Who Will Trust Facebook Bank?
(Source: forbes.com)

clicks | 5 days ago | Google AI sentiment -0.20 | comments: discuss | tags: bitcoin cryptocurrency


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(Original link: forbes.com)

Share to twitter Share to linkedin Bloomberg Best of the Year 2018: Mark Zuckerberg, chief executive officer and founder of Facebook Inc., listens during a House Energy and Commerce Committee hearing in Washington, D.C., U.S., on Wednesday, April 11, 2018. Photographer: Andrew Harrer/Bloomberg © 2018 Bloomberg Finance LP This week saw global service outages taking Facebook off the grid on Wednesday, the longest outage in 15 years. The ignominy of having to announce this on Twitter must have had Facebook executives wincing.
The outage comes a week after mainstream media revealed that Facebook is working on a secret project to develop a “Facebook Coin”. Facebook quietly secured an e-money license from the Central Bank of Ireland two years ago permitting e-money issuing and payment services provision including credit transfer, payment transactions, and money remittance.
Jamie Dimon, the CEO of JP Morgan, fired a shot over the bow of the banking sector in his 2015 letter to shareholders warning that “Silicon Valley is coming” to challenge the banking and payments space. His own position on cryptocurrency has toed and froed, calling Bitcoin a fraud at one stage and creating ambiguity around where large financial institutions stand on cryptocurrencies. With the launch of the JPM Coin last month, an institutional cryptocurrency that can be redeemed for a dollar and can be used for cross border debt products, I think we have eliminated the ambiguity.
It is patently clear that financial institutions and Silicon Valley big tech are adopting cryptocurrencies and digital assets and are planning big plays – we have come through the stage of denial, I suggest we skip anger and move right to bargaining .
The Facebook Coin, a play out of the WeChat playbook , is reported to be a cryptocurrency known as a stablecoin. Stablecoins are designed to minimize the volatility of cryptocurrencies, like Bitcoin’s big daily price swings, by pegging to fiat currencies like the US Dollar or being backed by other assets or commodities such as gold.
How this will ultimately sit with policy makers and regulators is another question. After the Cambridge Analytica scandal which found Facebook complicit in allowing the firm to harvest millions of user profiles for political purposes without their consent, politicians around the world are demanding Facebook be regulated.
Consumer trust in Facebook was shattered following the scandal. A Ponemon Institute survey found a 66% decline consumer trust in advance of Zuckerberg’s senate testimony where it was clear that most senators did not understand what Facebook does.
So, following a significant data breach, a titanic loss of consumer trust, calls by numerous politicians for regulation, and a massive service outage, Facebook wants to become a bank issuing its own cryptocurrency. A year is a long time in social media.
Banking and financial services are built on consumer trust and Facebook is overdrawn in the trust account. Bankers’, politicians’, policy makers’, and regulators’ spider senses are tingling .
Whilst the last decade has been a decennium horribilis for the banking sector, from the Lehman Brothers sub-prime mortgage driven bankruptcy to the Wells Fargo account fraud scandal, consumer trust and confidence in banks has also been eroded. This is starting to recover thanks to FinTech and new digital financial products and services but has some way to go.
Cryptocurrencies had their annus horribilis pulling back by 80 percent in 2018, beating the dot-com bubble’s epic 78 percent crash. In addition, crypto exchange hacking scandals have seen tens of millions of dollars’ worth of cryptocurrencies disappear, fundamentally questioning the resilience of the custodial infrastructure being used. The crypto crash happened shortly following the SEC’s Howie Test took the heat out of the ICO market in the US ruling that all tokens were securities and putting an abrupt end to the de rigeur utility token sale.
Ironically, in my super mutant community of digital infrastructure / financial instrument / and financial policy and regulation geeks (all in single life forms), Facebook was one of the fictional use cases we used to explain utility tokens to policy makers and regulators.
It went something like this: If Mark Zuckerberg had of charged you $10 for a utility token Facebook Coin when you signed up to a Facebook years ago, to develop a user profile product that is sold to advertisers and third party data providers, which allowed you to buy your own profile product with the coin and populate it with data you chose, you would now be participating in a share of the revenue or the $485 billion market capitalization generated by Facebook, and we would likely have 2.7 billion happier and wealthier Facebook network users on the planet, even after the Cambridge Analytica scandal and outages.
In this fictitious use case, the utility token consumer participates in the economic value of the network with a product tha...

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