Crypto Insight: Stablecoins to become the new norm?
By Christopher Attard
As the years roll on, the advent of Bitcoin has created a new wave of apps, wallets, exchanges and stablecoins that have deeply divided many in the tech sector. The varied viewpoints that have arisen as a consequence make for energised and sometimes heated arguments about the nature of Bitcoin, altcoins and the plethora of use-cases epitomised by the 2000-plus cryptocurrencies in circulation.
Irrespective of which side of the pond one sits on, however, it seems crypto has also caught the attention of social media giant Facebook, which is reportedly developing a cryptocurrency that will let users send money via its WhatsApp messaging app. The cryptocurrency would first launch in India, a country with over 200 million Whatsapp users and the world’s leader in sending money overseas.
According to Bloomberg, this would be achieved through the creation of a stablecoin, also known as a digital currency pegged to a fiat currency like the US Dollar. Such currencies are often less volatile than regular cryptos – as is their intended purpose. Stablecoins took the limelight throughout most of 2017, with the highest profile one being Tether – a coin surrounded by controversy. In fact, questions about Tether’s transparency regarding its professed 1:1 Tether to Fiat reserve remain an unnerving marker of uncertainty for many.
Hinting its entry into the market, Facebook has over 2.5 billion global users and $40 billion in annual revenue, despite the stock market’s dismal 2017 performance. It could easily be said that a well-established platform like Facebook could have everything it takes to develop a fully-functional and ubiquitous stablecoin. If successful, the venture could be like the falling of small stones that starts another avalanche in the crypto universe.
While the social media mammoth has been very hush-hush about its blockchain initiatives, a spokesman teased some insight into their plans to move in this direction: “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.” As the industry titan leans ever-closer to the crypto bandwagon, should expectations be adjusted accordingly?
In exclusive commentary with the Malta AIBC Summit, well known venture capitalist Tim Draper outlined his cautious optimism about the development, wishing Facebook’s venture success despite some lingering reservations.
“We welcome Facebook into Bitcoin’s cryptoverse. I am concerned with any cryptocurrency that is tied to fiat though. It seems to be technology without a market. Why create crypto if you just tie it to government political currency!”
According to Tim, ‘fiat currency’ is synonymous with ‘political currency’, which anchors his Bitcoin maximalist approach on the matter. This is in line with Tim’s broader belief that fiat currency will be slowly eaten up by a better currency which is global, decentralized and frictionless.
At the same time, Tim notes that at least “Facebook is tying it to the Dollar and not to the Nigerian Naira.”
“Still, the currency will hold political risk with seemingly no benefit. Maybe they should just use Dollars. Or better, Facebook should use Bitcoin, seeing how poorly they are being treated by governments around the world.”
Taking a more optimistic stance, Scott Stornetta, the founding father of blockchain technology referenced in Satoshi’s original whitepaper outlined his belief that various use-cases could find a home under the DLT umbrella.
“I for one welcome any introduction of blockchain technology. Some express concern that anything associated with an entity such as Facebook is not being true to the peer-to-peer ideals of the blockchain ethos. But we should welcome all varieties of use of the technology, and then let users decide which brings the most benefit.”
Founder of Unique Block Group, Jay Coshan, also weighed in on the issue, acknowledging that Facebook’s entry into some aspect of finance has been a long time coming.
“This prospect has been in the cards since the company hired David Marcus (former president of PayPal) way back in 2014, not to mention their focus on Blockchain being made apparent as of May 2018. Even Zuckerberg’s sister, Randi, became involved advising blockchain ICO startup Pledge Camp last year.”
He goes on to say that Facebook’s move is welcome, but that it was undeniably inspired by the success of their Asian competitors, WeChat, who created a payment coin to the same effect. That said, Jay noted that the devil is in the details.
“I am yet to name the stablecoin as a cryptocurrency as we have little information on how Facebook plans to implement this coin. It’s plausible, perhaps even likely, that this will be a centralised and trust-based solution.”
Taking a more critical approach, Jay also outlines questions about supply chain controls, tax implications and Indian compliance. Without a sufficiently decentralised approach, Jay says that Facebook’s stablecoin will be “nothing more than an alternative trust-based payment channel with immediate distribution and a slick UX. Great for Facebook’s bottom line, but lesser the progression of self-sovereignty and decentralisation.”
Ultimately, the evolution of stablecoins as frictionless intermediaries is bound to gain prominence over time, particularly due to the understated significance of Bitcoin.
In a fresh blog post, Lebanese–American essayist, scholar, statistician, former trader, and risk analyst, Nassim Nicholas Taleb, said: “Bitcoin is a currency without a government…its mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future.”
Putting this into perspective, the stablecoin landscape seems to be flexing its muscles as more ambitious projects make headway. Depending on their effectiveness as “in-between currencies”, this could potentially direct the ecosystem towards further mainstream adoption.