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Facebook, Twitter and Telegram: A New Crypto Paradigm or a Glorified Voucher Program?


Facebook, Twitter and Telegram: A New Crypto Paradigm or a Glorified Voucher Program?

How cryptocurrencies from Telegram to Facebook could drive crypto adoption and change the finance industry

Facebook is controversial, if nothing else. The world’s fifth-biggest company by market cap, it’s also the biggest social network by a comfortable margin. Yet, despite the fact that most of us use it, we’ve become increasingly suspicious of what it’s been doing with our personal data. Ever since the Cambridge Analytica scandal (and probably long before), we’ve feared that such data isn’t particularly secure or private, so we’ve been pushing back against the social media giant, as witnessed with last year’s #DeleteFacebook campaign.

But at the same time, those with an interest in cryptocurrency also have an appreciation that, for crypto to enter the mainstream, it will need the backing of a big corporation or two. This is why recent news of Facebook’s apparent plans for its own cryptocurrency is something of a bittersweet pill to swallow. There’s little doubt that the promotion of a digital currency by one of the world’s largest companies will put crypto firmly on the map. Yet, given Facebook’s reputation, it’s hard to shake the suspicion that what Mark Zuckerberg and Co. end up offering won’t be a cryptocurrency in the proper, decentralized sense of the word.

Still, even if Facebook and other social networks won’t be producing the next Bitcoin or Monero, their dalliances with blockchain could be a game changer not only for crypto, but for other industries. Finance could be irrevocably altered, as banks and other financial institutions race to accommodate the use of digital currencies by social networks. Similarly, a new ecosystem of crypto-related services and platforms could emerge, as they attempt to capitalize on the creation of new digital money by the likes of Facebook.

Facebook, Twitter and Telegram

Rumors that Facebook is planning its own cryptocurrency have been circulating since at least last May, when anonymous inside sources told media website Cheddar that the social media giant was “very serious” about launching an in-app digital currency. Despite remaining unconfirmed, such reports have been bolstered in recent months, with a February article from The New York Times claiming that Facebook has been promoting its soon-to-be-revealed coin to a number of crypto exchanges.

The Times report corroborated a December piece from Bloomberg, which once again cited anonymous insiders and which affirmed that the cryptocurrency would be a fiat-pegged stablecoin used with WhatsApp, potentially with a focus on money transfers. Regardless of whether the coin would be used by WhatsApp, Facebook or Instagram (all owned by Facebook), it’s readily apparent that Facebook is working on some kind of crypto-related project, since, in May 2018, it formed a blockchain group headed by David Marcus (a one-time member of the Coinbase board) to explore how its platforms could use crypto.

It’s therefore only a matter of time before Facebook officially involves itself, in one way or another, in the cryptocurrency and blockchain space. And for those working within crypto, such involvement could have significantly positive implications for the industry. As Nigel Green, the CEO of deVere Group, tells Cointelegraph, Facebook’s arrival “would indicate that digital money, as a concept, is fully mainstream and inevitably the way the world is going. This is something we have been arguing for a long time now — despite protestations from the likes of Warren Buffett.”

Green adds that crypto’s place within the mainstream has already been proven by the fact that Facebook and other social networks have been looking into the use of cryptocurrencies for some time. Indeed, aside from Facebook, Twitter has also been flirting with crypto. While there isn’t any reliable indication that it’s planning its own currency, the platform has become increasingly supportive of Bitcoin in recent months, despite temporarily banning crypto-related ads in March 2018 (as did Facebook). For example, CEO Jack Dorsey declared in a couple of statements from February that he believes Bitcoin will become the internet’s “native currency,” and that Bitcoin is the only crypto he owns.

What’s more, Twitter itself has been supporting a number of initiatives related to the Lightning Network, such as signing the Lightning Torch (aka LN Trust Chain), a project aimed at raising awareness of the network and testing its capabilities. And given that Dorsey is also the founder and CEO of Bitcoin-supporting Square, it’s perhaps inevitable that Twitter will begin integrating cryptocurrencies into its platform sooner or later.

Even more inevitably, it’s likely that the Russian-founded Telegram will release its own GRAM cryptocurrency by October (at the latest), as the popular messaging network plans for the launch of the Telegram Open Network (TON), a blockchain platform set to rival Ethereum and EOS for the development and deployment of DApps. Telegram already boasts over 200 million monthly active users (as of a year ago), so it’s likely that a large number of people are going to have the chance to use crypto on a daily basis once TON goes live.

Centralized or decentralized?

Much the same applies to the recently launched VK Coin from Vkontakte, another social network and the third most popular website in Russia. Combined with the movements from Telegram, Twitter and Facebook, such designs could see the world’s social media titans become some of the biggest players in the crypto industry, if not the biggest players. And according to Green, this should give existing cryptocurrencies and platforms serious cause for concern.

“Facebook and Twitter have enormous influence, resources and reach, and it could be that they would take away some market share from existing cryptocurrencies.”

However, while it’s hard to shake the impression that Facebook (and other social media giants) would make big inroads into the cryptocurrency space, it still isn’t obvious that the digital currency it’s looking to launch will be a truly decentralized cryptocurrency. In light of how Facebook’s whole business model revolves around controlling the data generated by its users, casual observers might be forgiven for assuming that it won’t entrust the operation and validation of its currency to a scattered network of users, particularly when this currency will apparently be a stablecoin intended for use within the Facebook ecosystem.

“Facebook or Twitter coin is not a cryptocurrency,” Arthur Hayes — the CEO and co-founder of BitMex — told Cointelegraph. Hayes went on, saying:

“These will be tokens that ride in their ecosystems. Users must trust these companies to operate the network in good faith and protect their privacy. The only thing any of these tokens will have in common with Bitcoin is that the word “coin” might possibly be used in their names. These will have little to no effect on Bitcoin and other similar cryptocurrencies that operate on a public peer-to-peer network.”

Such doubts regarding decentralization have been reinforced by the news that Vkontakte’s recently launched VK Coin doesn’t appear to make use of blockchain technology in any appreciable way. However, despite such early blows against the credibility of social media coins, there are mixed opinions among experts and commentators as to how centralized any currency from Facebook, Twitter or anyone else would be.

Iqbal V. Gandman — the managing director of eToro United Kingdom — believes that Facebook’s coin will be mostly centralized, although this doesn’t necessarily disqualify it from being a “real” cryptocurrency. “Cryptocurrencies can be both centralized and decentralized,” he told Cointelegraph. “The sheer nature of platforms like Facebook and WhatsApp, means their cryptocurrencies will be centralized. Facebook and Whatsapp are like walled gardens, i.e. you have to login to access them, so I think people will probably only be able to use their coins within those platforms, rather than elsewhere.”

CryptoOracle’s Lou Kerner is mostly in agreement with such an assessment. “Facebook is likely to have decentralized elements and centralized elements, as Facebook is obviously centralized and there is no functional decentralized governance system,” he said to Cointelegraph. But other figures involved in crypto think such skepticism is misplaced, especially since Facebook has been so eager recently to polish its tarnished image.

“As far as I can tell, these cryptocurrencies would be decentralized, as Facebook is seeking to capitalize on the phenomenon of crypto, and part of cryptocurrencies’ inherent appeal is the decentralized status,” says Green. “After the recent Facebook furor regarding user privacy, I think we can expect them to double down in regard to this area as the scrutiny will be immense.”

Of course, the debate over the true meaning of “decentralized” could last until the end of time, yet it’s likely that control over Facebook’s coin won’t be entirely centralized. Not only would this defeat the purpose of launching a cryptocurrency (as opposed to some system of digital credits or vouchers), but it would contradict the aforementioned reports that claim that Facebook has been talking with crypto exchanges. If Facebook is planning to put its coin on exchanges, then clearly it’s comfortable with the idea of it being traded and disseminated outside of its jurisdiction.

User experience = adoption

Besides decentralization, another big question surrounding the prospect of social media cryptocurrencies is whether they might overcomplicate the user experience. Platforms like Facebook, WhatsApp and Telegram are popular largely because they’re so simple to use. Introducing cryptocurrencies and crypto payments could therefore be a delicate business, seeing as how a lay person still doesn’t really understand how crypto works.

Such fears might seem superficially rational, but they’re likely to be unfounded. “Companies like Facebook and Twitter are conscious that the key to a good product is a user-friendly interface,” explains eTor’s managing director, Iqbal V. Gandam. “Introducing their own cryptocurrencies should not make these platforms more complicated for users, it will simply be another service for them to use.”

This seems to be the consensus among other commentators, all of whom point to the storied history such platforms as Facebook have in making their interfaces addictively simple to use. “Anything Facebook or WhatsApp does will be drop dead simple,” affirms Lou Kerner. “That’s why they’re Facebook and WhatsApp.”

In fact, it’s likely that the user experience of a Facebook or Twitter Coin would be so simple that, rather than turning people off Facebook or Twitter, it will actually turn more people onto cryptocurrencies by making them realize that crypto needn’t be complicated. “The impact of these platforms launching cryptoassets on the crypto industry will be much bigger,” says Gandam. “It will help take the utilization of crypto by the public a step forward. Just as Paypal raised its awareness and usage by working with eBay.”

And because crypto and blockchain are already riding a wave of adoption, it’s likely that the two processes could converge in a way that creates a kind of positive feedback loop, thereby accelerating overall adoption. “More and more people are becoming used to cryptocurrencies and mass adoption is increasing momentum all the time, so I don’t think it will be an issue,” says Green, who believes that, far from overcomplicating things, crypto will “enhance the user experience” for Facebook and other adoptive platforms.

New economies

So, there’s a general consensus that Facebook and other social media platforms are planning to launch their own cryptocurrencies, and that such currencies would be positive for the platforms concerned and for their users. The question is: What kind of wider ramifications would a Facebook Coin, Twitter Coin or GRAM have?

Most significantly, it’s possible that such coins could spark a shift in personal banking and finance, especially when Facebook’s likely crypto will be a stablecoin pegged to the value of a number of fiat currencies. “All cryptocurrencies and wider fintech solutions are already taking business away from traditional banks,” Green explains. “They are filling a gap left by the traditional way of doing things as the world speeds up and becomes increasingly globalized and digitalized.”

It’s still not certain how, exactly, Facebook’s coin will work. But if rumors that it will enable money transfers are true, then this will provide one area in which the likes of Facebook will be directly competing with banks and other financial institutions. And because a fiat-backed stablecoin will require Facebook to hold a commensurate amount of USD (or whatever fiat currency ends up being used), Facebook’s entry into crypto will force it to act like a bank in holding the necessary reserves. It would therefore be a game changer, not just for crypto, but for Facebook itself, which would be transformed by cryptocurrency from a social network to something much bigger and influential.

The implications of this for banking (and for Facebook itself) could be huge, depending on the uses Facebook is planning for its coin. With over 2 billion monthly active users, the social network could provide finance to millions of the 1.7 billion unbanked people in the world (two-thirds of whom own a mobile phone). It could succeed where countless numbers of companies and institutions have failed, and while some experts are still uncertain as to how far Facebook and other networks could go in this direction, others think the financialization of social media is one of the logical endpoints of collecting so much finance-relevant user data.

“Social media companies with large active user bases will displace traditional banks in the distribution of financial products,” says Hayes. “They own the attention of the younger generation and have a deep understanding of their behavior from the data they collect. This makes social media companies best placed to sell loans, credit cards, and investment products. They need not actually become a chartered bank, rather they can use a traditional bank’s regulated pipes and create a revenue stream from large origination fees.”

Despite such radical possibilities, some commentators don’t expect it to replace banks anytime soon. “As with every evolutionary stage in money, the stage prior to that never disappears,” says Gandam. “With the onset of digital banking, cash hasn’t disappeared. In the same way, I don’t see crypto replacing fiat. Banking also provides other services aside from transferring and storing money.”

But even if social media cryptocurrencies don’t lead to the disappearance of “traditional” banking, they will nonetheless impact other significant areas. For one, they’ll result in the creation of a new ecosystem of services and products built to capitalize on the appearance of new money, while they could also change how social networks monetize themselves and become profitable. “Ads are not the final frontier for Facebook and social networks,” Max Tsaryk — the CEO at Monfex — told Cointelegraph. “A native cryptocurrency has the power to create a whole new economy where users can store value and pay for paid content or subscription services. We believe that Facebook and Telegram are going to show to the world that cryptocurrencies allow to embrace an entirely new monetization model, radically different from the current status quo.”

The creation of a new ecosystem for a Facebook Coin, for GRAM or for any other new crypto is obviously the other side of the coin of adoption. In other words, if a Facebook Coin is to gain widespread adoption and use, companies will need to provide services and products with which people can use the cryptocurrency. Otherwise, the circulation, utilization and adoption of the corresponding crypto will remain limited and siloed. But because the reach and resources of Facebook are so considerable, it’s likely that many companies and platforms will take the plunge to provide services to new holders of the social network’s coin.

And what’s also likely is that, if Facebook, Telegram and other social networks do find success with their new cryptos, other social media sites will be forced by competitive pressure to also take the plunge. “It is highly likely that where the likes of Facebook lead, other social networks will follow,” says Green, who’s not alone in his predictions. “Everyone will have their own cryptocurrency,” Kerner agrees, even if he isn’t sure how worthwhile most social media cryptocurrencies will be. “It’s just frequent flier miles for the most part. Other than the few actually trying to be currencies.”

But regardless of whether a majority of the coins launched by Facebook and other networks are or aren’t really cryptocurrencies, Kerner believes that their launch will be a good thing for crypto overall. As does Gandam, who points out that they aren’t likely to ever compete directly with existing cryptocurrencies, insofar as they’ll be mostly confined to their respective platforms. “Any ‘traditional’ and well-known company, such as Facebook and Twitter, becoming involved in the crypto industry is a good thing,” he says. “It not only increases awareness and appetite for people to explore other cryptoassets, but also adds credibility to the industry. This should have a positive impact on Bitcoin, especially if the FB coin is only for use on the Facebook platform, vs Bitcoin being used on all other platforms.”

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