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How Facebook Could Kill the Cryptocurrency Markets

September 24, 2018

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How Facebook Could Kill the Cryptocurrency Markets

Facebook’s official position on blockchain technology and cryptocurrencies remains far from clear. The social media giant’s ban on cryptocurrency ads in January has since been partially lifted and the California-based firm now has its own internal blockchain team. Some analysts have suggested that blockchain could help Facebook address its ongoing PR crisis by empowering its community of users. However, growing concerns over Facebook’s position as a monopoly have prompted wild speculation in recent months as to which approach the firm may adopt towards cryptocurrency markets. The social network’s track record of buying, copying or killing its rivals can’t be ignored. In this post, we’ll examine whether Facebook could kill the cryptocurrency markets.   

Is it even possible to kill cryptocurrency markets?


To completely kill, or destroy, cryptocurrency markets is likely impossible. The expense and complexity of such an undertaking would render it pointless. Even draconian measures taken at governmental levels have only resulted in limited success thus far. For instance, the Chinese government’s recent attempts to crack down on crypto markets were successful only in ending local cryptocurrency trading. Concerted legislative action by a consortium of governments would likely only result in cryptocurrency exchanges retreating to a select few tax havens or the dark web.

Instead of annihilation, what we’re really talking about here is disruption and dominance. Could Facebook dominate the cryptocurrency market and effectively make all existing cryptocurrencies and exchanges irrelevant? Here are five possible ways that such a scenario could unfold.      

1. Facebook’s ad policies could throttle cryptocurrency markets


Facebook’s decision in January to ban cryptocurrency ads was “intentionally broad” and affected all businesses that either accepted or dealt with any form of cryptocurrency. This policy was clearly designed to protect Facebook users from cryptocurrency scams. However, it also affected the marketing strategies of any firm who indirectly used or accepted cryptocurrencies, such as Microsoft, who recently decided to accept Bitcoin again after a temporary halt.

While Facebook’s ban was overturned in June, ads promoting ICOs (Initial Coin Offerings) are still banned and anyone wanting to run crypto ads must obtain a license from Facebook showing “relevant public background on their business”. This policy shows that while Facebook is happy to receive ad revenue from legitimate cryptocurrency firms, it is able to have a dramatic impact on the crypto markets if it chooses. Facebook’s ad policies are able to disrupt and throttle cryptocurrency markets.

2. Facebook could acquire an existing exchange


Earlier this year, Facebook started its own internal blockchain team to explore the use of this technology. This team is currently being led by David Marcus, the head of Facebook’s Messenger service. At the time of his appointment, Marcus also had a seat on the board of Coinbase, one of the world’s largest cryptocurrency exchanges. This fuelled rumors that a potential acquisition of Coinbase, with a valuation of $8 billion, could be on the cards.

The takeover of a major exchange such as Coinbase could have a negative impact on the popularity of smaller exchanges and this may be one way that Facebook tries to dominate the crypto markets. Facebook’s estimated 2.2 billion active users would be far more likely to trust a Facebook-owned exchange than a lesser known alternative.

However, the emergence of such an exchange wouldn’t destroy the cryptocurrency markets. Many cryptocurrency projects have the necessary skills required to design and launch their own exchanges. During a recent interview, Stewart Dennis, the co-founder of BitBounce, explained that when his firm couldn’t find an exchange to list its cryptocurrency Credo, it simply created and launched its own exchange, CredoEx.

3. Facebook could launch its own exchange


While Facebook’s history of acquisitions and mergers show that acquiring an existing exchange is a possibility, the firm has an equally strong track record of copying the ideas of companies who won’t sell up. Rumors that Facebook might launch its own cryptocurrency exchange started flying soon after David Marcus announced that he was leaving his position on the board of Coinbase. Marcus’ decision was interpreted by some analysts as a sign that a major announcement from Facebook could be imminent. The decision drew comparisons with Google CEO Eric Schmidt’s decision to step down from Apple’s board in 2009. The subsequent similarities between the Android operating system and Apple’s iOS were so strong that Steve Jobs famously threatened “thermonuclear war” against Schmidt’s company. Could Facebook be planning to launch its own exchange?

According to recent Facebook job postings, the internal blockchain team headed by Marcus has a “vision to make blockchain technology work at Facebook scale”. There are no clear indications that they are working on creating an exchange to rival Coinbase and the job postings could simply refer to the storage of data and data privacy for Facebook users. While the prospect of a Facebook-owned exchange would be challenging for smaller exchanges, they can find ways to compete. For example, CredoEx currently offers fee-free deposits and withdrawals, as a way of competing against incumbent exchanges.      

4. Facebook could be building a payments network


One possible way that Facebook could kill off cryptocurrency markets was outlined recently by Business Insider, who reported that Marcus’ team had met with a team from Stellar. According to reports, the team is looking at ways to use distributed ledger technology (DLT) to build a payments network using cryptocurrency. Unnamed sources indicated that the team could create a fork of the Stellar blockchain on which Facebook’s own cryptocurrency could reside. Potentially, this would give Facebook users around the world a way to store and transfer value without the involvement of a government-backed currency or trusted third-party.

Were Facebook to launch its own cryptocurrency, its next step may be to offer its users an ad-free experience if they allow their computers to support its payments network via mining. We’ve already seen other websites, such as the Pirate Bay, use cryptocurrency mining as an alternative to advertisements. We know that Facebook is already mulling an ad-free subscription model, so cryptocurrency mining could be a viable alternative.

5. Facebook could create a Bitcoin wallet and exchange


Bitcoin’s dominance recently passed 50 percent for the first time in 2018, with its total market capitalization now exceeding that of all other cryptocurrencies combined. One possibility is that Facebook releases a Bitcoin wallet and exchange as a way of dominating the market. The route down this path would begin by Facebook developing a secure Bitcoin wallet and integrating it into every Facebook account. Such a feature wouldn’t require the consent of Facebook users as they could simply ignore it if they wished.

But who would ignore it? Who would pass up the opportunity to instantly send money to anyone via Facebook? A Bitcoin wallet with Facebook’s product quality would overcome the problems facing current Bitcoin mobile wallets. As the numbers of users grew, Facebook’s wallet would likely become the world’s most popular Bitcoin wallet.

From here, Facebook could develop its own exchange that allowed users to buy and sell Bitcoin with their home currencies. As with the Bitcoin wallet, we could expect this exchange to be superbly well designed, with market dominance coming as user numbers grew

Conclusion


These five possibilities, or even a combination, show that Facebook is uniquely positioned to disrupt and dominate the cryptocurrency market. Facebook may not be able to destroy other cryptocurrencies or exchanges, but it has the ability to become the largest, most trusted, and best established player in the market. In effect, it can do to cryptocurrency exactly what it has done to social media: eviscerate the competition.