Everybody will be asking why does Facebook want a cryptocurrency; because the media claims the Social media will unveil its altcoin scheme on 18 June 2019. Consequently, we could see a Facebook cryptocurrency next week.
Several media outlets; including TechCrunch, and The Verge, claim Facebook will offer details of Project Libra on 18 June 2019. The Information claims Facebook (NASDAQ: FB) will offer a payment token you can send through WhatsApp and Facebook Messenger.
In addition, The Verge claims you could use the Facebook token at Point of Sale (POS) terminals and automatic teller machines (ATMs). Hence, you could get cash for the Facebook Token, and use it for transactions at brick and mortar stores’ cash registers.
Moreover, The Information claims Facebook has been asking tech companies and financial institutions to join an “independent foundation” that controls Libra. Thus, Facebook could conduct an initial coin offering (ICO) or be planning one.
What Is Project Libra Anyway?
Interestingly, Project Libra or Project Libra Networks does not sound like a traditional cryptocurrency to me. Instead, I like Medium writer Michael K. Spencer think Project Libra is a stablecoin.
A stablecoin is a blockchain token that contains a smart contract which controls access to a trust account full of fiat currency. When you spend a “stablecoin” the smart contract will release payment from the trust account in fiat currency like US dollars. For instance, the Winklevoss Twins’ Gemini Dollar (GUSD) releases US dollars the State Street Bank (NYSE: STT) holds in trust accounts.
Project Libra will need a stablecoin to get most people and merchants to accept it. To elaborate, stablecoins solve one of cryptocurrency’s greatest problems limited utility. Simply put, you cannot take cryptocurrencies; such as Bitcoin (BTC), Ethereum (ETH), and EOS (EOS), down to the supermarket and buy food with them.
On the other hand, the supermarket’s cash registers could accept a stablecoin because it will pay the supermarket in Euros, Pounds, Yen, or Dollars. Thus, you could theoretically pay for food at the supermarket with stablecoins. However, you will need a smartphone app or credit or debit card to initiate that transaction.
Is a Facebook Cryptocurrency Technologically Impossible?
Consequently, I have to ask is Facebook really planning a cryptocurrency? I ask this question because there are serious technical and legal obstacles facing cryptocurrencies.
The blockchain scalability problem is the biggest technical obstacle to a Facebook cryptocurrency. Today’s blockchains can only transmit tiny amounts of data at low speeds because all the encryption limits space. For instance, Ethereum creator Vitalik Beterin admits his cryptocurrency “can only process 15 transactions per second” (TPS), Invest in Blockchain reports.
Thus, an Ethereum platform could crash if it tries to process over 15 transactions per second. Scalability could make a Facebook cryptocurrency impossible because Facebook itself had 2.38 billion users in 1st Quarter 2019, Statista estimates. In addition, Statista calculates WhatsApp had 1.6 billion monthly users in April 2019.
Central Banks try to Ban Cryptocurrency
Meanwhile, some countries ban or severely restrict cryptocurrency use. In fact, the People’s Bank of China (PBOC) is trying to ban cryptocurrency trading and mining, The South China Morning Post reports. The PBOC is the central bank for the People’s Republic of China.
Additionally, the Reserve Bank of India could ban cryptocurrency from its Regulatory Sandbox, The Economic Times reports. The Reserve Bank is India’s central bank and the regulatory sandbox is a testing regime for new financial technologies.
Thus, the central banks in two of the world’s largest nations are hostile to cryptocurrency. Central bankers fear cryptocurrency because they could lose control of the money supply if people widely use altcoins. Consequently, I think a Facebook cryptocurrency will be dead on arrival in two of the world’s largest economics, China and India.
Is Project Libra a Cryptocurrency?
Under these circumstances, Project Libra could be something other than a cryptocurrency. I think Project Libra is something else because Mark Zuckerberg and his people obviously know of the problems with a cryptocurrency.
Instead, I think Project Libra could be an application programming interface (API) similar to PayPal (NASDAQ: PYPL). To elaborate an API is an app that facilitates a payment through an outside system or network.
Developers add APIs to a platform to enable payment. For instance, a games platform will add an API to facilitate payment by players.
Will Facebook Offer an API ?
Importantly, APIs like CoinSwitch; that quickly convert cryptocurrencies into fiat currencies already exist. Thus, Project Libra could be an API or a payment button you can add to your website or app to facilitate Facebook payment.
Notably, Facebook is testing WhatsApp Pay; a payment app similar to PayPal, Venmo, or Apple Pay, in India, Quartz reports. Thus, Project Libra could be a souped-up version of WhatsApp Pay rather than a cryptocurrency.
However, Facebook’s API will accept cryptocurrency payment in places; like the United States, where cryptocurrency is legal. On the other hand, Facebook users in China could only pay in Yuan.
Is Facebook Entering the Payment Business?
Thus, Facebook could allow you to use Project Libra to send Bitcoin to your cousin in Venezuela. However, your cousin will have to find some other way to convert the Bitcoin to Bolivars.
Finally, Facebook could offer a platform token users can use to facilitate payment through WhatsApp or messenger. Plus, players could use the token in WhatsApp or Facebook games and convert it to fiat currency or cryptocurrency with Facebook’s API.
Why Zuckerberg thinks he can Make a lot of Money from Crypto
Zuckerberg is interested in cryptocurrency and payments technologies because of the money he could make.
Crytpcourrencies are already generating a vast amount of revenue. CoinmarketCap estimated the Market Capitalization of all the Crytocurrencies it monitors at $252.942 billion on 10 June 2019. In addition, CoinMarketCap gave all the cryptocurrencies it tracks a Market Volume of $69.209 billion on the same day.
Notably, the best known cryptocurrency Bitcoin (BTC) had a Market Cap of $140.714 billion, a Coin Price of $7,927, and a 24-Hour Market Volume of $17.752 billion on June 10, 2019. Zuckerberg probably figures he can make money in crypto, if something as slow, as cumbersome, and as clunky as Bitcoin could be worth $140.714 billion.
However, some far better cryptos than Bitcoin are not making much money. For instance, EOS (EOS); which is supposedly more scalable than Bitcoin or Ethereum, had a Market Cap of $5.46 billion and a Coin Price of $6.36 on 10 June 2019. Meanwhile Ethereum (ETH); the cryptocurrency associated with the most popular block chain, had a Market Cap of $26.9 billion and a Coin Price of $242.89 million the same day.
Does M-Pesa Explain Zuckerberg’s interest in Cryptocurrency?
Plus, M-Pesa’s revenues grew by an astonishing 80.8% in 2018. Safari.com, M-Pesa’s administrator estimates Kenyans made 607.4 million mobile money transactions through M-Pesa in 4th Quarter 2017, Capital Business reports.
Currently, M-Pesa is an East African phenomenon but you can already use it to pay for solar power systems, electricity, home appliances, television sets, satellite TV service, and even computers in Kenya. Moreover, you can use M-Pesa to wire cash to 500,000 Western Union (NYSE: WU) in over 200 countries.
Consequently, Facebook could use a digital currency to tap the $689 billion global remittance markets. Remittances are money people wire to individuals in other countries. The World Bank estimates the volume of remittances grew from $633 billion in 2017 to $689 billion in 2018.
Remittances are growing fast, remittance flows to South Asia grew by 12% in 2019. Moreover, the remittance flows ($462 billion) to low-income and middle-income countries exceeded the amount of foreign aid ($344 billion) to those countries in 2019, the World Bank calculates.
What is the Real Objective of Project Libra?
Given these circumstances, Project Libra’s real aim could be to tap the markets of developing countries through WhatsApp rather than creating a cryptocurrency. The cryptocurrency will be one of several financial technologies, Facebook will use to achieve that goal.
If it works Project Libra could add a lot of value to Facebook. However, the risks Zuckerberg is taking are huge. Critics could charge Facebook with violating national sovereignty and disrupting national economies for instance.
I wonder how developing countries could control their money supplies if everybody is using cryptocurrency; or the US Dollar via a stablecoin, instead of the national currency. This could help average people by enabling them to avoid the central bank toilet paper.
Project Libra could Make Money and Generate Controversy for Facebook
However, it could diminish government power and make taxation impossible. Could any government collect taxes when everybody in the country can keep their money offshore and access it via stablecoins?
Numerous critics already fear and denounce Zuckerberg’s power. The American Conservative’s Rod Dreher even brands the Facebook CEO a “Twerp Caesar.” It is easy to see why Zuckerberg is the greatest media tycoon who ever lived with the largest audience in human history.
Facebook’s foray into cryptocurrency, blockchain, and Fintech will only increase that criticism. However, given Zuckerberg’s track record speculators and investors should pay close attention to Project Libra. Zuckerberg could build another money machine that will make many people rich while generating vast amounts of controversy.
Originally published at https://marketmadhouse.com on June 10, 2019.