Facebook, the social media platform with 2.5 billion users, will soon launch its digital currency, GlobalCoin, in a push to disrupt the traditional and lucrative payment mechanisms that have made banks and finance companies rich running money around the world.
Companies like Visa, Mastercard, PayPal and others have verified and guaranteed payment transactions between buyers and sellers and demanded a fee for their services. Facebook plans to use blockchain, the technology behind cryptocurrencies like Bitcoin, to transmit money more efficiently.
Bitcoin allows online payments to be sent directly from one party to another without going through a bank or financial institution. Instead, it uses cryptography to verify the legitimacy of transactions.
Blockchain technology provides a new way for us to develop trust and agree on things… without a middleman. The implications for corporate players are enormous.
For years, Bitcoin and other cryptocurrencies have been promising us a faster, cheaper and more secure way to pay for things — but have failed to deliver. Bitcoin would have to solve issues with scaling, transaction time and volatility before it would be ready for everyday use.
Facebook plans to stabilise GlobalCoin’s value by backing every digital coin with a set number of dollars, euros, yen and other national currencies held in Facebook bank accounts around the world. Linking the value to fiat currencies would both insulate Facebook’s coin from volatility and undermine leading cryptocurrencies like Bitcoin and Ethereum, while also making it more likely that GobalCoin would get political cover in the US, Japan and Europe — countries whose currencies stand to gain strength if Facebook users start using GlobalCoins linked to those national currencies.
For it to work, users will need to trust Facebook that there is real money actually in an account somewhere that is backing up each GlobalCoin. As a company, Facebook earns more than $40 billion (Dh146.9 billion) in annual revenue, and it could be one of the only companies in the world today with the financial resources to succeed in such a project.
If Facebook is successful where Bitcoin has failed, its GlobalCoin could achieve mainstream success in everyday commerce. Facebook would gain access to its 2.5 billion users’ spending data and financial profiles by creating its own payment system.
By facilitating payments on third-party websites, apps, and even in retail shops, Facebook could theoretically become one of the largest payment platforms in the world and could challenge PayPal, Apple Pay, Alphabet’s Google Pay, Amazon Pay and Square.
The social network is reportedly recruiting financial firms, including Visa and Mastercard, along with dozens of online merchants offering them the opportunity to eliminate card processing fees if they accept GlobalCoin as a payment method.
Visa and Mastercard are two companies that would be severely disrupted. Both make a good deal of their profits from debit and credit card processing fees. Perhaps they have read the writing on the wall and want to ensure they are part of the future.
Maybe they have learned a valuable lesson watching the music industry fall to the disruption of digital music piracy by upstart services like Napster?
Or else Facebook is simply making Visa and Mastercard an offer that they cannot refuse — like providing them access to spending data and financial profiles of Facebook’s billions of users.
The social media giant has gained a lot of experience navigating regulations to push what is ethically acceptable behaviour for a technology company in this era of big data and cloud computing.
Its experience will surely be a great asset today in its attempt to convince financial services regulators and central banks about GlobalCoin, since any kind of digital currency is not considered legal tender in most countries.
Despite all of the reports about Facebook’s GlobalCoin being a cryptocurrency like Bitcoin, it is not. Bitcoin is a decentralised, public ledger. There is no third-party in control of the ledger.
Anyone with Bitcoin can participate in the network, send and receive Bitcoin, and even hold a copy of the ledger if they want to. In that sense, it is completely transparent.
The blockchain makes it possible to keep shared records of financial transactions on several computers, rather than relying on one big central player like a bank, or a PayPal or a Visa.
Furthermore, no single entity — like the US government, Visa or Mastercard — can shut the Bitcoin platform down, freeze funds, or reverse transactions. Even if something goes wrong.
However, with GlobalCoin, Facebook is going to be the central authority for approving every financial transaction and keeping track of every user.
Ironically, Facebook hopes GlobalCoin will be the first universally accepted digital coin creating a preferred payment platform that could eventually become ubiquitous — like Visa and Mastercard are today.
— Martin Saldamando is a B2B content strategist.