The anti-establishment leanings of the early cryptocurrency crowd provided a sense of purpose that was essential in getting the initial technology and ecosystem off the ground. But radical technology and established commercial interests have a love-hate relationship, and as 2019 dawns, a little love may be in the air.
In December Facebook confirmed that work is underway on a cryptocurrency to facilitate money transfers in WhatsApp, the wildly successful messaging app Facebook bought for $19 billion in 2014. Facebook’s token would be a stablecoin, redeemable at a fixed rate for U.S. dollars, with transactions recorded on a proprietary blockchain. The initial focus would be on remittances in India, which totaled $69 billion in 2017.
Any sentence combining “stablecoin,” “Facebook,” and “proprietary blockchain” is enough to risk turning the more utopian-minded members of the crypto community into a pitchfork-wielding mob. But technology rarely does what we hope or predict it will do. In a year of falling exchange rates and failed ICOs, Facebook’s co-option of blockchain technology might be the best news for the industry.
Why does Facebook/WhatsApp need a cryptocurrency, anyway? It’s informative to look at WeChat, the all-in-one messaging/social-networking/payment app with over a billion monthly active users. If you’ve never heard of WeChat, it’s because almost all of those billion users come from China.
As an approximation, think of WeChat as a bundle of services akin to Facebook, WhatsApp, plus a Venmo-style payment system. If that doesn’t seems revolutionary, consider what the runaway success of the app as a whole has done for the payment system: observers have identified it as one of only a few potential competitors as a payment system to MasterCard, Visa, and American Express.
But WeChat’s payment system is decidedly pre-Satoshi. Users have a WeChat wallet that they can attach to a Chinese bank account, credit, or debit card. Transactions take time to clear, and service charges apply. And with a billion users, service charges add up.
The minor inconveniences faced by WeChat’s payment system, multiplied by a billion, make clear why Facebook is interested in entering not just the payment system business, but the crypto business as well. Imagine the daily flow of payments that users could make in the full Facebook/WhatsApp ecosystem. Initially focusing on a single use case like remittances is likely good business strategy, but shopping, transfers between friends, games, and native apps may be next.
The system would need to interface with banks and credit cards so users could buy the stablecoin. However, the token could be acquired other ways: selling stuff, being paid for services, getting a gift from a friend, and it can all happen for users who have neither banks nor credit cards. With that comes virtually instant clearing, an immutable transaction trail, zero chance for identity, and very low costs.
With enough opportunities for payment within the ecosystem, Facebook could save a ton and reap efficiency gains over and above what it could achieve with a more traditional system that interfaced with third parties more frequently.
Media, communication, and commerce united under the umbrella of one giant corporation already under fire for its treatment of users’ data is certainly not what many cryptocurrency pioneers have had in mind over the last decade. But if it pans out, Facebook’s adoption of blockchain technology need not preclude more disruptive, decentralized uses for blockchain, and may indeed be a step on the path to their viability.
With the majority of consumers still slow to understand how blockchains work let alone why they would be useful, development requires time, and time requires money. Small, scrappy startups often need to monetize their innovations relatively quickly or face a liquidity crisis. A corporation like Facebook can be in it for the long haul. It can lose money on a “blockchain division” for years. It can experiment. And it can introduce a gigantic user base to a potentially killer app.
All of this brings blockchain technology into the daily use and consciousness of the public, and in a strange way, perhaps enables the eventual disruption that companies like Facebook fear. Consumers who get used to the idea of blockchain and cryptocurrencies through a Facebook stablecoin may be ripe in a few years for truly decentralized money, social networking, or a host of other applications.
Technology rarely achieves revolutionary status by uniformly overturning the old order. The old order also adopts it, coopts it, and is thereby changed from the inside. A Facebook stablecoin may not be an endpoint in the vision of many blockchain pioneers, but it may help demonstrate how to get there.