Facebook is reportedly working on making a digital coin called FaceCoin for users of Whatsapp, a messaging application owned by Facebook. Its value would be derived from that of several different fiat currencies, not only the U.S. dollar.
FaceCoin would allow Whatsapp users to send and receive money, otherwise known as remittances. To put things into perspective, over $69 billion was sent to India in 2017 in remittances according to the World Bank. With over 200 million Whatsapp users, Facebook has access to a groundbreaking number of potential market participants.
FaceCoin would be a stablecoin– a safe, risk averse cryptocurrency designed to maintain a stable value against an asset of fiat currency. The current problem faced by stablecoins for payment is that since most businesses don’t accept them, stablecoins have to be converted to a fiat currency to be used as a form of payment. Additionally, Basis recently shut down its stablecoin because the company could not prove that its stablecoin was not a security. SEC regulation of stablecoins could make it less attractive to potential buyers.
This is not Facebook’s first venture with virtual currencies. As far back as 2007, Facebook was pursuing patents related to digital currency when it applied for a patent which is likely what led to the creation of Facebook Credits and Facebook Gifts. Facebook began developing its own virtual currency in 2011 with Facebook Credits, then moved onto Facebook Gifts in 2012. Each application was shut down within two years because Facebook reportedly encountered issues with distance and localization problems to allow these payments to be made across borders. In 2015, Facebook Messenger Payments was launched in the U.S. and ultimately expanded to France and the UK in 2017.
Last year, Facebook created a new policy banning ads for ICOs and cryptocurrency. Facebook’s rationale was that they wanted to prevent misleading or deceptive ads. Nearly six months later, Facebook reversed its ban on ads related to cryptocurrency, now requiring advertisers to apply and be pre-approved to advertise cryptocurrencies. In these application, advertisers must disclose certain business information to Facebook, including the company’s name, whether the company has any regulatory certification, or if the company is publicly traded.
If WhatsApp users have to convert their coins to a fiat currency to make payments, FaceCoin will have a much smaller market of users. Think about the users in third world countries – this would be more of a hassle than a utility. If this issue is still present, Facebook could offer goods and services for purchase. In that case, FaceCoin would be functionally similar to Facebook Credits and would have less utility than if it could be used for remittances.
Potential regulation of FaceCoin as a security is a potential hurdle, but likely not one that Facebook can’t handle. Facebook will have to keep in mind SEC regulations when developing FaceCoin. Facebook has more resources to deal with regulatory obstacles in comparison to smaller companies that have recently failed in releasing stablecoins due to this issue.
Given that Facebook has been under fire for privacy issues for some time now, users may be less keen on using FaceCoin if they don’t trust that their privacy will be protected.
Facebook still has banned ICO ads. It’s understandable to want to block any scam ads, but there are surely compliant ICOs that are blocked from advertising on Facebook. This begs the question – is Facebook trying to cut out ICO competition in light of their own upcoming token offering? If so, is that could potentially mean trouble with the FTC.
If Facebook can overcome regulatory and technological hurdles, FaceCoin could very well open up the cryptocurrency market to millions of people that were not already market participants.
We would like to thank Rachel Behar for her contribution to this article.