Facebook’s blockchain foray is about trust, not crypto
- There are many positive aspects of a truly a decentralized social network in which no party relies on a central party and users own their own data
- It’s possible payments will be part of Facebook's blockchain strategy, but payments don't necessarily require blockchain
Facebook is launching a new team dedicated to blockchain led by David Marcus, the former PayPal president who oversaw Facebook Messenger for four years and recently joined the board of Coinbase.
But Facebook’s blockchain story isn’t about payments; it’s about the social networking giant restoring consumer trust in light of its recent data scandal.
It’s entirely possible payments will be part of its blockchain strategy, which the company has said little about publicly other than that it’s meant to explore how blockchain technology could be beneficial to its business. But that doesn’t necessarily require blockchain. The likelier angle is that Facebook is looking to restore trust from consumers.
“If Facebook wanted to do something meaningful around payments or release additional payment functionality they could probably accomplish what they want with existing systems in place today,” said David Sica, a partner at at the venture capital firm Nyca Partners. “You could use the card businesses, and it would work better.” Facebook also partners with PayPal on peer-to-peer payments within Facebook Messenger as well as payments for sellers in Facebook’s Marketplace.
Facebook declined to comment for this story.
There are many positive aspects of a truly a decentralized social network in which no party relies on a central party and users own their own data, Sica said. There’s also a lot of capital and talent flowing into the crypto industry, and Facebook is making “a prudent choice understanding it.” If the team comes back from its initial exploration with something really compelling, the next phase would be to act on it.
“There are lots of ideas around, but we went from bitcoin 1.0 to a period of enterprise blockchain and back to ICOs and utility coins,” he said. “At this current time, there aren’t any decentralized ideas other than bitcoin that have popped up from other companies and communities.”
Facebook has also become less relatable to millennials — the very demographic helping fuel the widespread popularity of crypto currencies and digital assets — who tend to identify it as something their parents use, suggested Javier Paz, Aite Group’s blockchain analyst. Facebook’s new blockchain group is more likely to help guide its appetite for new acquisitions in an area that augments its core market usage and interest, like crypto, he said.
“It may be pushing past the payments space and further toward investing,” Paz said. “Short of Facebook buying [a company like] Robinhood, I don’t know that Facebook would have a shoe-in unique value prop or that the millennial market” or that that market would be easily sold on a Facebook-offered crypto trading account. “Recent M&A activity would suggest there is an appetite to acquire tech and services that complement and basically continue to engage the key demographic groups that Facebook has targeted.”
The blockchain technology that underlies digital currencies could be used to power a Facebook credit currency similar to Facebook Credits, a virtual currency users could spend on Facebook and in Facebook applications like Farmville and other Zynga games that Facebook removed from the platform in 2013. Facebook Credits may have been ahead of its time, but today other social networks like Instagram, which is owned by Facebook, and Snapchat are testing payments strategies that could bring e-commerce away from standalone websites and into everyday social media platforms.
Companies looking at blockchain technology tend to see it as an efficient way of recording and transmitting data — signed documents, ownership, house or car sales, commercial transactions, insurance policies. That’s where the value (mostly) is for Facebook and other companies currently, said Jason Oxman, director of the Electronic Transactions Association; it’s not all just about payments and money movement, though that could be part of it one day.
“Blockchain is used as a place to securely store a variety of different things,” Oxman said. “The fact that David Marcus used to run PayPal causes everyone to believe that what he’s doing [with blockchain] has to be related to payments. It’s a transmission technology story.”