Facebook's cryptocurrency Facecoin: Why you should be sceptical

Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology.

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will it be yet another exaggerated “crypto” project, buying into the continuing excitement about decentralised peer-to-peer exchange but, in the end, not delivering very much? Time will tell, but my two decades of research into the economics of payments makes me sceptical.

We know little about Facebook’s plans. So far there is just one company statement about a new group set up to look into cryptocurrencies reported by Bloomberg: “Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”

Some investigative journalism from Bloomberg and the New York Times reveals a little more. Facecoin (and the similar “Gram” cryptocurrency being developed by the privacy focused messaging app Telegram) will apparently be a “stablecoin”. Rather than having a fixed amount of currency that fluctuates in price, depending on demand, Facecoin will have a fixed price and the amount of it in circulation will vary. So unlike Bitcoin it will not be a vehicle for speculation.

What will the fixed price be? Bloomberg reports it will be fixed against the dollar. The New York Times says that it will be against a combination of dollar, euro and yen. Who will use it? Facebook is apparently focusing on providing a technology solution for the large and lucrative remittance market for payments into India. Will transactions in Facecoin be anonymous like those in Bitcoin? No, they will be associated with Facebook accounts, so they won’t be an easy means to avoid laws and regulations.

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Reasons to be sceptical

While this is a fascinating development, some scepticism is in order. If there is one common feature to the many hundreds of crypto and blockchain finance projects announced over the past four years, it is exaggerated early claims. In one ongoing research project, I have found that of 103 projects announced since 2015 applying so-called blockchain technologies to financial services, all but a handful have quietly disappeared. None have yet been taken through to commercial-scale launch (although around half a dozen may achieve that by 2021).

Is there anything about Facebook’s plans to suggest a different outcome? The obvious parallel is with the Chinese payment solution WeChat Pay, globally the largest mobile and internet payment solution used by “900 million active users”. In Beijing and Shanghai “even beggars have QR codes” that allow passers by to scan and give them money using their smart phones.