Facebook and its Global Coin: what we know so far

by Cristina Cannata
Jun. 14, 2019
16 minutes

The time has come, apparently.

Facebook plans to launch its virtual currency by the end of this month, with a global spread in about a dozen different countries.

No official statement from Facebook has been released so far, but it is clear that things are changing very quickly. Until recently, Facebook coin was expected to be launched in the first quarter of 2020, with the test phase late in this year.

Whether it is true or if it is only rumors fueled by a variety of reliable and less reliable or journalistic sources, what is certain – in any case- is that if it were to actually happen, it will be a significant turning point for the social media giant from different points of view. Especially considering the skeptical, fascinated and belligerent approach that Facebook has historically shown towards crypto world, cryptocurrencies and related products and services.

Last May, it was reported that Facebook had set up in Switzerland – with an official registration- Libra Networks LLC., a new fintech company completely dedicated to their cryptocurrency plans, exploring blockchain applications and solutions, with Facebook Global Holdings as its stakeholder.

The new company comprises the team that Mark Zuckerberg has created in less than a year under the watchful eye of David Marcus – ex Messenger, Coinbase and PayPal– and under the expert supervision of Evan Cheng – Director of Engineering in Facebook.

The creation of Libra Networks responds to the Facebook statement of a few months ago, when has been reported that the social network was forming a new team dedicated to blockchain solutions: “Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”

What about Facebook coin?

As far as the name is concerned, Facebook cryptocurrency is being referred to internally as Globalcoin – even though a Globalcoin already exists. Other potential names are Facecoin, Facebook Coin and Libra Coin. Whatever the name, it has become clear that Facebook coin will be a digital currency, a stablecoin to be precise, while is not 100% sure it will be a cryptocurrency.

Why a stablecoin? Considering the widespread nature of the coin, it is most likely that part of the Facebook intent includes the plan to maintain the coin value less volatile as possibile. By definition, a stablecoin is a cryptocurrency designed to minimize the volatily of the price of the coin since its value is pegged to a currency (or to a basket of different currencies) or to exchange traded commodities. A stablecoin is less affected by price fluctuations and, for that, it is better for micro-payments.

According the rumors, it seems that Facebook is willing to create a currency accessible to anyone -even to those who do not have a bank account- in order to offer people affordable and secure payments, in a peer-to-peer logic. In this regard, back in December 2018, Bloomberg reported the news that Facebook was working on a cryptocurrency for WhatsApp that would allow transfers of money through the app (which reminds WeChatPay model). The project was designed for the Indian market, – where WhatsApp users are about 200 million- and, in particular, for payments made by Indian workers abroad, which in 2017 amounted to around 69 billion dollars, 3 % of the entire GDP of the country. In January 2018, The New York Times reported the news that Facebook was working in order to unify Messenger, WhatsApp and Instagram. This was intended as a signal to define an enlarged system in which to spread the payment system.

Another indiscretion, grain of salt, is that Facebook could follow Steemit model in order to monetize contents. Likes, reactions, comments and sharings -along with personal information and data, networks and shopping preferences- would be turning into money instantly exchangeable among users. According this model, contents will gain a real value. This fact could be a great game changer in social media world, especially considering the value that visual contents are gaining nowadays on social media platforms, Instagram first of all.

All those things come after more than one year of a peculiar relationship between Facebook and crypto. Facebook has always looked at crypto world with suspicion (‘blanket ban’) and appreciation (creating a new blockchain dedicated team) at the same time.

That was January of 2018 when Mark Zuckerberg proposed a series of good intentions on a Facebook’s post, first of all to fix Facebook bugs in a quite definitive way – an urge rather than an intention. Beyond that – not properly successful achieved if we consider Cambridge Analytica scandal– the creator of Facebook talked about the possibility of exploring encryption and cryptocurrency world, in order to better investigate potential applications of these technologies and advantages that Facebook users could enjoy.

One of the most interesting questions in technology right now is about centralization vs decentralization. A lot of us got into technology because we believe it can be a decentralizing force that puts more power in people’s hands. (The first four words of Facebook’s mission have always been “give people the power”. Back in the 1990s and 2000s, most people believed technology would be a decentralizing force.  But today, many people have lost faith in that promise. With the rise of a small number of big tech companies — and governments using technology to watch their citizens — many people now believe technology only centralizes power rather than decentralizes it. There are important counter-trends to this — like encryption and cryptocurrency — that take power from centralized systems and put it back into people’s hands. But they come with the risk of being harder to control. I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.

Just 20 days later, unprecedented and unexpected event, Facebook announced a new policy ads -applies to all its platforms- regarding financial products and services, prohibiting those ads that may be associated with “misleading or deceptive promotional practices” such as binary options, ICO and cryptocurrency, underlining the intention to protect users against scams.

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Two of our core advertising principles outline our belief that ads should be safe, and that we build for people first. Misleading or deceptive ads have no place on Facebook. We’ve created a new policy that prohibits ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency. We want people to continue to discover and learn about new products and services through Facebook ads without fear of scams or deception. That said, there are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith. This policy is intentionally broad while we work to better detect deceptive and misleading advertising practices, and enforcement will begin to ramp up across our platforms including Facebook, Audience Network and Instagram. We will revisit this policy and how we enforce it as our signals improve.

The Facebook initiative was a forerunner to a massive ban action promoted by other  big techs like  Google, Microsoft, Mailchimp, LinkedIn, Snapchat. Those companies -accordingly to the Facebook’s stubborn closed approach- started to operate banning any type of ads also on their platforms. A few days after Facebook’s decision, the price of Bitcoin suffered a major price drop from $ 11,200 to $ 8,800, followed by further slumps in value to each announcement of ban from big techs.

Facebook’s ‘blanket ban’ was officially explained a few days later by David Marcus -head of Messenger, president of PayPal from 2012 to 2014 and member of the Coinbase board. He underlined that the social network was acting with the only purpose of protecting the community:

“We want to protect the community. That’s job number one. All the legitimate people in the crypto world that I spoke to at least thanked me for what we just did with that move. The reality is the vast majority of these ads were a scam and we cannot allow scams to exist on our platform. […] Once the industry self regulates a lot better and you have better more legit products that want to be advertised on the platform. When we get to that stage, we’ll figure out a way to reintroduce these things. But right now, I think the whole industry is actually very worried about what was happening because as a whole it delegitimizes the whole industry.”

Furthermore, Marcus clarified Facebook’s rumors regarding blockchain solutions promoted by the social media, saying crypto won’t have play role on his platform anytime soon:

“Payments using crypto right now is just very expensive, super slow, so the various communities running the different blockchains and the different assets need to fix all the issues, and then when we get there someday, maybe we’ll do something”.

On May 8, David Marcus published a post on his personal page hinting Facebook’s blockchain and crypto plans. Marcus announced he quitted Messenger team in order to head a new brand small team specifically created to explore blockchain applications.

The post has resulted in many rumors about the fact that Facebook would have launched its own digital token soon. The company released a simple statement regarding the new blockchain team:

“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”

Until then, Facebook firmly held its position regarding ‘blanket ban’, continuing to ban any ads related to products and services from the crypto world. In June 2018 Rob Leathern, Product Management Director, published an updated statement for ads policy:

“In January, we announced a new policy to “prohibit ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency.” At the time we also made clear that “this policy is intentionally broad while we work to better detect deceptive and misleading advertising practices… We will revisit this policy and how we enforce it as our signals improve. In the last few months, we’ve looked at the best way to refine this policy — to allow some ads while also working to ensure that they’re safe. So starting June 26, we’ll be updating our policy to allow ads that promote cryptocurrency and related content from pre-approved advertisers. But we’ll continue to prohibit ads that promote binary options and initial coin offerings.”

The new ads policy wanted to once again allow cryptocurrency ads on the platform. However, it included a new time-and-cost consuming mechanism. Those who would promote products and services related to crypto have had to submit an application, so that Facebook can evaluate it. In particular, advertisers were asked to attach the apply with a very detailed documentation (“any licenses they have obtained, whether they are traded on a public stock exchange, and other relevant public background on their business.”). This updated policy had a twofold effects a) dissuasive for applicants because the very time-and-cost consuming process b) continued to cut out from ads most of crypto projects.

The following week, Evan Cheng – Head of Engineering- updated his LinkedIn profile. Cheng moved to the same position at the company’s recently established blockchain team led by David Marcus. On August 10, Marcus announced he was resigning from the Coinbase board in order to dedicate fulltime to Facebook new blockchain projects. Rumors suggested also that the decision was taken in order to prevent an actual or alleged conflict of interest.

Meanwhile, Business Insider reported that Facebook was working with Stellar. Some said that the intention was to deploy Facebook own private blockchain, others said that the two companies were collaborating in order to launch a new stablecoin. Stellar Lumen is a decentralized protocol created in 2014 from Jed McCaleb, Ripple co-founder; it is built on an open source code that embraces many different projects, such as stablecoin built on Stellar blockchain. Facebook promptly denied that news with a statement.

Last December, Facebook hinted its own intention to enlarge the brand new blockchain team listing new job opportunities. This way, the team grew up very fast, reaching nearly 40-50 high-skilled professionals, 10% of which appears to be ex PayPal employees.

That month, Bloomberg reported the news that Facebook were working on a cryptocurrency, a WhatsApp-centered product, primarily focused on India.  The following months, Facebook worked on better enlarging the team. Early in February, Cheddar broke the news that Facebook had acqui-hired Chainspace. It seemed that growing by acquiring small skilled blockchain start-ups or small companies were in the Facebook intentions.

Also, it was spreading the news that Facebook was seeking investors (venture capitals) to back its crypto efforts and that Zuckerberg had already spoken with leading crypto exchanges like Coinbase and Gemini.

Blockchain and crypto became a top topic once again when Mark Zuckerberg talked during the company annual F8 event saying, “I believe it should be as easy to send money to someone as it is to send a photo”.

Even if he did not directly make a cryptocurrency announcement, press and journalistic sources went back on the crypto Facebook plans. It was revealed a number of one-to-one meetings between Zuckerberg and institutions like US Treasury and Bank Of England. Other sources talked that Facebook had also met with payments firms like Visa, Mastercard and Western Union.

On May 8, it comes another big turning point. Facebook update again its policy (‘blanket ban’) concerning ads.

What are the Facebook actual business and timing plans is not known with certainty so far, and it is not easy to guess, despite the latest rumors that see the Facebook Coin already be ready to use by the end of the month, with a white papers released on June 18th.

An Innovation Choice

The idea of ​​creating a widespread global cryptocurrency is a fairly proof of ambition for the social media giant. In a heavily populate competitive context, Facebook can not  appear as not prepared to embrace new disruptive technological innovations. Supporting the development and the expansion of the blockchain means showing a sort of power towards both a) those who have created this technology (a global community) and b) towards other tech giants such as Google, which has recently started to investigate this field in more concrete terms – but slowly- with its private blockchain for its own cloud computing platform, or Yahoo! which owns 40% of the TaoTao crypto exchange.

A new chance to boost Facebook popularity

Some recent events have affected deeply Facebook popularity.

We refer especially to a) Cambridge Analytica Scandals and b) Demographic bounders and social trends.

Cambridge Analytica had shown all the weaknesses in handling and managing users’ personal data, causing a real scandal that put a strain on Zuckerberg’s platform validity and reliability. The urge to fix -once and for all- all the lacks regarding data management would be well matched with the concept of blockchain and its features of time-stamp and tamper-proofing. Adopting a “distributed register” means to achieve a more secure and reliable data management. Introducing a data storage built on encryption systems could be an effective (albeit costly) solution that would ensure a more effective management of the amount of users’ data; plus, that solution could give to the 2.2 billion Facebook users the perception to be in fully possess their own data.

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Young people are no longer interested in using Facebook. After the success of the past decade, the demographics of the platform’s user base radically changed over the years. Young people aged 15 and 20 do not use Facebook anymore; data shows that a) they stopped to sign up on the platform b) those whose are already in, are inactive users or use the profile for a very short time until they get to erase their profiles. These data put the focus on who is actually and actively populating Facebook and in what these demographics are resulting regarding ways and efficiency of using the platform. According to research published on May 28 by cryptocurrency analytics firm Diar, less than half of Facebook’s users are under the age of 35.

It is also important to point out that  a) only 3% of Facebook users are under  the age of 18  b) the distribution of users identities an average age of users that is definitely high c) turnover rate is low d) the number of retirees (+65 years) has doubled since 2012 e) the number of people who decide to abandon the social media is growing.

The launch of the Facebook Coin could result in double effects a) on one hand, it could meet a demographic roadblock because of the ‘too old’ users of Facebook, not able to fully understand and embrace the technological revolution b) on the other hand, the coin could act as a magnet to attract new young users especially within the integrate system of Messenger, WhatsApp and Instagram (which would remain formally separate, but would use common technologies).

What Global Coin will be?

A new cryptocurrency on the tail of Bitcoin? Unlikely. A new payment method/tool? Far more likely.

Facebook token is ideated to be a border-free and fee-free currency, with a global spread and truly efficient in its aim. It is created to make the money transfer easier and faster, adopting the coin especially in developing countries where the currencies are usually more volatile, using it within a precise and clear system defined by Facebook.

In addition, the fact that the company is also planning ATM-like physical terminals suggests Facebook’s intention to use the coin also for physical payments. Some rumors talked about both of the possibility to exchange the Facebook token with other currencies and of the actual implementation in the trading world granting bonuses for merchants who accept Facebook’s cryptocurrency as payment.

If that is the case, Facebook presents itself as an interesting tool that could help in daily economics management, especially in developing countries and/or in those countries with a high rate of volatility of their currencies and/or in those countries with a bad financial inclusion.

By the way, nowadays lots of people decide -deliberately or not- to not own a bank account. According to data released by the World Bank, 1.7 billion adults worldwide still do not have access to a bank account (China counts 224 million inhabitants without a bank account, in India the number stands at 191 million, while in Pakistan it’s 99 million).

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Just think of what happened in Venezuela with Bitcoin, where there was a massive introduction and adoption of the cryptocurrency. The country is living a tremendous political and economic crisis (country’s GDP fell by 47%) and dizzying inflation rate (with an increase of 20.000.000%). This situation brought to increasing the volume of bitcoin exchanges. That shows that cryptocurrency are seen by people as a solution to handle their own finances.

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Creating tools that can help to transfer money among people without a bank account is been a relevant topic fom many years, with the deployment and the introduction of tools like Apple Pay, Venmo, Google Pay, WeChatPay and so on. For instance, M-Pesa, a mobile money transfer service launched in 2007 in Kenya was one of the first experiment in that field, helped inhabitants to transfer money easily and faster, using the smartphone as a wallet. Today it counts as users 70% of the entire Kenyan population, about 49% of Kenya’s GDP is processed over M-PESA.

Facebook token joins all those revolutions that are working to the digitalization of the money and on the online transposition of the money value, making easier and faster to exchange different currencies. TransferWise or Revolut, for instance, work as money transfer services that allow peer-to-peer and global payments.  All those ideas refer to the conceptBanking The Unbanked’ promoted by OmiseGo (OMG): “OmiseGO’s goal is to help individuals with limited access to banks enjoy even more privileges than those banked. The positioning is not to be regarded as another altcoin or cryptographic currency. Bringing the real-time solution to the populace is at the core of OmiseGO’s vision”.  Facebook definitely has the time, money, and resources to address the issue effectively. Facebook is giving to these people an actual chance to take part in the global economy.

The global and massive scope of Facebook coin well explain the different institutional (with banks and governments) and business (with some strategical financial companies) meetings carried out by Zuckerberg. All these meetings also reveal a certain intention to cede control of the forthcoming cryptocurrency to outside backers.  This it could be seen also as a strategical move in order to a) encourage trust in adopting the system (considering the recent loss of Facebook’s reliability) and to b) reassure regulators.

Regarding the control, even though Facebook had always talked about decentralization as lead concept, insights encourage towards a ‘centralization’ concept. According rumors, Zuckerberg is charging a $10 million licensing fee for the rights to operate a node. Not sure how operators can be rewarded for operate a node. With plans to launch 100 nodes, Facebook could generate around $1 billion in licensing fees in the first year. This fee seems to appear as a tentative to confine control of the network.

We all have the power to be leaders. And if enough of us work to build community and bring people closer together, we just might change the world.” (Mark Zuckerberg, Bringing the World Closer Together)

He said “enough of us”, not “all of us”. Just to pointed it out.

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