Cryptocurrencies continue to shake up the financial system. Now it’s clear that Facebook is looking for a piece of the crypto pie, with plans to release its own blockchain-supported coin.
Will this see cryptocurrency become a centralised currency indistinguishable from a traditional fiat currency? Or, will it be the catalyst that helps millions of people partake in the global economy?
How will Facebook’s cryptocurrency work?
It’s not entirely clear what to expect. Facebook employees working on the currency are said to be working in secret. But there has been speculation about how Facebook’s Libra coin might work. The most popular theory, laid out by Kik messenger’s founder, Ted Livingstone, is that it’s being built on the back of the WeChat blueprint.
China’s WeChat, an online messaging and commercial platform, introduced the ‘Red Envelope’ in 2014 as a way to send money inside its app. Users can take out money if they want to, but WeChat offers a number of reasons to keep money inside.
Today, people can use their money on WeChat to pay anything from water bills to holidays - 900 million now use WeChat in China for daily transactions.
The prediction is that Facebook’s cryptocurrency will aim to do more or less the same thing.
How will it differ from other cryptocurrencies?
Facebook’s coin would be different from other major cryptocurrencies in several ways.
Firstly, it’s expected to be tethered to fiat currencies like the US dollar in order to make it a ‘stablecoin’ – a coin that does not suffer from the same volatility as competing cryptocurrencies such as Bitcoin, Ripple, and Ether.
It would also be a ‘privacy coin’, meaning it would be anonymous and encrypted. No third party, including Facebook, would be able to know how much currency any person possesses at any given time.
There are ‘stablecoins’ and ‘privacy coins’ already in existence, but a stable, privacy coin would be a new invention.
Facebook’s cryptocurrency would also be based on a blockchain network. This means Facebook won’t have to double up as a bank.
Where will it be used?
Facebook’s new coin would be used across Facebook and its other platforms - WhatsApp and Instagram.
It’s not yet known how Facebook intends for its cryptocurrency to be used in real life. It also remains unclear whether the company will become a crypto exchange itself or will partner with businesses to accept the payment directly.
Whether the scheme is plan to monetise the company’s one billion users or a tool for good in the world is another question.
How could this shake up the market?
The simple answer: either dramatically and irreversibly, or not at all.
If Facebook teams up with crypto exchanges, then it will likely become possible to instantly send its cryptocurrency to a friend or relative, who will then be able to transfer it into a chosen cryptocurrency or even a fiat currency.
If it picks up momentum, Facebook’s crypto could spread across the US as WeChat did in China.
If Facebook doesn’t manage to team up with crypto exchanges, you would need to find out which vendors accept the cryptocurrency, and which don’t.
This scenario would likely make it hard for the coin to become a universal, online currency like the ones used on WeChat. Lack of universality could cause the cryptocurrency to go the way of Facebook Credits and Facebook Gifts, embarrassing blips in the company’s history.
Will Facebook’s cryptocurrency change history or be replaced by the next big thing? We’ll soon find out.