Facebook is purportedly preparing to launch its own digital currency for use in WhatsApp, Messenger and Instagram.
Could “Facecoin” be the breakthrough for retail financial services? Or, will it be another exaggerated crypto project?
What would this Facecoin bring us to the table is something that time will tell. But, in terms of the economics of payments, there are a few reasons to be sceptical about this new version of Bitcoin.
Reasons to be Skeptical
While this is an enthralling development, yet some scepticism is in the league. If there is one common feature to the several hundreds of cryptocurrency as well as blockchain finance projects announced over the last couple of years, it is the exaggerated early claims. In an ongoing research project, it has been found that of 103 projects announced since 2015 applying blockchain technology to financial services, a handful have quietly vanished. However, none have yet been taken through commercial-scale launch.
Is there any Facebook plan to suggest a different outcome? The integration of Facecoin with WhatsApp and other Facebook services could support rapid take-off.
The New York Times reports –
“Facecoin will be based on integration with cryptocurrency exchanges, which trade conventional money for digital currencies, rather than the conventional banking system.”
Given that, crypto exchanges are coming under increasing regulatory pressure owing to their operating irregularities and lack of transparency. Thus, linking with them is barely likely to encourage users to adopt Facecoin.
Also, it is difficult to make sense of the intended use of Facecoin for remittances. Major banks are already sending dollars digitally instantaneously and costlessly from one country to the other. Costs and inefficiencies are usually seen arising in the final mile, at the point when it comes to converting funds into local currency and allocating them to a local bank account. It is evident that Facecoin technology won’t do anything to address these issues.
Who Pays Out?
Another question mark is about the backing support for Facebook’s Facecoin. Unlike Bitcoin, Facecoin will need the backing of real money to maintain a fixed price. The safest approach would be fully reserving; for every $1 of Facecoin issued, Facebook could hold $1 of reserves in an isolated account.
Perhaps, the biggest reason for scepticism comes from the challenges that social media giant already faces over user data, privacy and authenticity. If Facebook takes a role in daily payments as it already has in social media, then it will be an even bigger target for the growing anti-trust movement which seeks to break up the tech giants.
However, a fundamental change is possible. Crypto technologies could be used for eliminating the instability of fractionally reserved banking. But, this will need to be through a state currency replacing fractionally reserved bank transaction accounts, not through a private currency.