The Facebook cryptocurrency

Kroszner and I wrote about related possibilities in our 1994 book Explorations in the New Monetary Economics.  Here is a not very informative WSJ article.  Here is Ben Thompson speculating from his email newsletter:

This, then, is what I suspect is the overall motivation for Facebook’s efforts: having its own currency will allow for transactions on Facebook’s terms, not the credit card companies, which should, in turn, allow for both more kinds and more total transactions. Consider a Facebook currency on a theoretical level: if there were no fees attached to a transaction, micropayments suddenly become much more viable; peer-to-peer payments are simple — for both users and Facebook — as clicking a button; tipping models actually make sense.

None of these benefits are new to be sure, the question, though — and this is always the question generally, but with payments especially — is how you get from here-to-there. Remember, payments is a multi-sided network: users have to be one board, merchants need to be on board, and there has to be some sort of liquidity in the market. From a user perspective, how do you get them to buy into the network? Then consider merchants: how do you prevent them from taking money out of the market, killing liquidity?

In fact, Facebook is well-equipped on both fronts, particularly the merchant side: remember, merchants are the most likely culprits when it comes to killing liquidity in a market. They are going to transfer a cryptocurrency to fiat as soon as possible. Merchants, though, are also paying Facebook a lot of money for ads: that is, they are already putting money into the system. To that end, it is easy to see Facebook giving a discount to merchants willing to leave their money in the system and simply buy advertising using their Facebook tokens.

Users are trickier: certainly Facebook will push things like peer-to-peer payments to get users to connect up their bank accounts or debit cards to Facebook’s network, but I also suspect this is where the rumors about Facebook paying for ad-viewing comes in. This is not, in my estimation, some sort of genuine acknowledgment that user attention is worth compensating directly, but rather a plausible way to seed user accounts such that they are motivated to use Facebook’s currency; ideally, at least for Facebook, there will end up being lots of ways to use that currency.

…I don’t think that Facebook wants to impose any fees at all: thinks about it — what could possibly be more valuable to an advertising-based business than knowing exactly what customers are spending their money on?

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To its credit, Facebook will get /ˈseɪnjərɪdʒ/ from its Libra crypto-coin. Better than to give such valuable rights to bitcoin.

Seigniorage /ˈseɪnjərɪdʒ/, also spelled seignorage or seigneurage, is the difference between the value of money and the cost to produce and distribute it.

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Since Facebook and Google dominate digital advertising (Google has the larger market share), wouldn't it make sense to get Google on board? This is alluded to in the blog post, but what Facebook (and Google) have to be concerned about is losing market share: it's the scale of Facebook and Google that keeps them dominate. My guess is that the primary purpose of the Facebook (or Facebook and Google) crypto coin is to maintain market share/dominance (what is spent at Face/Google stays at Facebook/Google). If and when Facebook and Google lose their dominance in digital advertising, the gig is up.

@rayward - how do you know Google is not already on board? Looking at the founders of Libra, the apparent cryptocoin of Facebook, I notice at lot of Paypal people listed. Founders: Paypal = Google = Facebook, most of Si Valley VC is a closed, insular world.

I don't, it's just that Cowen didn't mention it. And, yes, Silicon Valley is both insular and incestuous.

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Of course, the Facebook and Google strategy has been to maintain their market share by acquiring companies that might compete in digital advertising. Crypto would be the same strategy adapted for their customers (i.e., advertisers): by locking them in to their crypto coins, Facebook and Google are in a sense acquiring their customers.

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...And the first thing that jumped into my mind was "social credit", not unlike another 'social credit' system making headlines currently. What better enforcement mechanism than tying your online life to your real world financial life.

After everything that has happened and everything that's been revealed, do you really believe Facebook and other advertisers have any incentive to act ethically?

Ethics in business? ROTFL! When I ran my own business I was double crossed repeatedly. The only rule I found is that nothing in my real job that people did against me was ever technically illegal. But bait-and-switch is common, 'oral promises' that are forgotten is common, everything textbook 'unethical' is common.

Yeah, but you're kind of a dilettante. Anyone in business for the long haul based on repeated interactions with others knows that fly-by-night tactics don't cut it and reputation is crucial.

LOL. You'll never make partner with your firm much less a Big Four in Accounting with that attitude. Bend the law BD, to your and your client's will. That's how people make money, add value. Otherwise you're just a secretary, a water boy, a cipher. Oops, sorry BD...

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Public trust in Faceback is at it's lowest ebb.The main thing people seem to talk about on Facebook is leaving Facebook. How are they supposed to bootstrap a currency in this setting of increasing user and public hostility and lack of faith?

That was my immediate reaction to this news.

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That's a good point, and yet...when I was kid, I remember the arcade at the mall was able to convince 8 year old me back in the early to mid '90's to convert a substantial portion of what little money I had into tokens that only worked in the video games they had there or a bunch of those dumb prize tickets from the pop-a-shot game you could cash in for a stuffed animal or a pair of cheap sunglasses if you somehow accumulated 1000 of them. If a crappy little arcade could pull this off, I can't imagine Facebook not being able to.

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The smart penny clicker.
The smart mouse has a palm reader, can do secure biometric verification, and the smart mouse can hold a secret key, unknown to humans. Then your payment model is ultra simple. If I want to read a MR post, I click him a couple of pennies, directly to his Smart Card, or Smart Mobile Wallet, or Smart hardware Wallet. It is a direct, one way sending of secure and provable digit representation of two pennies, redeemable at the specified standard bank.

No block chain, but blog bureaus, blog membership into a bank backed simple ledger where readers can check out ten dollars and do the reading for the week with no Fed involved, the my smart thing to your smart thing. One way, bearer digital cash, plastic thing to plastic thing.

But we cannot do this until the NSA is off our backs..

Until we get NSA permission for unknown transactions, then Facebook is in a great position to make web wallets have smart thing property. Facebook gets an arbitrage on our paranoia about unknown transaction, so we are stuck with the NSA.

There is a solution. Smart things cannot be counterfeited, and NSA can specify they are limited to bearer cash instruments, only. No secret messaging, and that can be enforced by smart thing. Suggest we make the compromise, get NSA on board with limited smart thing functionality.

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I remember when the big selling point of cryptocurrency was anonymity. Wild-eyed libertarian anarcho-hackers gonna escape the oppressive yoke of The Man.

That was so precious.

Yeah, why would this be a cryptocurrency, and not just, y'know, a currency?

It's not like we'll be able to separate the currency from trust in Facebook.

The currency will be backed by the full faith and credit (and dependent on the continued commercial use of) Facebook.

In Zuck we Trust (tm).

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Are you old enough to remember people getting booted from Patreon because of pressure from credit card companies?

Banks regulating speech is the most precious of all.

I'm not really familiar with that story. But if it involves banks acting in ways that are unitateral and/or inhibit competition, then it's certainly not without precedent.

I would say that the bank takeover of cryptocurrencies was obviously inevitable. But after reading this blog's information on how the banks aren't really that powefull. I guess I must reassess that analysis.

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Transactions away from a credit card company happen all the time in payments: PayPal has been doing this forever. If you ultimately have to rely on something like Facebook for trust... what is the point of a cryptocurrency vs just keeping a trusted ledger, which every payments company maintains already? Note that the difference in computational efficiency of, say, using Kafka and offering a signed archive every 5 minutes vs, say, bitcoin, is 6+ orders of magnitude.

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it is easy to see Facebook giving a discount to merchants willing to leave their money in the system and simply buy advertising using their Facebook tokens.

So the idea is to give discounts instead of paying transaction fees? That makes no sense.

Of course, I don't see the point of the whole thing at all, other than trend-following.

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El sistema que Facebook busca implementar es beneficiario para ellos ya que pueden evitar perder los costos transaccionales que ocurren cuando se usa una tarjeta de crédito o débito normal. Un costo de solo centavos podría significar millones para Facebook por el volumen de transacciones tan grande que podrían llegar a tener en su nueva plataforma. El principal obstaculo de esta idea sería hacer que el consumidor confíe en la plataforma y decida usar su dinero en ella, en lugar de una plataforma tradicional. Finalmente, esto le podría traer información valiosa a Facebook para su publicidad, ya que sabrán exactamente lo que la gente esta comprando, lo que hace esta plataforma nueva muy valiosa para Facebook.

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