Facebook’s New Version Of Bitcoin – Not A Lot To It Really

But it’s not really going to be crypto, the Bitcoin-like parts, which make it so. This is … Facebook’s cryptocurrency: a financial expert breaks it down.

Facebook is said to be preparing a new crypto. Essentially, to cash in on the remittance market. The ability to send money internationally, something that can often be remarkably expensive. It might well arrive and it could even be useful. But it’s not really going to be crypto, the Bitcoin-like parts, which make it so. This is much more about being able to side step some of the regulatory issues over money transfers. From The Conversation:

Facebook’s cryptocurrency: a financial expert breaks it down

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will it be yet another exaggerated “crypto” project, buying into the continuing excitement about decentralised peer-to-peer exchange but, in the end, not delivering very much? Time will tell, but my two decades of research into the economics of payments makes me sceptical.

We know little about Facebook’s plans. So far there is just one company statement about a new group set up to look into cryptocurrencies reported by Bloomberg: “Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”

Some investigative journalism from Bloomberg and the New York Timesreveals a little more. Facecoin (and the similar “Gram” cryptocurrency being developed by the privacy focused messaging app Telegram) will apparently be a “stablecoin”. Rather than having a fixed amount of currency that fluctuates in price, depending on demand, Facecoin will have a fixed price and the amount of it in circulation will vary. So unlike Bitcoin it will not be a vehicle for speculation.

What will the fixed price be? Bloomberg reports it will be fixed against the dollar. The New York Times says that it will be against a combination of dollar, euro and yen. Who will use it? Facebook is apparently focusing on providing a technology solution for the large and lucrative remittance market for payments into India. Will transactions in Facecoin be anonymous like those in Bitcoin? No, they will be associated with Facebook accounts, so they won’t be an easy means to avoid laws and regulations.

Reasons to be sceptical

While this is a fascinating development, some scepticism is in order. If there is one common feature to the many hundreds of crypto and blockchain finance projects announced over the past four years, it is exaggerated early claims. In one ongoing research project, I have found that of 103 projects announced since 2015 applying so-called blockchain technologies to financial services, all but a handful have quietly disappeared. None have yet been taken through to commercial-scale launch (although around half a dozen may achieve that by 2021).

Is there anything about Facebook’s plans to suggest a different outcome? The obvious parallel is with the Chinese payment solution WeChat Pay, globally the largest mobile and internet payment solution used by “900 million active users”. In Beijing and Shanghai “even beggars have QR codes” that allow passers by to scan and give them money using their smart phones. The integration into the WeChat messaging system is what gave WeChat Pay the critical mass to achieve widespread acceptance. Facecoin’s integration with WhatsApp and other Facebook services could support a similarly rapid take-off.

Tina Kanagaratnam@TMK_TinaManiK

Even Shanghai’s beggars take WeChat payments. I gave to the fellow sitting on the ground, and his mates whipped out their QR codes. As ever, Shanghai is the future.

3,172 people are talking about this

But WeChat Pay doesn’t involve cryptocurrency. It uses established server technologies to enable people to transfer money in and out of conventional bank accounts as well as to other users.

The New York Times reports, rather surprisingly, that Facecoin (unlike WeChat Pay) will be based on integration with cryptoexchanges, which trade conventional money for digital currencies, rather than with the conventional banking system. But given that cryptoexchanges are coming under increasing regulatory pressure because of their lack of transparency and irregularities in how they operate, linking with them is hardly likely to encourage people to adopt Facecoin.

It is also difficult to make sense of the intended use of Facecoin for remittances. Major banks already send dollars virtually instantaneously and costlessly from one country to another. Costs and inefficiencies arise in the final mile when converting funds to local currency and allocating them to a local bank account or for cash collection. The Facecoin technology will do nothing to address these problems.

Who pays out?

Another question mark is about the backing for Facecoin. Unlike Bitcoin, which is not pegged to any other currency, Facecoin will need the backing of real money to maintain its fixed price. The safest approach will be full reserving: for every $1 of Facecoin issued, Facebook could hold $1 of reserves in a segregated account.

Fractional or partial reserving is also possible but who then guarantees the safety of those reserves? If reserves do not cover withdrawals, who is then responsible and what compensation is there for holders of Facecoin? Facebook would need a banking licence and subject itself to the full burden of banking regulation. Ideally, reserves would be held with a central bank. But central banks will be reluctant to support a private currency.

Perhaps the biggest reason for scepticism comes from the challenges Facebook already faces over user data, privacy and authenticity. If Facebook takes as big a role in daily payments as it already has in personal communications and social media, then it will become an even bigger target for the growing anti-trust movement that seeks to break upthe tech giants.

Fundamental change is possible. Cryptocurrency technologies could be used to eliminate the instability of fractionally reserved banking. But this will have to be through a state currency replacing fractionally reserved bank transaction accounts and not through a private currency.

It would probably be wiser for Facebook to outsource Facecoin to an established international bank. But then, of course, this wouldn’t be such a major disruption of established financial services.

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Facebook’s cryptocurrency: a financial expert breaks it down

Or will it be yet another exaggerated “crypto” project, buying into the continuing … Time will tell, but my two decades of research into the economics of …

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will it be yet another exaggerated “crypto” project, buying into the continuing excitement about decentralised peer-to-peer exchange but, in the end, not delivering very much? Time will tell, but my two decades of research into the economics of payments makes me sceptical.

We know little about Facebook’s plans. So far there is just one company statement about a new group set up to look into cryptocurrencies reported by Bloomberg: “Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”

Some investigative journalism from Bloomberg and the New York Times reveals a little more. Facecoin (and the similar “Gram” cryptocurrency being developed by the privacy focused messaging app Telegram) will apparently be a “stablecoin”. Rather than having a fixed amount of currency that fluctuates in price, depending on demand, Facecoin will have a fixed price and the amount of it in circulation will vary. So unlike Bitcoin it will not be a vehicle for speculation.

What will the fixed price be? Bloomberg reports it will be fixed against the dollar. The New York Times says that it will be against a combination of dollar, euro and yen. Who will use it? Facebook is apparently focusing on providing a technology solution for the large and lucrative remittance market for payments into India. Will transactions in Facecoin be anonymous like those in Bitcoin? No, they will be associated with Facebook accounts, so they won’t be an easy means to avoid laws and regulations.

Reasons to be sceptical

While this is a fascinating development, some scepticism is in order. If there is one common feature to the many hundreds of crypto and blockchain finance projects announced over the past four years, it is exaggerated early claims. In one ongoing research project, I have found that of 103 projects announced since 2015 applying so-called blockchain technologies to financial services, all but a handful have quietly disappeared. None have yet been taken through to commercial-scale launch (although around half a dozen may achieve that by 2021).

Is there anything about Facebook’s plans to suggest a different outcome? The obvious parallel is with the Chinese payment solution WeChat Pay, globally the largest mobile and internet payment solution used by “900 million active users”. In Beijing and Shanghai “even beggars have QR codes” that allow passers by to scan and give them money using their smart phones. The integration into the WeChat messaging system is what gave WeChat Pay the critical mass to achieve widespread acceptance. Facecoin’s integration with WhatsApp and other Facebook services could support a similarly rapid take-off.

But WeChat Pay doesn’t involve cryptocurrency. It uses established server technologies to enable people to transfer money in and out of conventional bank accounts as well as to other users.

The New York Times reports, rather surprisingly, that Facecoin (unlike WeChat Pay) will be based on integration with cryptoexchanges, which trade conventional money for digital currencies, rather than with the conventional banking system. But given that cryptoexchanges are coming under increasing regulatory pressure because of their lack of transparency and irregularities in how they operate, linking with them is hardly likely to encourage people to adopt Facecoin.

It is also difficult to make sense of the intended use of Facecoin for remittances. Major banks already send dollars virtually instantaneously and costlessly from one country to another. Costs and inefficiencies arise in the final mile when converting funds to local currency and allocating them to a local bank account or for cash collection. The Facecoin technology will do nothing to address these problems.

Who pays out?

Another question mark is about the backing for Facecoin. Unlike Bitcoin, which is not pegged to any other currency, Facecoin will need the backing of real money to maintain its fixed price. The safest approach will be full reserving: for every $1 of Facecoin issued, Facebook could hold $1 of reserves in a segregated account.

Fractional or partial reserving is also possible but who then guarantees the safety of those reserves? If reserves do not cover withdrawals, who is then responsible and what compensation is there for holders of Facecoin? Facebook would need a banking licence and subject itself to the full burden of banking regulation. Ideally, reserves would be held with a central bank. But central banks will be reluctant to support a private currency.

Perhaps the biggest reason for scepticism comes from the challenges Facebook already faces over user data, privacy and authenticity. If Facebook takes as big a role in daily payments as it already has in personal communications and social media, then it will become an even bigger target for the growing anti-trust movement that seeks to break up the tech giants.

Fundamental change is possible. Cryptocurrency technologies could be used to eliminate the instability of fractionally reserved banking. But this will have to be through a state currency replacing fractionally reserved bank transaction accounts and not through a private currency.

It would probably be wiser for Facebook to outsource Facecoin to an established international bank. But then, of course, this wouldn’t be such a major disruption of established financial services.

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TikTok App Creator Beat Facebook At Its Own Game And Became A Billionaire

Today, Softbank Group is reportedly joining KKR, General Atlantic, and Sequoia as backers with a $1.5 billion investment in ByteDance.

You may not know about TikTok an app that is a hit amongst teenagers. TikTok has been downloaded from the Apple App Store and GooglePlay by 39.6 million users since early November. It was the most downloaded social app in the U.S. in December. Just a few weeks ago, TikTok was downloaded more than Instagram and surpassed one billion downloads. The app allows users to create short videos set to songs – much like Facebook’s Lasso, except TikTok is way more popular. Lasso has been downloaded by just around 70,000 users. It seems TikTok is beating Facebook at its own game. Traditionally, Facebook just copied rivals to get rid of them. They did that to Google+ and Snapchat. But the social media giant’s effort to quash TikTok is failing. The company behind TikTok is China-based ByteDance. It has a valuation of $75 billion making it the most valuable startup in the world.

Zhang Yiming is the 35-year-old founder ByteDance. The $75 billion valuation of his company surpasses that of Uber, making it, as mentioned, the most valuable startup in the world – and it has done that in China without taking money from Jack Ma‘s Alibaba Group or Pony Ma‘s Tencent – which is hard to do! The story of how Zhang built ByteDance into a giant starts with the news site Jinri Toutiao—but is more closely tied to a series of acquisitions and expansions that have pushed the company into mobile video (TikTok) and given it users far beyond the borders of China. By collecting and nurturing a successful group of apps, ByteDance has put together a force of hundreds of millions of users. With this base, it can challenge the largest internet operators in China. The company is into everything from the video service TikTok to jokes to celebrity gossip.

AFP/Getty Images

Back in 2012, Zhang was shopping around the idea of a news aggregation app powered by AI. Investors, including Sequoia Capital, were very skeptical. Investors questioned how a locally trained software engineer could outwit the many news portals already out there and run by much larger entities like Tencent. How could Zhang make any profit when the mighty Google had failed to do so in China?

Zhang proved those early skeptics wrong. Today, Softbank Group is reportedly joining KKR, General Atlantic, and Sequoia as backers with a $1.5 billion investment in ByteDance. The company’s lofty valuation comes from the fact that it has built itself to be a cross between Facebook and Google in terms of user experience.

Despite the valuation and the enormous user base, ByteDance has yet to turn a profit. China’s internet is in a weird place with its internet usage and growth. The time each person spends online has slowed dramatically. The costs for acquiring users and getting them to spend time on your site is increasing, according to an analyst with UBS. ByteDance stands out because it created a group of apps that are very good at attracting users and keeping them glued to their apps.

ByteDance is also the most successful major Chinese tech company to create an international user base. TikTok is popular not just in the U.S. but also in Southeast Asia and Japan. Even Tencent’s WeChat, the most popular messaging app in China, had to give up on its overseas expansion.

Back in 2012, what Zhang set out to do was to make it easier for mobile users in China to find info. That is a hard proposition in a country with draconian censorship laws. He couldn’t fight the country’s censorship laws, not really. But he did. ByteDance has been repeatedly called out by authorities by failing to filter content and has been forced to clean up its act many, many times. However, Zhang held onto his early vision of delivering content that was important to users through AI—sort of like Facebook’s news feed.

When no one believed in his vision, Zhang eventually secured capital from Susquehanna International Group and his news app debuted in August 2012. The platform studied what users read and searched for and then referred them to information and articles based on their habits. The more people that used it, the better at predicting what would be interesting to them the platform became. The better it was at delivering relevant content, the longer users stayed on the site. By the middle of 2014, Zhang’s news site had 13 million daily active users and Sequoia finally came to the table and led a $100 million funding round.

However, it was video that really put ByteDance into the big time. Streaming services have always been popular in China dating back to the desktop era. YY Inc. offered a platform where people sang and danced in virtual showrooms to win online gifts from fans. ByteDance took that concept but made the videos on TikTok (called Douyin in China) much shorter – 15 seconds. TikTok launched in September 2016. The app lets users shoot and edit video, add filters and share them across platforms. The format became an instant it. In fact, it was so successful that WeChat blocked access to the app from within their app.

Zhang’s challenge, now that he’s worth $16.2 billion, is to translate buzz and viewership into dollars. Something tells us he’s not only up for the challenge, but already has plans for how exactly to do that.

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Orchid Asia Leads $70M Series D1 Round In Chinese Wedding Service Platform

… with the participation of previous investor Matrix Partners China, said Matrix Partners China in a statement released on its WeChat official account …

Chinese wedding services provider Hunliji has raised a US$70 million series D1 round of financing led by investment firm Orchid Asia Group Management, with the participation of previous investor Matrix Partners China, said Matrix Partners China in a statement released on its WeChat official account on Monday.

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Japanese Banks Launch Digital Currency Without a Blockchain

J Coin will not utilize blockchain technology or a distributed ledger. It is simply a form of digital cash that can be used for payments. Early media reports …

Sixty leading banks in Japan, under the leadership of Mizuho Bank, have launched a new digital currency called J Coin.

The digital cash system will be integrated with J Coin Pay to work across the country.

Contrary to initial reports, J Coin will not bear resemblance to a traditional cryptocurrency — in spite of its suggestive name.

Mizuho will develop J Coin Pay, a QR code-based application to send and receive tokens to other users or merchants. This application will be similar to existing payment applications in the Asian market such as Alipay and WeChat Pay.

In Japan, cash transactions account for almost 20 percent of the GDP. The nation has the highest cash to GDP ratio among all major economies of the world.

mizuho bank

Not A Cryptocurrency

J Coin will not utilize blockchain technology or a distributed ledger. It is simply a form of digital cash that can be used for payments.

Early media reports in 2017 suggested that the consortium of 60 banks would develop a digital currency that would be pegged to the Japanese Yen and be used with a mobile application. Reports further said that Mizuho had been exploring the cryptocurrency and blockchain industry with a keen eye while looking for the right opportunity to make its entry.

However, Japanese regulators have introduced new laws for the cryptocurrency market in the time since. This may have inspired banks to adopt a more conventional approach instead of a blockchain based asset.

Japan cryptocurrency

Competition from China

China is indisputably the world leader in cashless payments. AliPay and WeChat Pay led the transition to a cashless society in the country. These companies are now exploring newer markets for growth and see Japan as the next big market due to the current low penetration figures.

American companies, meanwhile, could also try to capture a significant stake in the digital payment market in Japan. This is probably why Mizuho and other banks decided to launch J Coin and J Coin Pay before a global competitor enters the Japanese market.

There are several factors pertaining to why Japanese citizens have preferred cash over the years. The interest rates in Japan have been near zero for a long time. As a result, citizens have decided again storing cash in savings accounts. Simultaneously, a great deal of emphasis is placed on financial savings in Japanese society — another reason why locals prefer cash over other payment methods.

Will the Japanese market will adopt J Coin in droves? Do you think it offers a noticeable upgrade over ordinary payment methods? Let us know what you think in the comments below!


Images courtesy of Shutterstock.

Tags:Japan

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