In case you haven’t heard, Facebook is launching a “cryptocurrency”.
There’s quite a bit of hype, and an equal amount of criticism (particularly vis-a-vis Facebook’s poor reputation for privacy). It isn’t quite clear to me though whether anyone has actually read the technical documentation.
There is a white paper here, and some technical documentation here. Probably worth a read in both cases. It’s really important to note though (discussed elsewhere on the web, but not here) that they’re actually really early in the development game. It isn’t clear whether any actual code has been written yet. Editorial correction: there’s a bit of code here. It’s very early in the dev process, and only a few commits have been made so far.
The first thing that drew my attention was a tweet that was linked from another article. Key phrase “Blockchain without proof of work or value volatility“. Now, there’s a lot of different kinds of blockchains out there, but that still sounds a bit odd. I also saw the word “smart contract” mentioned all over the place, but there’s absolutely nothing in the technical documentation about those at all – and those are difficult, difficult things to implement properly.
Then I looked into how their “blockchain” will actually work… and I’m not actually certain that what they’re building is actually a blockchain. They’re using a consensus system (probably 20 or 30 nodes to start – cost is at least $10 million USD to buy in – and probably less than 100 nodes ever). The technical documentation starts talking about checking consensus, and then saving into a database. Say what now? I’m not sure whether they actually understand how cryptocurrencies work! Nice diagrams anyhow. They look similar to the ones on every other ICO I’ve seen over the past couple of years.
Setting this aside for a second, what they’re trying to accomplish, supposedly, is to help the final billion or so people in the world with little access to banking. So person A can send person B money over their phone (which most people in the developing world do already right now). But here’s the thing – this is a Last Mile type of problem, and part of why there’s tons of countries you can’t send Paypal transactions to (and I’ve tried). The person at the other end needs to be able to turn that digital transaction back into money somehow. And that means (particularly given the participants in this project) banks and credit card companies. And they just don’t have any presence in those places. If you’ve ever tried sending somebody in Central Africa money (I have), it really boils down to Western Union (expensive, but they’ve actually got physical boots on the ground), or send a person with cash, or try your hand with a sketchy hawalah of some sort. Paypal usually can’t deal with the currencies (and even if the other party has a Paypal account, there’s no simple way to turn the money back into cash). I just can’t see this being a feasible solution for the developing world, unless they’re willing to build out local infrastructure in a lot of places.
I also can’t see this attracting the (rather small anyhow) classic crypto bull market. They’re heavily invested in privacy. Libra, on the other hand, will require government id (which many people in poor countries don’t have) in order to participate.
So what’s left?
Clearly, they’re trying to move into the existing online payments market. There’s some pretty big players already though (several of which have invested in this, probably as a careful hedge, or possibly even in order to sabotage it from within). The largest of them all, Paypal, has a pretty good lock on the largest online vendors, which means that this is starting off at a disadvantage.
The worst part of it all, is that they’re partially decentralizing this thing, introducing complexity to a fairly simple payment mechanism (and developing it in a brand-new programming language that they’re just building now).
So what happens when (not if) this thing gets hacked?
Who takes responsibility? Facebook? All of the vendors? Nobody?
How fast can they fix it? Your guess is as good as mine. But will it be down while they’re fixing it?
Will people get their money back? Who knows? There’s nothing on that online yet that I could find.
Who gets sued? Facebook? All of the vendors? The foundation?
Will governments come gunning for the vendors? Looks like it already. Also see here.
I’m not saying it won’t work out. They’re obviously putting in a lot of money and development effort, and they have huge backers. It just doesn’t seem all that well conceived to me.
Update: Looks like they’re also planning on doing a separate “investment coin” (basically an ICO). Small crypto companies get away with that all the time, but I’m not sure a publicly traded company can. I’m fairly sure the SEC would frown on an unregulated security offering from Facebook.