It took Facebook seven years to raise $1 billion from investors. Uber was able to do it in five. But messaging app Telegram did that in about two months last year when they announced their own in-app currency for transactions. And Facebook noticed.
Now Facebook is working on their own currency: a stablecoin, pegged to a mainstream currency, according to Bloomberg. It will likely get rolled out first to users of WhatsApp, which could use this currency to send money to friends and family instantly, according to five people with insider knowledge who spoke to the New York Times.
But will the currency they ultimately use have any value outside of the platform? For now the race to put a coin inside of an app is the new space race. The messaging app Telegram is working on a coin for its estimated 300 million users worldwide. Signal, a popular encrypted messaging service that is loved by technologists and privacy advocates, is working on its own coin. South Korea’s Kakao and Japan’s Line are as well.
The Times story says Facebook could “succeed where bitcoin failed.” But any cryptocurrency with cross-border payments will face the same regulatory and implementation challenges.
In 2015 Facebook product manager Steve Davis told Techcrunch that international payments weren’t the priority. At the time they just wanted to master payments in the US. “We’ll consider where to take it after that once we get everything nailed down,” Davis said at the time.
Currently within the Facebook ecosystem in the US, users can send money to each other via Messenger for free. In reality, Facebook covers the cost of the ACH transaction, which is usually a $0.29-$0.40 fee charged to the receiver. Unlike Venmo, Coinbase, Ca$h, and others payment platforms, Messenger doesn’t have an internal wallet for you. When your friend sends you $10 for their half of the lunch bill, it goes straight into your personal bank account.
In making free transactions go that smoothly, Facebook set a really high bar for their future cryptocurrency. Venmo users looking for an equally breezy transaction have to choose a $0.25 for “instant transfer” to their bank accounts.
But can a Facebook cryptocurrency be that frictionless and secure internationally? Facebook is looking at pegging the value of its coin to a basket of different foreign currencies, rather than just the dollar, three insiders told the New York Times. They could guarantee the value of the coin by backing every coin with a set number of dollars, euros and other national currencies in their users digital wallets, the way the cryptocurrency Tether allegedly does.
There has always been something weird about the way Facebook breaks apart its own apps while acquiring others. They broke off Messenger from Facebook and acquired Instagram and WhatsApp as separate mobile platforms. But Facebook never added payments between the platforms, even after they hired former PayPal president David Marcus to run its Messenger app in 2014.
So far, Facebook is short on the details of how it will implement a true cryptocurrency. Meanwhile Telegram, their biggest competitor in this space, dropped an opaque, 132 page white paper saying how they would do it. (Note: the Bitcoin whitepaper is just nine pages in length).
But not everyone is impressed. “I cannot, in 132 pages, gain the slightest intuition as to how to go about proving that the hard problems it needs to solve will be solved,” one analyst, Charles Noyes, wrote about the Telegram project on Medium. “The entire thing should have a disclaimer attached: ’all of the technical things we said this will do are completely unproven and have not been subjected to outside scrutiny.’”
The difference between Facebook’s stablecoin and Telegram’s wild project is that Facebook has no plans for an ICO. This means they cannot use a pre-sale of the coin to raise the money to build the infrastructure it will use. That is good news for Facebook, as a failed coin would be a huge embarrassment for the tech giant.
Nonetheless, Facebook is undeterred and still setting the bar as high as a truly independent blockchain-based cryptocurrency.
When we dig into the project, it looks like Facebook currently has about 50 people working on it. Our friends over at The Block note that as of two weeks ago, Facebook advertised for 13 more blockchain-related jobs on its careers site. That’s nearly double as many as in December. At the end of 2018, the social media empire’s had 32 people on the blockchain team according to a LinkedIn search.
Facebook has also advertised for a “Marketplace Payments Blockchain” role (probably already filled since they are no longer accepting applications). Bloomberg reported on speculation that Facebook could be in the business of creating creating a stablecoin for WhatsApp transfers in India. Another ongoing vacancy for a “Brand Strategy” manager might also suggest that the company is ramping up for a pending launch date. These hires typically corresponding with the end of a product’s technical development phase. They still have not said much more about their blockchain tech ambitions for its two billion users.
For now they’re keeping the project hush-hush, even from other Facebook employees. The Facebook crypto team is in an office with separate key-card access so other Facebook employees cannot get in, according to two Facebook employees who spoke to the Times.
The problem here is that Facebook is hiring 50 technical people to tell them something that all the smartest people in blockchain have already found out: stablecoins are actually hard to trust and coins with market-based pricing are fickle and can lose value overnight. No decentralized system can work without paying fees to the network it runs on. But if you’re Facebook and you’re already running ads on your platform and selling your users data, you might be able to break even.
In order to be truly valuable the Facebook currency would have to have a stable value outside of the platform. Otherwise it’s a bit like getting paid with airline miles and finding out that they only work on certain dates.
The moonshot would be if the currency works so well that merchant accounts and personal users liked using it so much that they start accepting it in stores and to repay each other for dinner. But what Facebook will quickly find out is that people value their money more than they value their privacy. When you sign away your privacy to Facebook’s “User Agreement,” you’re not really “giving” them anything. And if you get kicked off of Facebook for posting conspiracy theories you’re not really “losing” anything.
Trouble will start right away when there’s money left on the table.