Both Facebook and cryptocurrencies have had a bad year. Could they do better, together, in 2019? Facebook apparently thinks so.
The company discreetly formed an internal unit early this year dedicated to exploring blockchain technology — led by David Marcus, former president of well-trusted PayPal. Then this month we learned the company is aiming to build a stablecoin, a cryptocurrency tethered to the U.S. dollar, in order to let WhatsApp users easily send money globally. Enthusiasts believe this combination of Whatsapp and stablecoin could be the breakthrough the crypto industry needs to go mainstream. But it seems equally likely, given Facebook’s sordid 2018, that the social network could do more damage to the crypto space.
Facebook’s brand isn’t strong enough to support crypto
Facebook’s mainstream reputation has been on a steady decline since the Cambridge Analytica scandal in early 2018, with user confidence in the company plunging 66 percent between the hack and the resulting congressional hearings in April. Since then, public perception has been so much on the decline that according to June data from the Pew Research Center, 42 percent of Facebook users reduced daily activity and engagement on the platform. (Just three months earlier, Pew’s survey found 74 percent of users visited daily and over half, 51 percent, went to the site numerous times throughout the day.)
If anything, 2018 taught the tech industry that if consumers didn’t care about data privacy and trust before, they do now, and they’re proving that with the brands and platforms they chose to support.
Between users denouncing the platform and prosumers having no idea what or how to approach crypto, it’s hard to be convinced that Facebook could be a driving force behind mainstream adoption.
How can the crypto industry trust Facebook to be an ally if the same audience they want to attract is now detaching itself from the platform? Facebook is building this payment system for a group of people who may or may not believe in the technology but will likely never believe in their brand again. It’s similar to the neighborhood bully joining the community watch program.
WhatsApp is Facebook’s best gateway
Choosing WhatsApp as a platform meant an instant user group. North Americans may be unfamiliar with the app, but its user base in Q4 2017 was about 1.5 billion, and the platform sees around 60 billion messages sent per day (per a Q4 2017 earnings call) compared to 1.3 billion monthly users and 1 billion daily active users in July 2017. Although those numbers don’t top Facebook’s 2018 third quarter of 2.27 billion monthly active users, WhatsApp has proven itself to be a global messaging goldmine and one of Facebook’s most strategic purchases.
With direct access to all WhatsApp users, who may or may not have access to payment systems such as Paypal or Zelle, Facebook could easily become the number one peer-to-peer payment system “by accident” as it did with news consumption (43 percent of Americans get some of their news from Facebook).
Stablecoins are easier to understand than other tokens
Generally speaking, the volatility of cryptocurrencies has prevented large-scale adoption to date for day-to-day transactions. Logically, the next best thing would be a stablecoin. Stablecoins are cryptocurrencies that are pegged to a stable, widely-known fiat currency.
Stablecoins had a pretty good year, unlike the rest of the crypto industry. They are designed to act as a bridge between crypto and traditional currencies by addressing volatility. Just this week, we heard that Mizuho Financial Group (MHFG), the second largest financial services group in Japan and one of the largest financial institutions in the world, is launching its own yen-pegged stablecoin in 2019 in a bid to promote cashless payments at Japanese retailers. In addition, the overall volume of the tokens issued collectively on Tether, TrueUSD, and USDC — some of the largest, most recognized stablecoins — grew by 43 percent from $1.385 billion to almost $2 billion, according to research from Blockshow.
So … WhatsApp facilitates global liquidity
By enabling billions of people to send and receive payments safely and easily, a WhatsApp-based stablecoin sounds like an idea with legs.
We do need to hold onto a healthy dose of skepticism when listening to claims that Facebook’s moves into blockchain could help bolster the sector. Still, it’s certainly possible. WhatsApp is indeed well-positioned to be a winner in the trustless economy, and thus it’s parent company, Facebook, is too.
The irony is palpable.