What You Need to Know About Facebook Cryptocurrency
Fifteen years ago when Mark Zuckerberg and Eduardo Saverin created what would become Facebook, it would have been difficult to picture just how powerful that project would eventually become.
When Facebook opened its doors to the public in 2006 and began its journey in the shadows of social networks like Hi5 and MySpace, there wasn't the slightest hint that it would exist in today’s era of digital currencies, much less create its own. But development has brought Facebook a long way, and with it, millions of users.
Facebook was originally intended as a social networking site in which users could create extensive friend lists and share activities with members of those lists. It served a different purpose for every demographic. For adults, it was a way to find old friends again after many years. For teenagers, there was no better way to throw a party and invite everyone at the same time.
As more people used the network, Facebook’s functionality increased. For brands, Facebook became a new way to reach their target audiences and as the demand for more intentional marketing tools increased, Facebook silently evolved.
Today, Facebook is a machine for the creation, storage and distribution of data through various channels, including Whatsapp, and can be used for any of the following:
- Uploading photos and maintaining picture galleries with time stamps.
- Networking and interacting online using Facebook's instant messenger.
- Joining groups and interacting with fan pages at any point in time.
- Marketing a business by distributing content to a wide audience
- Streaming and creating videos easily on Facebook live.
Just like Chinese social media app WeChat, Facebook has joined the race to become the ultimate platform with every type of activity a user could need including tools for work, advertising, social activities, and payments.
While it has everything else on lockdown, the social media giant has had some difficulties perfecting its payment areas. In an effort to solve these difficulties, it plans to introduce FaceCoin, its own digital stable coin to facilitate payments using blockchain technology for its WhatsApp users.
FaceCoin is a new cryptocurrency proposed by Facebook that will allow users of Whatsapp to send money around the world. It is expected to be cheaper and faster than regular payment methods while allowing users to keep their money within the social media network.
According to a report by Bloomberg, other messaging companies like Telegram are also minting their own cryptocurrencies for the same purpose. Their extensive user bases present a unique opportunity to tackle remittance, especially in developing countries. For example, in Saudi Arabia, Malaysia, and Brazil, 73%, 68%, and 56% of the total population are active WhatsApp users. It would be easier to send money to such countries using an integrated Whatsapp payment structure than to use a separate app like Paypal.
Bitcoin has shown that it is possible to simplify the process of sending money across borders even with their restrictions. Unfortunately, there are still many problems that Bitcoin and other cryptocurrencies face, such as regulatory uncertainty.
One major regulatory hurdle faced by Bitcoin is the lack of a central authority to blame if anything happens to user funds. This situation makes it easier for criminals to take advantage of the network and creates a lack of trust on the part of users. The design of the network also makes it difficult to scale up for mainstream adoption.
FaceCoin is expected to be different from Bitcoin in its structure and design but it remains unclear how these differences will solve its problems. Will they have a more centralized structure that users can trust? Or a perhaps a more scalable design?
For now, it seems that if FaceCoin and other new digital currencies don't take a deliberate stand against these issues in the planning and design phase, they'll get stuck.
A History of Payments
Although FaceCoin is the first fully-fledged cryptocurrency supposedly coming out of Facebook, this is not the company's first dabble into payments technology. In 2011, Facebook launched Facebook Credits, a virtual currency system intended to simplify payments. Issues with fluctuating exchange rates for international payments prevented this system from gaining widespread use.
The company also launched Facebook Gifts in 2012 as a way for its users to send digital gifts internationally, but couldn't solve localization issues to make it work either. For a while, Facebook has been expected to make another move in the virtual currency space, especially since recruiting former PayPal president David Marcus in 2014. In light of recent developments, Marcus is heading the company's blockchain initiatives, which are still strictly on a need-to-know basis. According to Linkedin, Facebook's blockchain team now has up to 40 people.
As digital currencies grow more popular, the pressure to solve the problems with cross-border payments is also increasing. Digital currencies like Bitcoin and Ripple are credited as faster payment methods compared to traditional banking and they also have reduced fees, so what on earth is the big problem?
Simple. The intended market (developing countries) still has a currency conversion problem after receiving money in the form of digital currency. For example, a person could send 500 Bitcoin, Ripple or even FaceCoin to someone else in Kenya. But now, the recipients must go through the time-consuming task of looking for local exchanges on which to convert it back to Kenyan shillings.
This is even more difficult because developing countries have nowhere near the number of exchanges or level of cryptocurrency infrastructural development as their counterparts. An alternative would be to use foreign exchanges and pay charges, but going through the stress of opening Coinbase accounts just to convert some money makes the whole purpose of using digital currencies redundant.
FaceCoin can attempt to solve these issues in different ways. They can create a better way for users to exchange their virtual currency for their national currencies without the need for Coinbase accounts. They can also aim to create a large marketplace where users can pay bills, buy goods and services, as well as invest without leaving the Facebook ecosystem (including WhatsApp).
This will reduce the need for conversion and save users the stress. As it stands, the Facebook site has a great foundation to make something like this work. Integrating bill payment, ridesharing, and other platforms with the Facebook platform should not be too difficult to achieve. There's just one hitch: Not everyone wants to use a currency simply because Facebook made it. Also, a system like this is out of the realms of remittances and is simply equivalent to a game system in which people can send game tokens to each other.
Like other companies, Facebook is showing that it understands the importance of remittances. Being in a great position to take advantage of it is one thing, but knowing the best way to approach it is another. FaceCoin could be the missing link between digital currencies and fully functional remittance systems.
Facebook is only one of several large companies making a move with blockchain technology. Lately, corporations like Amazon, Walmart, and even IBM have graced the headlines with one innovation or the other. By increasing financial accessibility and scaling one of the greatest hurdles that Bitcoin has faced, Facebook could make life easier for millions of people.