Generically, we have seen instances where centralized ledgers/databases are manipulated and permit double spend. Even in the case of multi billion dollar publicly traded companies going Private, during due diligence we have seen upward of double the issued shares of stock than actually exist. In such a case we have the corporation with a centralized stock ledger, stock trusts with their own centralized ledgers, etc... but the mistake of double spend still happened. In those cases Blockchain would have never allowed those errors, one such case cost the buyer $150M personally post acquisition. Not to say that is in anyway applicable here, but without even knowing the token function we can’t say, but it just goes to show Blockchain does have some use cases and benefits where centralized ledgers have failed costing hundreds of millions.
Take the current status of publicly traded companies, they require a lot of middlemen to manage these centralized stock ledgers, including, the corporate general counsel, underwriters/investment banks, stock trust, stock exchanges, and stock brokers/trading apps.
Each one of those middlemen takes a significant slice of the pie, whereas Blockchain would allow corporatations to bypass all these middlemen and allow stock to be issued and traded P2P.
Is there a reason you believe the existing centralized stock ledgers of public companies and system of middlemen is more advantageous than having P2P stock on a distributed ledger/network?
The only potential advantage of such a system over an RDBMS is the inability to reverse transactions without people taking serious notice, simple git-style hash chains generally solve this too, often with reduced overhead.
Unask the question and ask who benefits instead.
Real currencies (USD, EUR, ..) are stored by visa / mastercard in regular databases, so why not facebook's currency ?
It's why you didn't see anyone actually supporting Venezuela's Petro.
That plus cryptocurrencies is still a buzzword that generates interest and speculation (especially since they've rebounded a bit these past few months).
Number two, they want to get in ahead of other cryptocurrency. They don't want to wait around for Bitcoin or Ethereum to become an expected form of payment, because by that time they won't be able to cash in. If they have their own cryptocurrency, they can take advantage of the hype for bitcoin etc., but still control and profit from it directly.
A blockchain can be implemented in a very simple way when operated by a centralized authority. What adds complexity to it is the consensus protocol required for decentralization when you cannot trust all parties in the network.
Clearing takes less time than FedWire or ACH.
Settlement, on the other hand, still has to go through the Federal Reserve.
Most of the time is spent managing risk. Sure, that includes persistence, but that is also marginal. You also have to validate integrity, authenticity, cross-reference against legal requirements (eg. enforce rates, detect fraud — including internal fraud, apply sanctions lists, estimate AML-CFT risk, …). You have to make sure all accounting rules are followed. You have to abide by the procedures that you and the regulator determined. All that with no downtime.
All of this takes time. Historically, a large part was manual. While automation has helped, there are quite a few clearing houses where an army of programmers is spent battling the chaos.
A system least tolerant to inconsistencies and most tolerant to failure, increases reliability while reducing risk. The cryptographic properties of a distributed blockchain help there, regardless of whether the system has open membership (which is not Facebook’s case, unlike most cryptocurrencies).
A different ledger design can be equally powerful or more. In fact, I expect that a lot of the compliance and accounting logic can be expressed elegantly in a custom design.
Until Quantum Computing comes of age, this is theoretically much harder with DLT / blockchains.
On a decentralized, trustless blockchain you have no such thing. So you either end up hard-forking like Ethereum did after their DAO debacle (but then are you a decentralized trustless system anymore?) or you continue normally and basically the people who lost their money are screwed.
There is _some_ inherent value in this. Decoupling the currency rate from a unit of time play provides an entrypoint for the store to incorporate value models that aren't captured by currency alone.
In the volume discount case, this allows them to incorporate fixed overhead models into the pricing scheme for game time.
I don't dispute the point, however, that the model does allow for abuse along other lines, and is often used that way in practice.
I think at the point of discounts of a USD stable coin...a good arguement could be made that is an investment contract/security that needs to be registered.
If that were true, it would highlight how SEC is treating cryptocoins differently than say gift cards (which are often sold with discounts).
Of course either way FB could in theory probably register their coin with the SEC anyway without much difficulty.
It means most people using it won't even realize it's a Blockchain token. It'll be like "Facebook Bucks". But then it also offers the flexibility of a blockchain token to more advanced users (withdraw to your own wallet, send to an exchange, etc).
Things which would matter are “can transfer real money to a friend with less markup than Apple/Google/PayPal”, “can sell things online at better terms than PayPal”, “can make transactions at a low enough rate that a business model requiring micro-payments is viable”, etc.
Facebook has a few wrinkles where that could be interesting - micropayments for games and content in particular - but it’s unclear what a blockchain adds to that since you’re already centralized on a single massive company which negotiates on take-it-or-leave-it terms.
- is cash you can email
- prevents hostile monetary policy from stealing your wealth (inflation, negative interest rates, haircuts, etc)
- keeps working when you travel (unlike Paypal / credit cards which often get frozen)
- uncensorable transactions that ignore borders
- can send large $ amounts anywhere for ridiculously cheap
- more vertigo than a theme park
“hostile monetary policy” is especially dubious in this context where it's supposedly pinned to the USD but even in other cases it's a hard sell for most people: do you a) put your money into a bank account, investment, or other asset you expect to do better than inflation or b) put everything into a complex system with no guarantees that it'll be operating in 5 years, fraud protection, etc. and hope that the conversion fees you pay on both sides will be lower than the difference?
“keeps working when you travel” could potentially be an area where it could match the credit card system except that it either means that you're traveling with a ton of cash and no recourse if someone steals it or, if like most people you use a managed service somewhere else, hoping that you don't trip the same kind of security measures which banks use for the same reasons. Given that most people do not travel that frequently and most travelers do not have significant issues using credit cards while abroad, it's unclear to me that this will be enough of a compelling advantage.
Case in point: I bought a new phone from overseas a few weeks ago. Paypal / wire fees were expensive, and after three days TransferWise (suggested by the seller) still couldn't make my new account work. I wound up paying in crypto, took about 5 minutes and cost me less than a buck. So yeah: cash I emailed.
It’s a chicken/egg problem because without an extensive ongoing economy which would allow one to conduct a significant portion of total spending in crypto, it will be required to buy and sell back and forth to fiat.
So far costs of exchanging crypto to fiat are significant. I tried to figure out a way to use it to transact with a vendor I do business with overseas. We don’t care about bitcoin, we were just looking for a cheaper way to make the remittance.
Doing it with crypto was harder and more expensive than even PayPal. Especially because it subjects you to volatility risk and information blocks due to transacting between 3 currencies: USD-BTC-EUR.
You could argue that as “adoption” increases (using crypto as real currency) this problem would lessen.
I doubt this will be the case, even if the “scaling issue” is solved.
I don’t see any reason that crypto will lower the cost of securing transactions. Currently, the cost of digital transactions include fraud protection and regulatory compliance.
A currency that operates out of the jurisdiction of government cannot scale, as being a “black market” currency is inherently limited is scope.
The biggest problem is that distributed, peer to peer, currencies provide a vastly larger attack surface for hackers. They also require large scale duplication of security practices, implemented by relatively inexperienced (at providing security) users.
This is the worst of all worlds. The drastic consequences of being hacked either require the user to undertake the costly risk mitigation strategies and accept the risk of losing funds or...use custodial solutions like exchanges or banks.
That means at least a lower cost per user for security, but it shouldn’t be any lower than cost of bank security practices, at best.
For proof-of-work coins the cost of securing the network must also ultimately be borne by users. There are not infinite speculators willing to cover the mining costs.
Ultimately, this leads to a currency that has a high cost. It therefore will lose out to centralized currencies.
Crypto currency has two properties competing digital currencies lack.
True peer to peer transactions and censorship resistance.
They also have some properties that make them useful as a vehicle for pure speculation, which is a perennial interest of humans.
But the type of transactions that benefit from the peculiar properties of these digital token systems are not that numerous, and are mostly black or gray market activities.
When you add in the fact that it is trivial for governments to crackdown on crypto currencies, just by making them illegal, or even just enforcing existing tax regulations that make each transaction a taxable event,it’s clear the odds are stacked against crypto currencies becoming widely adopted.
Facebook is not going to be able to avoid the costs that other digital cash systems have. So they may succeed, but their token will not really be in the same category as the “real” crypto currencies.
They will be subject to as many regulations as PayPal, Apple, Venmo, etc.
They will also have the same need for security and fraud protection.
That is an absolutely horrible trade-off for anyone who wants a democratically run currency.
That and the irreversibility in cases of fraud make crypto a complete non-starter for me. I want to be able to reverse transactions if someone starts siphoning off my coin; and I want to be able to use the force of law to do so, if I win a lawsuit or even just don't want thieves to steal my money.
What is the crypto answer to "someone stole your private key and is stealing your money"?
There's a really big difference between your potential losses being capped zero to a few hundred dollars vs. “everything you own and half of the community will say it was your fault”.
There’s no free lunch, and the minimal security provided with crypto currencies is provided at a high cost.
Once the actual use case/function of the token is know then one could answer if there is a benefit to users and if a Blockchain token makes sense over a database.
Look at Paypal USD Balance. It's really just a "token" issued by PayPal, an IOU where 1 PaypalUSD = 1 USD Debt from Paypal. But PayPalUSD can only be used within Paypal.com. The only way to bring PayPalUSD outside of Paypal is to call in your debt to PayPal and withdraw the money to your bank.
PayPal has always said that their success relies on people holding PayPalUSD. People who keep their money in PayPalUSD are the ones making PayPal bank. First of all, it costs Paypal next to nothing if that user sends their PayPalUSD to another user. Yet they collect transaction fees. Furthermore, PayPal can throw this money into low-risk investments and earn 3-4% on it.
Facebook tokens are PayPalUSD 2.0. They can be used within the Facebook.com ecosystem. But on top of that, people can withdraw them and use them outside of Facebook.com. Basically, any website can start integrating these FacebookCoin. It means less people will need to cash out, and will instead keep their money in FacebookCoins.
You can convert PayPal directly into US dollars at your bank, so I don’t think they would see any benefit to supporting such a distributed token system unless the could make a cut on every transaction.
I’m having a hard time seeing Facebook being able to support a stable coin without being subject to the same regulations and cost as any other system.
Perhaps they will get a competitive advantage through data mining and could charge smaller transaction fees.
Because it's cool and everyone is doing it.
Beyond that many also use it as a way to introduce inflation and take a cut right off the top so instead of $1 getting your 4 tokens they can say make it so $1 only gets you 3 tokens and most people don't even notice. Now when you start pumping tokens in the machines in your mind you still feel like you're spending 25 cents when in reality you're spending 33 cents. Instant markup for increased profit.
What was the point of arcades taking your quarters and issuing you tokens for the machines? Why not just allow the machines to take your quarters?
The idea is for the issuer to take real money from you and issue you Monopoly money which the issuer can track and control. In a worst case scenario the issuer can make up new rules (change their terms and conditions on you) or declare bankruptcy/dissolve and not honor the redemption of your stable coins at all.