Facebook Building Cryptocurrency-Based Payments System

Social-media giant is recruiting financial firms, merchants to help launch payments platform. Facebook Building Cryptocurrency-Based Payments System

Facebook Inc. is recruiting dozens of financial firms and online merchants to help launch a cryptocurrency-based payments system on the back of its gigantic social network.

The effort, should it succeed, threatens to upend the traditional, lucrative plumbing of e-commerce and would likely be the most mainstream application yet of cryptocurrency. It comes as the social-media giant is under intense pressure from regulators, users and shareholders to address privacy shortcomings.

At the heart of the initiative, under way for more than a year and code-named Project Libra, is a digital coin that its users could send to each other and use to make purchases both on Facebook and across the internet, according to people familiar with the matter.

Facebook’s secretive plans for a new payments system involve both investments from traditional financial firms and the potential for users to be rewarded for their activity on the platform.

Hurdles to the project are high. Cryptocurrencies have so far failed to catch on in payments. The existing system is full of entrenched interests and technology clogs.

And Facebook’s battered standing with users, investors and regulators make it a delicate time to plow into new territory.

Working in its favor: One-third of the world’s people log on monthly to Facebook, and they all need to buy things.

A spokeswoman for Facebook’s blockchain efforts declined to comment, referring to a previous statement that it “is exploring many different applications.”

Seeking total investments of about $1 billion, Facebook has talked to financial institutions including Visa Inc., Mastercard Inc. and payment processor First Data Corp. , the people said. The money would underpin the value of the coin to protect it from the wild price swings seen in bitcoin and other cryptocurrencies, they said.

Facebook is also talking to e-commerce companies and apps about accepting the coin, and would seek smaller financial investments from those partners, one of the people said.

Bloomberg News reported in December that Facebook was working on a digital coin that users of its WhatsApp messaging service could use to transfer money, with a focus on overseas remittances. The New York Times reported in February that the company was seeking to raise as much as $1 billion for the project.

Facebook is following rivals including Apple Inc. and Amazon.com Inc. into the financial lives of its users. Each has explored or launched major financial products in the past year, joining with traditional financial firms to manage the logistics and regulatory burdens.

Facebook aims to burrow more deeply into the lives of its users. It is building a type of checkout option that consumers could use on other websites, some of the people said. Similar to how a Facebook profile can be used to log into hundreds of websites (including The Wall Street Journal), Facebook envisions allowing those credentials to be selected as a payment method when users buy goods online.

One idea under discussion is Facebook paying users fractions of a coin when they view ads, interact with other content or shop on its platform—not unlike loyalty points accrued at retailers, some of the people said.

This would reward the kind of genuine interaction that Facebook, beset by bots and hate speech, has been trying to encourage. It could also blunt criticism that the company makes billions of dollars on the backs of its users, sometimes in troubling or invasive ways.

Creating a so-called stablecoin backed by government currency better positions it as a legitimate payment method rather than a speculative bet. The volatility of bitcoin and other cryptocurrencies that aren’t backed by hard assets has hampered their usefulness in payments.

Facebook has for years tried to crack into the payments markets, with discussions dating back to the run-up to its 2012 initial public offering. In 2014 it hired PayPal Holdings Inc. President David Marcus and has been adding engineers and products heads steeped in payments and blockchain in recent years. Facebook Building Cryptocurrency-Based

Now Facebook must bend a variety of stakeholders to its vision. Most immediately are Visa and Mastercard Inc., whose networks handle the vast majority of credit and debit card payments in the U.S.

If it succeeds, the project threatens the card networks’ dominance over global payments. Facebook comes armed with more than 1.5 billion daily users, many of them in developing countries where social-media sites provide the backbone of internet commerce.

The pitch to merchants is a break on fees, one of the people said. Facebook envisions eliminating swipe and other card processing fees that merchants pay on transactions, which are typically around 2% to 3% and are collected by banks, payments processors and networks such as Visa.

It is also working to tie online purchases more closely to ads. One idea being considered is that users could click ads to buy a product and pay with Facebook tokens, which the retailer could then recycle to pay for more ads, one person said.

Facebook rolled out a similar feature—using dollars and traditional card payments—on Instagram, which it owns, in March.

Updated: 5-26-2019

Facebook In Talks With Coinbase, Winklevoss’ Gemini To Launch Its Globalcoin

Social media giant Facebook has reportedly held talks with major United States-based crypto exchanges about the issuance of its own crypto, the Financial Times (FT) reports on May 24.

Citing two people familiar with Facebook’s “Globalcoin” project, the FT wrote that Facebook has discussed the initiative with major crypto exchange and wallet Coinbase. The article also notes that Facebook reportedly spoke with the Gemini exchange, which was founded by the Winklevoss twins, the well-known rivals of Facebook CEO Mark Zuckerberg.

According to the anonymous sources, Facebook has been conducting negotiations with major crypto-related firms in order to ensure that its long-rumored stablecoin is pegged to the value of the United States dollar and is liquid, tradeable and secure.

Other firms reportedly included Chicago’s leading high-frequency trading firms Jump and DRW, the report says.

All the parties mentioned above have declined to comment on the matter to the FT, with the report adding that the social media giant has required them to sign non-disclosure agreements.

While the BBC has recently reported that Facebook’s upcoming cryptocurrency will be focused on payments, the sources reportedly revealed that Globalcoin will be “bigger and more open” than just a payment method for purchases on Facebook. As previously reported, Facebook allegedly plans to integrate its three fully-owned applications — WhatsApp, Messenger and Instagram — to deliver its massively exposed cryptocurrency project.

According to the FT, industry experts claim that regulation will be Facebook’s biggest obstacle in delivering its own cryptocurrency.

On May 2, Facebook registered a new financial tech firm, Libra Networks LLC, in Geneva, which notably plans to offer services in finance and emerging technologies including payments, financing, identity management, data analysis, big data, blockchain and others.

Earlier in April, Cameron and Tyler Winklevoss came to an agreement with bitcoin (BTC) entrepreneur Charlie Shrem to end a lawsuit the twins filed against Shrem last year. The brothers had previously accused Shrem of stealing 5,000 bitcoin (worth about $40 million at press time).

Updated: 6-13-2019

Facebook’s New Cryptocurrency, Libra, Gets Big Backers

Visa, Mastercard, PayPal and Uber are among firms that will invest around $10 million each in consortium that will govern digital coin.

Facebook Inc. has signed up more than a dozen companies including Visa Inc., Mastercard Inc., PayPal Holdings Inc.and Uber Technologies Inc. to back a new cryptocurrency it plans to unveil next week and launch next year.

The financial and e-commerce companies, venture capitalists and telecommunications firms will invest around $10 million each in a consortium that will govern the digital coin, called Libra, according to people familiar with the matter. The money would be used to fund the creation of the coin, which will be pegged to a basket of government-issued currencies to avoid the wild swings that have dogged other cryptocurrencies, they said.

The Wall Street Journal reported last month that Facebook was recruiting backers to help start the crypto-based payments system and was seeking to raise as much as around $1 billion for the effort.

In the works for more than a year, the secretive project revolves around a digital coin that its users could send to each other and use to make purchases both on Facebook and across the internet.

Talks with some of the partners are ongoing, and the group’s eventual membership may change, the people added.

A Facebook spokeswoman declined to comment.

It has been a decade since bitcoin was born, yet consumers hardly use it—or the hundreds of other cryptocurrencies—to pay for things. Facebook is betting it can change that with a crypto-based payments system built around its giant social network and its billions of users.

It isn’t known, even to some members of the consortium, how the coin will work or what their roles will be, people familiar with the project said. Regulatory hurdles in the U.S. and elsewhere are high. Some members have expressed concerns that the token could be used to launder money and finance terrorist organizations, some of the people said, a persistent problem with bitcoin and other cryptocurrencies.

Facebook won’t directly control the coin, nor will the individual members of the consortium—known as the Libra Association. Some of the members could serve as “nodes” along the system that verify transactions and maintain records of them, creating a brand-new payments network, according to people familiar with the setup.

Financial-technology firm Stripe Inc., travel-reservation site Booking.com and Argentina-based e-commerce site MercadoLibre Inc. have signed on to the project, some of the people said, an indication of its international ambitions.

Keeping the cryptocurrency network separate from Facebook’s platform gives the social-media company some cover with users and regulators should problems arise, a big advantage at a time when it is under pressure to address privacy shortcomings. Yet Facebook, as the developer of the underlying technology, could exert considerable influence over it.

Still, the lure of Facebook’s nearly 2.4 billion monthly active users was too strong for many companies to pass up. Card companies have long fretted that a technology giant could muscle into their business, creating a payment option that cuts out card networks. Participating in Libra allows them to closely monitor Facebook’s payment ambitions while sharing in the upside should the project gain traction with consumers.

Facebook plans to release a white paper introducing the coin next week, according to people familiar with its plans, adopting a format popularized by bitcoin’s pseudonymous creator, Satoshi Nakamoto.

The company has asked consortium members to co-sign the paper, some of the people said.

Updated: 6-14-2019

Concerns Over Facebook Data Use Derailed At Least 3 Crypto Partnerships

Facebook’s GlobalCoin project, also known as Project Libra, may face significant hurdles as the social media giant works toward a prospective launch.

Despite reports that Facebook is gearing up to reveal its new cryptocurrency as early as next week, a source with knowledge of Facebook’s operations said the project’s software has a long way to go until it can be used. Sources attribute the delay to blockchain industry incumbents being reluctant to work on a project that doesn’t appear to have the hallmarks of a true cryptocurrency.

One source estimated that early 2020 would be a more realistic timeframe for testing, so any imminent announcements would merely be forward-looking plans.

Based on conversations with seven knowledgeable sources, CoinDesk confirmed Facebook’s plan is to connect users’ financial information to their personal Facebook profiles. Such data would likley be under Facebook’s control, hosted in company databases. There are even talks about integrating with external payment processors like Mastercard, which the Wall Street Journal reported has signed on to help finance the GlobalCoin project. In a call with CoinDesk, Facebook declined to comment.

Sources compared GlobalCoin to Alipay, which allows digital payments across social platforms yet is also associated with Chinese government surveillance, and cited political lobbying as a cornerstone of Facebook’s broader effort.

This has created a rift between various partners from the blockchain industry, which were reluctant to work on a project that offered users little control over their digital identities. Sources say Facebook entered fruitless talks with startups Tendermint and Stellar, then even expressed an interest in acquiring MobileCoin, the startup advised by Signal creator Moxie Marlinspike.

The above-mentioned teams declined to comment. In their absence, Facebook acquired the blockchain startup Chainspace, with a keen eye on its proprietary consensus algorithm.

Blockchain consultant Maya Zehavi told CoinDesk she is concerned the GlobalCoin consortium with Visa, Mastercard, PayPal and Facebook could create a system with limited accountability yet ample power to exclude individual users from commerce. Plus, there’s reportedly a $10 million minimum charge for prospective GlobalCoin node operators.

“They are creating an anti-competitive moat,” Zehavi said, adding:

“It creates a silo of data rails without any guarantees about data sharing among the different participants, and the computation being done to access the services. Meaning some computation being done could kick you out of Uber, Facebook and Shopify, if you become a risk-management issue.”

Strategic goals

Given this conflict between the cypherpunk ethos and Facebook’s public plans, the social media giant is allegedly using aggressive recruiting.

Facebook allegedly hired a team with several dozen cryptocurrency experts with annual compensation packages worth several million dollars each, one source said. It should be noted, however, this may be seen as a competitive rate for rare skill sets in Silicon Valley.

Meanwhile, Facebook is aggressively pursuing partnerships with global brands such as Uber, that may someday accept GlobalCoin. Since the majority of Facebook’s 2.38 billion monthly active users live outside the United States, such partnerships would be crucial for branding this cryptocurrency as a global asset rather than an American fintech initiative.

One consultant said that Facebook’s Instagram and WhatsApp acquisitions have put the company in a very different position than it was a decade ago. Plus, the public views bitcoin and other cryptocurrencies as more secure and private than traditional payment options, another source said explaining why Facebook may be marketing this revamp as a blockchain project.

Facebook declined to comment on how user data would be used or shared. It also declined to comment on how GlobalCoin accounts would be custodied.

“You’re creating a buffer zone of incumbents that can afford to participate,” Zehavi said of Facebook’s strategy. “Instead of creating a version of Stripe with data verification with privacy for developers to offer new applications and services.”

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