Facebook is reported to be developing its own blockchain-based cryptocurrency that will enable its users to have a PayPal-like experience when purchasing advertised products, as well as providing authentication and an audit trail.
What Is Blockchain?
Blockchain’s Co-Founder Nic Carey describes blockchain as being like “a big spreadsheet in the cloud that anyone can use, but no one can erase or modify”. The blockchain is the open-source, free technology behind crypto-currencies (like Bitcoin) and is an incorruptible peer-to-peer network / a kind of ledger that allows multiple parties to transfer value in a secure and transparent way.
Exact details of Facebook’s reported move into a blockchain-powered cryptocurrency of its own are scarce and varied, but some commentators believe that Facebook’s own digital ‘coins’ could be sold to users of its WhatsApp messaging platform so that they can send money to contacts. Many believe that Facebook is likely to be looking at using a stable coin network to back it. This requires operators to keep collateral in a bank, so that if $1 billion in digital coins is issued, the same amount must be available in deposit or reserve.
Could Increase Revenue
The fact that its own blockchain-based currency would use distributed ledger technology (DLT) could cut out the need for central bank involvement (for payment processing), and dramatically reduce the time and fees associated with payment, clearance and settlement, thereby making big savings and large amounts of revenue. This is likely to be the reason why a report from CBNC highlighted a note to Barclays investors from Barclays internet analyst Ross Sandler which said a “Facebook Coin” could bring in as much as $19 billion in revenue to Facebook by 2021.
Enabling users to use Facebook’s own digital ‘coin’ would, for example, make it easier and faster for advertisers on its platform to pay using one click, and would reduce the number of drop-offs that the platform experiences due to the difficulty that mobile users sometimes have when trying to type in their card details.
J.P. Morgan Coin Launch
U.S. mega-bank J.P. Morgan launched its own blockchain-based digital coin, the ‘JPM Coin’ in February with an equivalent value of 1 US dollar. This currency allows the almost instant transfer and redeeming of funds between institutional accounts, thereby saving time and money while retaining security and transparency.
IBM has also launched a blockchain-backed stable ‘coin’ for international money transfers and has been in discussion with two big US banks with a view to issuing a stable coin for use on its World Wire network. With this coin running on blockchain it is estimated that IBM could see a huge reduction in overall transfer costs and could see 10% and 20% savings in operational liquidity management.
The overall advantages for IBM of having its own blockchain-backed stable digital coin include trust through increased transparency and immutable transaction history, simplicity from the decreased need for intermediaries thanks to a shared distributed ledger system, and the efficiency provided by near real-time remittance and easy consensus between stakeholders
There are still many challenges in the widespread use of blockchain-based currencies and their management, including:
- Changes will need to be made in international regulatory oversight.
- Blockchain networks will need to demonstrate that they can perform at scale in a way that at least matches traditional networks e.g. VisaNet.
- The financial services industry will need to take ownership of blockchain technology and commit resources to it in order to build, use and support of it.
- Banks may have to commit back-office IT staff to oversee transaction networks to ensure that they are managed properly and securely.
- More banks need to participate in blockchain transaction validation in order to improve security by having a solid and widespread consensus mechanism that can’t be usurped.
What Does This Mean For Your Business?
With more big names developing their own blockchain-based digital coins, banks and businesses are more likely to see for themselves the savings and the revenue that can be made from them, and this may lead to many of the major challenges being tackled, and more belief in and adoption of securely backed digital currencies. Greater uptake and investment in reducing the barriers to the wider use of such currencies could benefit the wider business community, for example making it easier and faster to buy-in and pay for goods and services, transfer funds and receive funds and payments, especially across borders.
The blockchain is already finding multiple uses beyond just currencies and is particularly useful where things like transparency of a specific delivery chain and provenance of products are needed, thanks the incorruptible nature of the technology.