Setting the Stage
Facebook and Zuckerberg are no strangers to controversy. Insulting early adopters, a data-farming scandal, and being pulled to testify in front of congress, have all eroded the public trust in the social network. As a result, Facebook’s processes have come under increasing scrutiny. In response, in March, Zuckerberg released a memo stating Facebook’s plan to implement an encrypted messaging service that would work across all its platforms: Facebook, Instagram, and WhatsApp. The encryption would keep all conversations on the platform private, and will likely be compatible with the new cryptocurrency.
To further entice customers, Facebook will soon pay customers directly for usage data. Its new app called Study will track which mobile applications they install, how long they use them, and where they are geographically. I see this new data stream complimenting their already robust information gathering system. It will also supplement the loss of data from the encrypted messaging protocol.
Five days ahead of the release of its Whitepaper, information about Facebook’s homegrown cryptocurrency has emerged. Reported by The Block on 6/14/2019, a preliminary list of the GlobalCoin financial partners was made public. These companies include commercial entities and non-profits alike. Each will pay $10 million for the privilege to operate a validating node which will process all transactions made on the GlobalCoin network, similar to how Bitcoin nodes oversee operations. It remains to be seen what benefit these companies will receive, but industry leaders believe it will be transactional data.
Over a dozen companies have signed up so far, including industry leaders Paypal, Coinbase, VISA, Stripe, eBay, and Uber. These multi-billion dollar companies represent payment processors, online commerce, entertainment, micro-finance loans, and more.
CNBC has reported that Facebook will allow its employees to receive a portion of their salary through GlobalCoin. There is no information as to if GlobalCoin will be made available on open exchanges. By keeping it off of exchanges like Binance and Bittrex, Facebook will be able to control the price more efficiently. There has been little information concerning this, but I feel that the coin will stay private at least initially. There is a large enough market on the social media platform without including outside influence.
Facebook has put considerable time and resources to ensure its cryptocurrency is a success. Josh Constine of TechCrunch posted on Twitter that Uber may offer a 5% discount for using GlobalCoin.
— Josh Constine (@JoshConstine) June 13, 2019
Expect to see other business partners adopting similar promotions next year. The payment processor Stripe will most likely offer a discount to its merchants to accept GlobalCoin. This would allow brick and mortar retail adoption, or the ability to pay for coffee with the cryptocurrency.
There is still time before the 2020 release to bring on more business partners. So far, 26 have been revealed, with the goal of 100, equating to a capital raise of $1 billion. If this money is used as financial backing for GlobalCoin, it will be elevated to the #2 Stablecoin in the world. Tether would remain the largest by market cap, which is $3.4 billion.
However, the cryptocurrency landscape is always changing. If Facebook allocates a fraction of its expected $19 billion post-launch income, I see it becoming the #1 Stablecoin within 18 months. For comparison, Facebook grossed $55 billion in 2018, most of which came from advertising revenue. Its venture into the blockchain realm could represent an enormous stream of income.
One of the most interesting theories about Facebook’s financial future comes from Wall St Veteran and Blockchain evangelist Caitlyn Long. In a piece she wrote for Forbes, Caitlyn opines that GlobalCoin users may receive interest on their holdings. From the article:
“What’s the magnitude of the interest income at play? If Facebook parks the entire U.S. dollar balance at the Federal Reserve via one of its bank partners, for example, it could earn 2.35% risk-free—that’s $235 million for every $10 billion deposited into its cryptocurrency. These profits will quickly turn into a new hot potato for Facebook politically, if not shared with users.”
The economic impact on the average consumer is clear. Bank customers of Chase or Wells Fargo who currently tolerate 0.01% interest in their savings accounts could enjoy a 2.35% return with GlobalCoin. Operating as a bank gives Facebook a clear advantage over all other US-based social media sites. It moves Facebook one step closer to becoming a financial ecosystem similar to WeChat, which is the largest social media app in China. WeChat customers can conduct banking tasks and transactions all within the app, making the conversion to local currencies unnecessary.
Criticism From Bitcoiners
These developments have not gone unnoticed by the crypto community at large. Several prominent users have spoken out against the recent news by stating GlobalCoin is not a cryptocurrency since a central authority controls it. Recently cryptocurrency and security expert Andreas Antonopoulos echoed this sentiment and issued a warning to other financial institutions.
“They (Facebook and GlobalCoin) are not a cryptocurrency, they are a bank. So, banks should be really scared of an experienced technology company … They (Facebook) can certainly be more open, more borderless, and reach more countries than JP Morgan Chase, and they start off with more users. So that should be scary for all the existing financial service companies.”
Andreas makes the critical point that if users buy and sell GlobalCoin through Facebook, it will need to follow all international banking laws and regulations. Payment processors like PayPal adhere to these rules, though not without difficulty in the past. While there are investment firms and venture capital companies listed as GlobalCoin partners, no actual bank seems to have been included on the list. However, Facebook did recently hire banking lobbying Edward Bowles and has had talks with the U.S. Commodity and Futures Trading Commission. If the plans are to be a fiat onramp/offramp, Facebook seems to be talking to the right people.
Bitcoin critic and gold trader Peter Schiff took a different view in a tweet sent out in mid-June. He makes the distinction that GlobalCoin is terrible for Bitcoin:
Facebook's new crypto currency "Libra" is bad news for Bitcoin. Facebook will target the very market Bitcoin is counting on for growth, the unbanked in nations with high inflation. Libra will be stable, and much easier and cheaper to use as a medium of exchange than Bitcoin.
— Peter Schiff (@PeterSchiff) June 14, 2019
As all this information is preliminary, there is nothing to do but wait. There is no ICO, no presale, and no way to mine GlobalCoin. The Whitepaper is scheduled to be released on 6/18/2019 and will no doubt be scoured and analyzed by numerous researchers and twitter enthusiasts alike. My only advice is to stay aware of crypto headlines and keep one eye on how the market reacts as we move closer to the 2020 launch.