Early in 2019, Facebook announced that it was getting into the cryptocurrency business. This is not Facebook’s first venture into the payments system, and many are skeptical of their venture. Facebook announced that business and individuals would be able to use their new cryptocurrency on WhatsApp. You would be able to send a payment instantly similar to the way people currency use the cryptocurrency market. Not only could the Facebook cryptocurrency make inroads, it could also be very profitable for Facebook.
What Makes This Time Different?
What appears to make this venture different for Facebook is that the coin is expected to be on blockchain technology. The FaceCoin would be backed by fiat currencies, such as the dollar, euro, and yen. The benefits of blockchain are that you would be able to use smart contracts and design a structure that would be similar to many other cryptocurrencies. It would also be a stable coin that allows for privacy. The issue with stable coins is that very few merchants except them. This means that you would have to convert your stable coin back to fiat currency to use it when you purchase or sell a good or service.
So, the hard working 20-something could make money and sent it back to his parents in his/her home town, for a very low 0.1% fee. Unfortunately, the parents would then have to convert the FaceCoin to another currency to use it. If the conversion function was already incorporated into the FaceCoin, allowing the parents to exchange it immediately, then this would be a new twist.
Cryptocurrency is Positive for Facebook
The payments space would also be a boon for Facebook. Providing an alternative payment method for users would generate a new payment stream for the company. Especially in the wake of the issues related to Russian meddling in the US 2016 elections. Barclays believes that expanding into payments could give Facebook a lifeline if investors suddenly become less forgiving.
A Facebook virtual currency would generate additional premium content and allow users to find their way back to Facebook. Barclays based its Facebook revenue estimates on Google’s digital distribution service, which is also the official app store for Android’s operating system. Facebook could see a similar increase across its nearly 3 billion users in 2021.
In 2010 Facebook created credits as a payment system which was similar to modern-day cryptocurrency. Users would prepay for these virtual coins using domestic currencies, and then use those credits for in-app-purchases. The company required a user to pay using a debit or credit card upfront. The major problem was that Facebook had to bear the interchange cost, which negatively affected the value of the digital currency. Today, this issue is being outsourced to the user who needs to convert from fiat to cryptocurrency at their own expense. This could be the difference for Facebook and allow them to produce a profitable cryptocurrency.