Facebook’s big crypto moment is tomorrow.
The social media giant, which has been mired in controversy and scandal for the last couple of years, is expected to release details related to Project Libra – its cryptocurrency initiative. Reports and leaks have already generated considerable excitement within the cryptocurrency community. But the ramifications of Facebook’s foray into cryptocurrency go beyond the crypto ecosystem. They could potentially reinvent its business model and widen the scope of its influence on its user base.
Why Crypto is Important for Facebook
Facebook’s reputation and business has nosedived in recent times as it has become increasingly entangled in regulatory crosshairs in multiple countries. Concerns about the company’s practices range from its disregard for the privacy of its users to the spread of misinformation on its platform to the use of AI Deepfakes on its platform. The controversies have been non-stop; even as the company quashed one, another one emerged. Users deleted their accounts and Facebook’s revenues and stock price plummeted in 2018. While 2019 has been better for its stock price, the company is still not out of the woods yet.
Cryptocurrencies and blockchain could be its chance at redemption. Project Libra enables Facebook to move beyond its advertising-driven business model to one based on e-commerce and payments.
Facebook’s Earlier E-commerce Foray Was a Failure
To be sure, this is not the first time that Facebook has tried to reinvent itself as an e-commerce platform. Back in 2011, it rolled out an e-commerce platform using Facebook credits, a virtual currency, to entice customers to buy products and services. Brands like JC Penney and Gamestop opened stores on the platform only to shutter them a year later. They claimed that the Facebook store contributed little to their overall sales and was expensive to maintain. Another retailer analyst pointed out that Facebook’s main benefit to top retailers was in branding themselves through ads rather than driving sales through purchases.
The situation has changed since then. Facebook’s reach has significantly widened with 2.4 billion users across the world, despite controversies. With the exception of Google and Apple, no other company comes close to replicating Facebook’s breadth. The scale of its operations also means that the company is a connective tissue between disparate sets of users and a veritable trove of data for marketers.
But generating revenue from this data could is problematic for the social media company’s advertising-driven business model. Governments worldwide have adopted a hostile and wary stance to the social network’s increasing power in society.
Cryptocurrencies and blockchain, which are built on an ethos of decentralized trust, may be an ideal solution to Facebook’s dilemma. The non-profit foundation created to administer Facebook’s cryptocurrency will not have members from its senior management. This will create the necessary distance from the social media network and ease Facebook’s regulation headache.
At the same time, Facebook has set up a healthy revenue stream by charging $10 million as licensing fees for access to its validator nodes, which contain all transaction data and are required to approve transactions on its network. No wonder analysts are bullish on Facebook’s crypto ambitions.