blue chip” of the American stock market, and, therefore, Zuckerberg will fulfill all the requirements of the securities and exchange Commission of the United States. Otherwise, the company will face multibillion-dollar fines, and the project is unlikely to attract the world’s largest companies.

Therefore, it is likely that Zuckerberg will lose Durov’s fight for the championship in the creation of the first “social” cryptocurrency and payment system through social networks.

Number of Telegram users (launch-August 2013)
Number of Facebook users (launch-February 2004)
Material developed by the Legal Department of EdJoWa Holding

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