Earlier this year, Facebook made public the news that the company was in the process of developing its own cryptocurrency – FaceCoin. It plans to launch FaceCoin through Whatsapp, the mobile messaging app owned by Facebook, to facilitate remittance payments by Non-Resident Indians to friends and family back home with ease. Experts have long been expecting Facebook to enter the financial services market, ever since it hired former PayPal President, David Marcus, to head its instant messaging app – Messenger. In May, it was announced that Marcus would be leading Facebook’s new blockchain initiatives, creating further buzz.
This move makes sense – of the $613 billion global remittances market, India occupies more than 10% of it. Combining that with the fact that Facebook’s cryptocurrency is supposed to be a stablecoin, backed by US dollars and other foreign currency, and that Facebook currently has nearly 2.7 billion users worldwide, presents a tremendous opportunity for the company to possibly become the world’s largest central bank – with a decentralised currency. However, for some, this move was met with scepticism. Early in 2018, Facebook was under the spotlight for banning all ads related to cryptocurrency – including ads for Bitcoin. Additionally, this is not Facebook’s first venture into virtual currency – Facebook Credits, launched in 2011, and Facebook Gifts, launched in 2012, both failed due to lack of popularity merely 2 years after their launches. It had also delved into peer-to-peer payments via its messenger app, Facebook Messenger Payments, launched in the United States in 2015.
In a sense, Facebook is trying to emulate in India what WeChat has achieved in China – an immensely successful messaging app turned into a universal commerce portal through which users can do virtually anything; from ordering food online, to getting bank statements, to paying their bills, booking doctor’s appointments and much more. This becomes a way for Facebook to diversify their revenue sources, by moving beyond their conventional model of ad-based revenue to leveraging their billions of users and generating transaction-based revenue. The choice of India as a test market also is also quite genius since there is no major competition in the cryptocurrency or virtual currency market like WeChat, nor is the presence of international companies like PayPal or Venmo very strong.
Several other messenger and social networking platforms have expressed their interest in developing their own currency, including Telegram, with nearly 300 million users worldwide, and instant messaging apps like Kakao and Line, which are dominant in the South Korean and Japanese markets. Telegram garnered significant interest when last year it raised nearly $1.7 billion through in their Initial Coin Offering. Started by Russian exiles, Telegram can make it possible for people in countries like Russia and Iran have easier access to financial services; especially in cases of dissidents who find themselves shut out from using the conventional financial services available in their countries. A similar venture is being undertaken by Signal, a private, encrypted messaging service that is popular among many technology experts, with their Mobilecoin currency that is still attracting investors.
Not just established, multimillions companies, but the interest in cryptocurrency has seen a surge in the past few years among startups all over the world. It has become much easier for new companies working with blockchain technology to get initial funding for their product or service simply by offering an ICO – an Initial Coin Offering – where potential investors can buy tokens that can be used in the future service or product the company develops or sold otherwise. By simply getting their name on a popular ICO list, a startup can find dozens of interested investors – something that would not be possible with a conventional funding model.
However, with this renewed interest and a promise of ease comes a plethora of questions about how secure and sustainable this model of new cryptocurrencies will be. This comes in the context of the revelation of the Cambridge Analytica data breach, in which information was harvested from around 50 million Facebook profiles, and the hacking of the South Korean cryptocurrency exchange Coinrail, that led to a massive drop in the price of Bitcoin. In this backdrop, it might be difficult to convince users of social media platforms such as Facebook and Telegram to put their finances in the hands of these companies, especially since they have not been the most trustworthy over the years.
Apart from security issues, there would be various legal, regulatory, privacy and liquidity issues in the path of these new cryptocurrencies, especially in developing markets such as India. Despite these challenges, if any company can successfully pull this off, it would be Facebook – they have the capital, the resources, the reach, and some of the brightest minds in the business to become trailblazers, ushering a new era in the cryptocurrency market.