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How the industry could benefit from major players like the Facebook cryptocurrency

Ross Chalmers

Facebook’s aspirations to create a new global digital currency have moved closer to reality today after it emerged the social media giant has held talks with US cryptocurrency exchanges Coinbase and Gemini with the aim to list its new cryptocurrency – dubbed ‘GlobalCoin’ – in 2020. It has been reported by the Financial Times that a secretive unit of the social media company has been working for more than a year to create a currency that its two billion users can use to send money to each other and to buy things not just on Facebook, Instagram, and WhatsApp, but across the internet and in the real world as well. ‘As easy to send money to someone as it is

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With a Facebook cryptocurrency seemingly on the horizon, what does this mean for the industry as a whole? Will Facebook adhere to the traditional values of cryptocurrencies such as decentralisation, or will it be a centralised payments solution? With the age of the average Facebook user rising, will the social media titan be able to convert its two billion users onto cryptocurrencies, boosting mainstream adoption?

The benefits of the Facebook cryptocurrency

The first and perhaps most major benefit that could arise from a Facebook cryptocurrency is on the marketing side of cryptocurrencies. For outsiders, especially those from a non-technical background, cryptocurrencies can appear difficult to use and quite frankly odd. This extends further into the various cryptocurrency communities, with niche jokes and memes coupled with a severe lack of trust of outsiders critical of cryptocurrencies.

If Facebook can incorporate a cryptocurrency onto its platforms in an easy-to-use manner, there will be a huge number exposed to using cryptocurrencies. People might just stick to using their trusted Facebook cryptocurrency or alternatively their interest may be piqued. This could encourage them to explore other cryptocurrencies, both technically and philosophically. Facebook therefore could encourage further widespread adoption.

If the rumours are to be believed, then the Facebook cryptocurrency will be released as a stablecoin. This will reduce the risk for many new incumbents who will be using a cryptocurrency for the first time. Making the cryptocurrency a stablecoin would appear a wise move from Zuckerberg. With many cryptocurrencies still extremely volatile, the backlash from a floating-price cryptocurrency could blow up in his face. A stablecoin provides a higher level of security for Facebook and adds to its ease of use.

Disadvantages of the Facebook cryptocurrency

Whether the coin Facebook launches will be a cryptocurrency only in name is still unknown, but it isn’t out of the realms of possibility. It would appear unlikely for Facebook to launch a permissionless payments system. This possible centralised aspect makes the idea of a Facebook cryptocurrency appear naive. There are already many other popular solutions that could achieve this through a third party. Of course, if Facebook was to implement a third-party provider, then there would not be as much money that Facebook could skim off the top of its profits, which might explain why it is creating its own version.

Facebook still hasn’t dealt with issues of privacy particularly well on its platform. With privacy being a big bugbear amongst the cryptocurrency community, adding a payments system on top allowing Facebook to access even more data appears fraught with risk. Yet with the target audience of Facebook, this would seem like an issue that it might be able to bypass.

Questions can also be asked about how likely it is that a Facebook cryptocurrency would induce more mainstream adoption. The hopium from the cryptocurrency community could perhaps be misplaced. Indeed, it is possible that those that end up using Facebook’s coin may well just stick to that one coin and that one coin only. Yet even a small transfer of people from Facebook’s billions of customers would mark a seismic shift towards more people using cryptocurrencies.

Reaction to the news

It is fair to say that the reaction to the announcement of a Facebook cryptocurrency has been mixed. Mike Rymanov argues that the SEC will soon shut down Facebook’s attempt at its own cryptocurrency. He states that Bitcoin cannot be shut down in a similar manner due to its decentralised nature and the grassroots movement of the project. With Facebook though, there is a central authority to go after. Ross Sandley, a Barclays bank analyst, has the opposite opinion though, believing that Facebook’s new coin could generate billions in revenue for the company.

Facebook isn’t alone in recently announcing its interest in cryptocurrencies. There are many other major brands that are investigating both cryptocurrencies and blockchain technology, including JP Morgan and IBM. Such corporate behemoths entering the cryptocurrency industry would suggest that there is a viable future for the industry and should benefit the space as a whole.

There is a caveat to this though. Many projects in the industry still don’t understand blockchain technology correctly. Therefore, it is unlikely that any of the companies listed above will ever produce a decentralised blockchain, which in effect could render their products largely useless for the consumer.

Conclusion

Whilst many people in the cryptocurrency industry might sneer at the thought of Facebook producing its own stablecoin, the net result should be positive overall. The release of the coin will not cause any damage to such cryptocurrencies as Bitcoin or Ethereum as their goals are distinctly different. The hope remains that Facebook can indeed help convert many more over to traditional cryptocurrencies once they have played around with Facebook’s stablecoin.

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