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Facebook is reportedly developing a kind of cryptocurrency that will allow people to make transactions within its platform. The plan has leaked out in news reports, though Facebook itself has stayed mum about what exactly its up to.
On Friday, an analyst predicted that the Facebook coin (Facecoin, perhaps?) would actually look more like one of the large public cryptocurrencies such as Bitcoin or Ethereum and less like the internal-payment or loyalty systems that companies like Starbucks (ticker: SBUX) use. And she expects it to benefit major payments players like Visa (V), Mastercard (MA), and PayPal Holdings (PYPL) rather than replace them.
Last week, The Wall Street Journal reported that Facebook (FB) is working on an initiative called Project Libra to create a coin that Facebook users could send to each other. The so-called stablecoin would be pegged to the value of a government-backed currency like the U.S. dollar so it wouldnt fluctuate in price as wildly as Bitcoin.
Asked about the project, a Facebook spokeswoman sent Barrons a statement on Friday saying that the company is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We dont have anything further to share.
In the absence of more concrete information, analysts are starting to speculate. Moffett Nathansons Lisa Ellis wrote that the Facebook coin could simply end up being an internal payment and behavior-reward system that the social-media giant uses to encourage people to watch ads on its platforms to earn coins. But she thinks its likelier that Facebook creates a more-public coin thats governed by an independent board. (Ethereum, for one, has a foundation thats designed to work something like this.)
The Journal noted that Facebook is working with big payment companies like Visa, indicating it wants to be useful for more than just as a delivery system for loyalty points. In addition, Ellis wrote, an open cryptocurrency system is more likely to encourage commerce over the Facebook system than a closed crypto system, because an open crypto is more liquid (easier to exchange to/from fiat currency, so more likely a consumer is willing to use it). She notes that Facebook already tried a closed payments system called Facebook Credits that failed to take off.
A public system like the one Ellis describes would be good news for payments companies like Visa and Mastercard, which have so far felt little disruption from cryptocurrencies, most of which are too slow to be useful as actual currencies, she argues.
If Facebook launches an open digital wallet and checkout button, the company will need to collaborate with Visa and Mastercard to enable a variety of card-based funding methods in its wallet (similar to Apple Pay, PayPal , or Google Pay), Ellis wrote.
It could also make Facebooks coin a useful asset for people who live in high-inflation countries where the local currency has been devalued, Ellis says. Essentially Facebook would be offering them a coin that is pegged to the value of a more stable currency so it cant be manipulated by the local government.
Thats the same argument people have given for years about Bitcoinwhich would mean Facebook would be a direct competitor to Bitcoin. (The irony of Bitcoin being replaced by a megacorporation is too rich to even address here.)
All this is highly speculative, of course. The idea that Facebook would hand control of its payments platform to an independent foundation seems unlikely at best. That said, its certainly possible that Facebook introduces a more publicly tradable cryptocurrency. The only question at that point is whether the logo would have Mark Zuckerbergs face on it.
Write to Avi Salzman at avi.salzman@barrons.com
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What Facebooks Cryptocurrency Could Look Like - Barron's
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