By Michael Mildenberger – June 15, 2019
If users — whose data is the company’s source of revenue — can’t trust Facebook, why would they trust it with a form of currency that they don’t yet understand?
It recently emerged that Facebook was planning to launch a cryptocurrency, GlobalCoin, designed to propel it into the payments sector via its Whatsapp, Instagram and Facebook messaging platforms.
The initiative is alleged to launch in a dozen countries by Q1 2020 and is, quite frankly, very ambitious for the conglomerate considering both their and the cryptocurrency sector’s questionable reputations.
Facebook’s trust conundrum
Unless you’ve been living under a rock, you’re probably aware that cryptocurrencies had a tough year and a half with a slew of scandals and continued poor market performance. And if you’re six feet under that rock, you probably also missed that Facebook has been suffering crisis after crisis since a whistleblower revealed that the social media giant enabled Cambridge Analytica to harvest the personal data of millions of Facebook profiles without users’ consent.
The only difference is that the latter was largely preventable. Since then, the public has continued to have trust issues with the company to the point that the #DeleteFacebook hashtag has resurfaced countless times. Despite their ad campaign promising things will change, faith generally hasn’t been restored.
The crypto disconnect
Unlike Facebook, neither cryptocurrency or blockchain companies have found success in becoming household names. Although the space recently celebrated its ten-year anniversary last fall, most outside of the FinTech sector couldn’t hold a conversation on the matter until 2017, when Bitcoin saw a 2,000% increase in value from 1st January to 16th December 2017.
During that time, Amazon, IBM and even Starbucks launched blockchain or crypto initiatives. Even as cryptocurrencies saw their biggest market crash and bear market in 2018 – along with a slew of hacks and scandals – private and institutional investors and legacy tech brands continued to invest heavily in the emerging technology.
Digital asset management fund Grayscale Investments released a mid-year crypto investment report revealing that the majority of capital inflow for cryptos in 2018 came from institutional investors. Despite the undeniably bearish picture for crypto markets and several scandals, the data shows the pace of investment has “accelerated to a level that we have not seen before” at nearly $248.4 million — the strongest ever fundraising period in five years.
How impactful could this be?
It’s obvious that investors are still betting on crypto. What’s unclear is whether Facebook’s foray into the space will actually improve public perception of the sector when its own reputation remains murky at best for its poor data practices. With that being said, the potential impact of the move — if successful — would be significant to the company, and both the crypto and payments sectors.
To put it in perspective, if the social media behemoth only used the WhatsApp platform to enable its over 1.5 billion global users to transfer money, it would potentially “force” mass adoption of cryptocurrency or at the very least, significantly boost exposure to the space to more markets.
Keep in mind that although users have been denouncing Facebook, and many have started doubting the longevity of Silicon Valley’s largest social media platform — most notably Walt Mossberg— the company’s stock price still managed to close at an all-time high in mid-July 2018 despite pressure from lawmakers in the wake of the Cambridge Analytics scandal.
One could argue that the company is here to stay given its penchant for replicating its competitors’ popular features and making strategic purchases that open up new market opportunities. WhatsApp, for instance, is one of Facebook’s most profitable acquisitions to date. However, maybe the acquisition’s evolved purpose is to provide Facebook its ticket to the crypto ball and disrupt the peer-to-peer sector entirely.
Despite being a social media behemoth, Facebook’s user growth has slowed (there are only so many people on Earth, unless the company plans on somehow getting past China’s block), which has forced the company to create new revenue streams based on their user data or, use its messaging platforms to risk making the same data privacy mistakes behind the guise of a blockchain-based peer-to-peer payment system.
Facebook’s entrance into crypto raises obvious concerns including assuming further potential regulatory risks – since stablecoins are likely to be next on the SEC’s “watchlist,” but what should be the biggest red flag to investors and users is the least trusted legacy social media platform is trying to build upon an emerging sector whose ethos goes against everything that Facebook currently represents to scorned users.
However, on the plus side, the company did ask Congress to bring regulations (even if it’s on Zuckerburg’s terms) in four ways including privacy and data portability. This wasn’t just the right move, but a move that Congress should act upon sooner rather than later especially in light of the company’s planned growth in the payments space. The risks are too great, and the FinTech and crypto communities shouldn’t be the only ones on watch.
If users — whose data is the company’s source of revenue — can’t trust Facebook, why would they trust it with a form of currency that they don’t yet understand? It’s been said that Facebook hasn’t finalised its strategy, but maybe it’s best for them to focus on building back trust before using its messaging platforms to dip their toe into a “trustless” ecosystem.