Opinion: Facebook enters the encryption market or becomes a positive catalyst for Bitcoin

Facebook plans to release a new white paper on cryptocurrency called Libra this week (released on June 18). This is what we think we know. (Because of the conflicting information about the exact details of Facebook's new tokens, we'll start with some given concepts, even though we can't figure anything before Facebook makes the actual disclosure).

Our understanding of Facebook Coin:

POA (authority certification) consensus controlled by the International Association of Companies

(Libra Association chart, by industry)

  • Members of the association have a certain say in management
  • FB is buying currency and creating a return on assets to support the FBC
  • These assets will include a basket of currencies, bonds, and possibly other commodities.
  • The price is designed to remain stable, but will slowly rise over time relative to government-backed currencies.
  • FB is working with government regulators to approve the creation and distribution of this currency
  • FB will comply with all current laws, including Anti-Money Laundering (AML) and KYC (Understanding Customer Requirements).
  • FB hopes to launch FBC in 2020
  • FB will work with ATMs to create a convenient exit channel for French currency
  • The FBC will work with FB, IG and WA and may include cooperation with other members of the Association.

Let's break this down into more details

Company-controlled POA private network

Facebook is working with companies like Paypal, Visa, MasterCard and Coinbase. And joined the Libra Association. There are rumors that Facebook will charge $10 million to each international company that joins the association. Facebook plans to raise a total of $1 billion in funding for the project. Some members of the association will have the right to act as a validator for the upcoming independent blockchain. This method is often referred to as "authoritative proof."

This means a few things:

1. Only pre-approved companies can verify transactions

2. The blockchain will be managed by a small group of organizations that are easy to collude.

 

Members and verifiers have a say in governance

Facebook will launch the blockchain as an independent association. By paying $10 million, members of this new association will be entitled to a degree of governance. It's unclear what the specific governance model will be, but we can assume that it will include which countries are supported and which assets are included in the reserve pool that supports Facebook tokens.

FB is buying assets that generate revenue, backed by the FBC

Facebook recognizes that an attractive value proposition for Bitcoin is to hedge against unsustainable government inflation. Since the cancellation of the gold standard by the governments of most countries in the world, there have been more than 50 cases in which the government has destroyed the economy through hyperinflation. The dollar has depreciated by about 95% in the past 80 years due to inflation.

 

Facebook (presumably) includes income-generating assets to help mitigate the loss of value from government debt and inflation

The price is designed to remain stable, but will slowly rise over time relative to government-backed currencies.

The money that attracts ordinary consumers has two characteristics:

1. People are more willing to pay in a currency that is generally stable in the short- and medium-term purchasing power.

2. People are more willing to store wealth in low-risk assets. Over time, these assets will add value rather than depreciate.

Facebook recognizes this and chooses to create a relatively stable currency, but its value is growing every year compared to other major legal tenders.

Facebook is working with government regulators to approve the creation and distribution of this currency

Due to the public nature of Facebook and the investor's support for the project in terms of capital, reputation or infrastructure, this token must be approved by the country in which it plans to operate. This approval means that Facebook's tokens will essentially be a legal currency, and it exists only because governments around the world allow it to exist.

If one day the US government or other big country decides to ban it, Facebook and other network participants and supporters will be forced to make concessions, implement a review plan, and prevent a large number of people from accessing the network.

FB hopes to launch FBC in 2020

This is a very positive timetable for the launch of such a big project. There will be many obstacles in terms of technology and politics. We can assume that Facebook has invested a lot of money and resources to try to reach this timetable.

FB will work with ATMs and other money changers to create an easy exit path for French currency.

This is probably the most interesting aspect of this project. The ability to enter and exit the encryption market is one of the biggest challenges currently facing large-scale adoption of encryption.

Whatever happens to Facebook Coin, if Facebook succeeds in reducing the friction around the fiat, they will create a turning point that will go down in history as a positive impact of the encryption space.

FBC will work with FB Mobile, IG and WA

It is estimated that there are currently less than 10 million people actively using encryption worldwide. Bringing the encrypted wallet to the hands of 2 billion people will have a huge positive impact on the entire industry.

General feature comparison

Below we list the general characteristics of several different payment networks. Later, we will discuss some of these features in detail and why they are so important.

Historical shift from commodity currency to fiat currency

In the past, the US government and governments around the world have created a virtual currency using an advanced technology called banknotes. This is to act as a virtual representation of the "real" currency (ie gold). Each time they create 1 unit of virtual currency, they will have 1-1 "real currency" as a backing.

"True money" has several characteristics:

  • This is scarce
  • Independent and verifiable
  • Not issued by any individual, country or organization
  • Think of value because of social consensus and market demand, not because of power

Real money creation requires a proof of work called “gold mining”. The more you mine, the more real-world resources you need, the more “real money” you create.

When the government introduces virtual currency. Banknotes, they promise to support virtual currency through real money stored in the vault. Over the years, governments have realized that they can simply create more virtual currency, and nothing prevents them from reducing the ratio of virtual currency to real money to 1:1. This led to an increase in the creation of virtual currency, while the actual currency pool supporting virtual currency did not increase.

In the end, the real currency was taken back and the government forced to use only virtual currency. This is the legal currency.

 

What does virtual currency mean by real money support?

If a third party or a group of third parties can determine if your virtual currency can be redeemed for real money, then you cannot build an untrusted system and you must fully trust those third parties.

In this system, you can't trust the virtual currency network to provide remittances, you can only trust the institutions that supervise the virtual currency network, and these third parties provide remittances.

In the United States, there was a time when anyone could bring virtual money to a bank and convert it into real money. During this time, it can be said that virtual currency is supported by real money.

After the US government stopped allowing real money to be exchanged for virtual currency, it can be said that virtual currency has never received support from real money, but has received good support from the US government.

 

What is Bitcoin support?

Supporting the Bitcoin network is essentially a decentralized blockchain that resists censorship. To hold Bitcoin, you do not need to obtain permission from any third party. To transfer Bitcoin, you do not need to obtain permission from any third party.

Access to a censored, non-custoatable value transfer and storage network is valuable, and the exact price to enter the network is determined by market demand, using the exchange rate between Bitcoin and the currency enforced by the local government where the individual is located. Said.

Part of the reason Bitcoin is valuable is that it is not supported by goods outside the blockchain. As we mentioned above, when you try to support a cryptocurrency with an asset that is not controlled by the blockchain, you are actually reshaping the current financial system and fully trusting a group of third parties to define , approve and enforce the value of the system.

Where is the competition between Facebook coins and Bitcoin?

Features related to the general consumer:

What is the goal of Bitcoin? Will Facebook compete with it?

The main goal of Bitcoin can be described as resistance to censorship and inflation. These goals are achieved through powerful decentralization and a closed system, where the blockchain itself acts as a remittance layer.

 

Is Facebook currency good for Bitcoin?

Since its inception, one of the main challenges facing Bitcoin has been to create a consumer experience that is ready for large-scale adoption and then enters a large number of users through low barriers.

There are good reasons to believe that Facebook will achieve both goals. Launching an encrypted wallet with 1-2 billion people's mobile phones and applications they already own will bring a huge new user base to the encryption field.

The mission and vision of Bitcoin has not been solved through the birth of Facebook coin. As more and more ordinary consumers come into contact with Facebook Coin, they will become more accessible and may be valued by Bitcoin. Attracting, they will choose to store a portion of their net worth in Bitcoin to get this value.

As Facebook's ups and downs between the ordinary encryption market and the traditional French currency market develops, the friction of investing in bitcoin will be reduced, bringing more money to Bitcoin.

With these assessments in mind, it seems clear to me that Facebook's performance in the encryption field will be a huge positive catalyst for Bitcoin in the short and long term.

Author: Chief Technology Officer Jonathan Caras encryption hedge fund company Lionschain Capital of

Compile: Sharing Finance Neo