Why Facebook is Showing Interest in Cryptocurrency & Blockchain
One garden, to rule them all.
Facebook recently made waves on the internet by releasing the white paper for its upcoming cryptocurrency, Libra.
What is Libra?
An open-source cryptocurrency project and supposed stable coin, created by Facebook, minted on the Libra Network, backed up by a basket of fiat currencies and monitored by the Libra Reserve.
We don’t have time for that stuff right now though, read more on that here if you need to get upto speed.
A community torn
There have been a lot of varied reactions to the news surrounding Project Libra.
The crypto community seems somewhat torn between thinking Libra will be good for Bitcoin and thinking that Libra spells the end of crypto assets as we know them.
I’m of the school of thought that Libra will be good for Bitcoin in the short-to-medium term, and bad for everyone in the long-term.
That’s a rant for another day.
While Twitter argues over whether or not Libra will be the demise of their favorite altcoins, some other questions come to light regarding Facebook’s motivation. It’s hard not to wonder why exactly Facebook wants to launch a cryptocurrency.
What possible motivation could they have for wanting to run a global payments system?
Why does Facebook want to start a cryptocurrency?
When monopolies became illegal in the United States, the next generation of clever companies began focusing on another concept that aligned with their idea of market dominance.
Creating a walled garden.
Companies like Facebook, Apple, and Amazon have run with this concept (very successfully) for the past decade or so.
Simply put
Facebook wants to get into cryptocurrency because it dramatically increases the size of their walled garden and because the revenue potential is ludicrous.
It comes down to two things: data and money.
First, let’s talk about what exactly a walled garden is.
“A walled garden is an environment that controls the user’s access to Web content and services. In effect, the walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material.” — Source
Basically, a company is creating a walled garden when all of its apps, products, and services are interconnected with each other, and sometimes reliant on each other.
It can be something as simple as Apple releasing a weird dongle you have to use with their headphones, or creating chargers that only their laptops use: they want you to stay in their own personal garden. If all the products you need are within Apple’s offerings, you can comfortably stay within their walled garden without needing to go to other companies for additional products or services.
If you’re familiar with WeChat or AliPay, they are the King and Queen of walled gardens. They have created an ecosystem in China that dips into almost every aspect of a persons life, you can read more on that here.
Facebooks Play for Financial Data
Facebook is getting into cryptocurrency because once they have a widely accepted payment method, their garden will be the largest in the world.
Facebook already has all of your social data. It knows who your friends with, who your family is, where you live, what kind of movies you like, even your personal writing style. The only thing missing from that to make their snapshot complete is financial data: how and where you spend your money. Collecting financial data will mean that they can make predictions on where you’ll spend in the future, predict what products you might need, or even send you reminders when you need to purchase new toilet paper.
Yeah, it’s creepy.
So creepy that the U.S. government has already asked Facebook to cease development on their cryptocurrency (Libra) a mere day after the white paper was published.
Once Facebook controls your financial data, they’ll essentially have as much power as the government, minus the military.
Anyways, let’s go back to the walled garden.
If Facebook wanted every action you take in your life to be within their walled garden, they’d have to add a lot of products to their current service offerings. They’d need a music streaming service, something to deal with transportation, a way to obtain food, a way to pay bills, a way to pay rent, etc.
What’s the best way to start taking a piece of all of those potential service offerings without launching a product to satisfy each?
Create a network of companies that offer all of those services and put them in a network. A network that is connected by a cryptocurrency, which can be used to pay for anything within that network.
Facebook has already announced that the following companies will be investing $10 million into the Libra Reserve and joining the Libra Association. When you read this list, think about all the products and services that you’ll be able to access with Libra based on the network of companies involved.
Companies in the Libra Association
- Payments: Mastercard, PayPal, PayU (Napsters’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
What else do you need?
Facebooks Play for Revenue
The second major reason Facebook wants to get involved in the cryptocurrency market by launching Libra is, well, they’re going to make a ton of money. I’d be willing to wager that most of the companies involved in Libra Association are going to make more money than most people could ever dream of off this investment alone.
Think about it, I see the largest money making opportunities throughout history as the following:
“If you want to make serious money, start a religion”
then
2. “If you want to make serious money, start a government”
then
3. “If you want to make serious money, start a bank”
and now
4. “If you want to make serious money, start your own currency”.
How exactly are Facebook and all its’ partner companies going to profit from Libra?
Well, their going to make somewhere around $200-250 million a year solely off the interest that their “basket of fiat currencies and low volatility assets” is going to accrue.
That’s a lot of lettuce.
Beyond the interest the Libra Association will generate, it’s also severely disrupting a few industries.
The remittance industry, for example, Binance reported in their coverage of Libra that $16 billion a year could be saved by slashing remittance services by 5%. If you’re not familiar with remittance services, they’re companies like Moneygram or WesternUnion.
These companies charge a pretty steep fee to send money across borders, and for many expats, is the only method for sending money back home to support their families. If we’re looking at billions in savings for a 5% cut in fees, imagine what could be done if those fees were cut down to cents and made instant (in the way that Libra will allow people to send each other money).
Libra is slated to handle 1000 transactions per second, that’s more than Visa or Mastercard can handle in the same time frame.
Remittance services could be driven completely out of business, leaving room for Facebook or anyone else in the Libra Association to create an alternative service, that is if Libra doesn’t automatically eat that opportunity up by virtue of being user-friendly and available to anyone with a Facebook account.
There’s also the matter of large wire transfers between corporations or countries. Governments trade and lend money to each other regularly, this process often involves ridiculously high fees and takes serious time to facilitate. Once again, Libra can make these arduous processes obsolete: if it’s truly as fast, simple, and scalable as they claim in their white paper.
Beyond the money transfer services that Libra will threaten for dominance, Libra is also going to give access to digital financial services to 31% of the global population that currently has no access at all.
Binance reported that there’s an estimated $3.7 trillion that could be added to the economies of developing countries (by 2025) through increased access to financial services.
That’s an additional $3.7 trillion that could be pumped into the largest digital walled garden humanity has ever seen.
Published at Thu, 20 Jun 2019 20:33:06 +0000
