Rumors that Facebook will eventually issue their own cryptocurrency have been swirling for awhile now, but it’s likely that this product will be a “cryptocurrency” in name only and not have anything to do with the utility offered by bitcoin.
Cryptocurrency and blockchain are two words that get thrown around with little meaning behind them these days. For example, Ripple’s XRP token is likely too centralized to be considered a true cryptocurrency, as are the various stablecoins currently available on the market.
It appears that Facebook’s so-called “GlobalCoin” with fall into this same category of centralized, faux cryptocurrencies.
What’s the Point of a Cryptocurrency?
When considering whether a particular project should be classified as a cryptocurrency, it’s important to look at the specific characteristics of decentralized cryptocurrencies like bitcoin that set them apart from traditional digital currency offerings.
In the case of bitcoin, the key innovation was the use of proof-of-work to allow those responsible for the ordering of transactions to be dynamic and potentially anonymous. This setup allows for a level of censorship resistance that was not possible in the past. It allows for bitcoin to act as an apolitical version of digital money.
The desire for this functionality is why bitcoin users didn’t care about the recent announcement of a new app that allows consumers to use bitcoin and other cryptocurrencies when paying at major retailers like Whole Foods and Starbucks. Spedn, the app that enables these cryptocurrency payments, is a custodial wallet, so it is a much more controllable, censorable iteration of bitcoin payments.
Facebook Will Be More PayPal Than Bitcoin
All of the public information about Facebook’s “cryptocurrency” offering indicate that it won’t be much different from PayPal, Cash App, or any other traditional digital wallet. The only difference with Facebook’s offering is that it will have the “blockchain” buzzword attached to it.
For example, it has been reported that Facebook is working with banks and other traditional financial institutions during the development of their coin offering, as it is expected to be a stablecoin. It has also been reported that Facebook hired two former members of Coinbase’s compliance team. This is a direct contrast with bitcoin, where the point is to not be compliant with laws and regulations.
Governments will never allow these sorts of centralized, controlled offerings to be used for illegal activity. Because of this reality, it should be obvious that stablecoins are effectively ticking time bombs in terms of when the regulatory hammer will come crashing down. And if the regulatory crackdown does not occur, then it likely means the stablecoin isn’t actually offering any efficiency gains over something like PayPal in the first place.
As noted blockchain skeptic David Gerard recently pointed out on his blog, no one has even bothered to explain why Facebook’s latest move into the digital payments space needs to be developed as a cryptocurrency.
A large part of bitcoin’s value proposition comes from the fact that governments wouldn’t allow a centralized, fiat-backed digital currency to exist in an anonymous, uncontrollable manner. Of course, if governments did allow such a system to exist, it would likely be the toughest competition bitcoin has faced in its ten years of existence.