🗞️ NewsOn what was a slow pre-holiday news week, there's one important story I want to look at in this week's edition. Bloomberg published a scoop reporting that Facebook is developing "a cryptocurrency that will let users transfer money on its WhatsApp messaging app." The supposed cryptocurrency is expected to be a stablecoin pegged to the US dollar. The company will use it to target the Indian remittance market first, though the product is still "far" from being released. Link.
We've known for a while that Facebook had a group working on blockchain technology, but this is the first hint of what they actually plan on doing. Many in the crypto world reacted derisively to the news, labeling the would-be currency "Zuck Bucks" for Facebook's notorious founder and CEO, Mark Zuckerberg. To my surprise, though, there were also some in the community who seemed to welcome the news of a Facebook cryptocurrency. Perhaps the most notable positive reaction came from Anthony Pompliano, of Morgan Creek Digital, as summarized here. Link.
Believe it or not, I don't hate Facebook the way many technologists viscerally do. The company has had a terrible year and, without a doubt, they deserve much of the grief they've gotten. Still, Facebook does impressive engineering work and supports a lot of interesting open source. I believe many of the issues they've had this year stem less from outright malice, and more from cultivating an environment which combined fierce competitiveness with naive optimism. Let me be clear about this, though: nothing good will come of Facebook launching a so-called cryptocurrency. Let's talk about why.
For one, it's hard for me to imagine a company whose culture is more at odds with the ethos of decentralization. Facebook's entire value proposition, both to its users and to its advertisers, is that it centralizes. Why would such a company embrace a truly decentralized technology? What do they stand to gain from doing so?
We can be sure, though, that Facebook's "cryptocurrency" offering will be centralized even without making arguments about culture or business model. The reason is a simple technical one: public blockchains do not scale. Maybe one day they will, but the fact is that they don't today, and forty employees at Facebook are not going to solve that problem. Fundamental engineering research is not something that can be accelerated by throwing money at the problem.
With 2 billion customers, Facebook is not going to launch something that can only handle tens or hundreds of transactions per second. Thus whatever Facebook ultimately offers it will be, at best, decentralization theater. Maybe it will have "blocks" in a "chain." Maybe there will be a block explorer to view transactions and the like. But it will be owned, operated, and controlled by Facebook-- up to and including unilateral censorship and transaction reversal.
Why would Facebook bother building something that pretends to be decentralized? It could be to ride the hype around cryptocurrencies, especially in emerging markets. It could be to get some good press by offering something "that empowers users" after a year of PR nightmares. More cynically, it could be an attempt to co-opt cryptocurrencies and undermine the broader movement towards decentralization-- a pre-emptive attack of sorts, while decentralized cryptonetworks are still in their infancy.
If that last possibility seems farfetched to you, you might be underestimating Mark Zuckerberg. He's smart and ruthless, he knows the history of large tech companies getting disrupted by emerging technologies, and he's shown proficiency in doing what it takes to win. Did you know Facebook once bought a popular, privacy focused VPN service? They continued operating the service, but monitored and analyzed user traffic to identify rapidly growing apps that might pose a threat. The company used this data buyout or copy would-be competitors before they got big.
The point is, whatever Facebook's intentions, the outcome of their foray into crypto will not be good if you care about decentralization. It could be a distraction that muddies the waters for many years. It could be an assault that permanently cripples adoption of legitimately decentralized networks like Bitcoin or Ethereum. This is not how crypto goes mainstream. The best case scenario is that most users ignore their offering-- a flop. Here's to hoping.