Facebook’s involvement in digital currency may be just for transformation, but it has created a big problem for global central banks.

Facebook is struggling in a difficult situation.

It has just escaped: the Cambridge data analysis incident in early 2018 almost caused it to be split. In early July, the leak scandal came to an end with a US$5 billion fine from the US Federal Trade Commission. But in the past few years, Facebook’s intervention in the elections and the use of various means to crack down on the scandals of competitors like Google are still like clouds.

On the second day after it was fined, Facebook announced its second quarter earnings report. A $5 billion fine was included in the audit, which reduced net profit for the quarter by 49% year-on-year. However, the problem that can be solved with a fine is not a real problem. The real problem is that Facebook’s monthly and daily users are only 8%, showing a continuous slowdown.

In addition, Facebook’s total revenue for the quarter was $16.86 billion, of which advertising revenue accounted for $16.624 billion. Its advertising revenue has long accounted for more than 90% of total revenue, and relying heavily on advertising is a lifeblood of Facebook’s business model. Although advertising revenue has not yet seen a decline in growth rate, but under the internal and external difficulties, Facebook’s development path needs to change.

Another kind of traffic is realized

The question is, how do you change?

Since 2011, Facebook has always wanted to realize the traffic of another way by doing third-party payment, and the result is repeated defeats. This time Zuckerberg is still indifferent, just going farther than before: directly from the payment into the currency.

Focus Analysis | Facebook Money to Survive, but dig a regulatory pit

Facebook’s attempts in the payments field over the years. Source: Evergrande Institute

When the Facebook scandal reached its climax in 2018, it began silently preparing for the release of the digital cryptocurrency Libra (also translated as Libra). According to Paypal, CEO of the Libra Association, Schulman, in early August, Libra will be released early next year.

Using Libra for tradingAnd settlement, it looks beautiful. The handling fee for credit card payment and cross-border remittance overseas in China is extremely high, and the efficiency is low. It can’t be received within 24 hours. Libra, which uses blockchain technology, theoretically has a remittance rate that is less than half of the traditional rate, and the arrival time is measured in seconds. In addition, Facebook also stated in the Libra white paper that Libra can provide financial services to at least 500 million members who have difficulty accessing banking services. This puts a layer of ethical cloak on Libra’s release.

The same is the digital cryptocurrency. The number of Bitcoin issued is limited to 21 million. There is no over-issue, but there is a lack of credit collateral, and the price has soared. Libra linked a basket of bank deposits to short-term bonds to ensure a stable currency.

From a user perspective, Libra’s experience is not bad. Zhang Xiaochen, founder of the Fintech4Good website in the United States, who is engaged in digital currency and blockchain research, said: “The first step is to open an account with Facebook’s Calibra digital wallet and then bind the bank account. Then you can use the local currency to buy Libra. Then you can Use WeChat to make the appropriate payment or transaction.”

The maturity of blockchain technology has made it possible for Facebook to issue digital cryptocurrencies globally. Judging from Facebook’s previous payment attempts, it hopes to realize the closed loop of e-commerce and social business by paying or even directly using Libra. In addition, Libra’s plan includes the release of Libra Investment Token. This means that Libra may extend to the financial sector in the future, in addition to the two functions of money payment and calculation.

From the perspective of Facebook itself, the financial business will be a rich mine that can be tapped.

The distress of “super sovereign currency”

The key is that things are not that simple.

Facebook Credits that Facebook had previously done was a kind of virtual currency, and the US regulators who were warned were stopped. The Whatsapp Pay that was later made was also officially stopped in India. The result of repeated trampling on the red line has turned almost all central banks into natural enemies of Facebook. This time is no exception.

“Facebook is dangerous!” Senator Brown said this in the mid-July US Congress hearing on Libra. Brown described that Facebook is like a child who just learned to walk, holding a match in his hand.

This match is a lot of user, user data and blockchain technology in Facebook. It has 2.4 billion monthly users in more than 130 countries and regions, and the population is roughly equivalent to the population of the United States, Europe and India.sum. It’s natural to be wary of how the infamous Facebook applies relevant technologies and data. However, the regulator’s high attention to Facebook is related to Libra’s own interests. Libra’s use will cross national borders, with pricing, distribution, trading and reserves in the hands of the Libra Association, and rulemaking depends on approximately 100 members. Most of these members are financial, consumer and Internet companies, perfectly bypassing the central bank’s central bank supervision system led by the Federal Reserve.

So it is also known as “super sovereign currency.”

Focus Analysis | Facebook Money to Survive, but to dig a regulatory pit

Libra Digital Currency System. Source: Zhongtai Securities

This means that Libra itself has traditional financial risks such as over-issue, run-down and privacy security, as well as the fragile legal system of small countries, depriving them of the political risk of monetary sovereignty, not to mention that it can be used for illegal finance such as money laundering. behavior. From a broader perspective, Libra has the potential to change the global monetary system. The uncertainty it brings is hard to predict. Therefore, even US President Trump also said: “It must obtain a new banking license and be bound by banking rules.”

Under pressure, perhaps to show the meaning of Libra’s existence, Libra co-founder Marcus did not object when asked at the hearing whether Libra would compete with China’s Alipay and WeChat payments. As a result, this attitude also triggered a discussion in China.

Because Facebook outside the door is unable to participate in the Chinese domestic market. Therefore, Marcus’s intention is probably to imply that Libra has a competitive relationship with Alipay and WeChat payment in overseas markets.

However, this so-called competitive relationship is a way of confusing the concept. An analyst who asked not to be named said: “The two cannot be compared. Libra is a cryptocurrency, while Alipay and WeChat payment are e-wallets.”

Butterfly effect

If Libra is successfully released, it will open a precedent for large multinational Internet companies to issue digital cryptocurrencies and apply them to the C-side. The impact of Libra’s concept may be beyond Facebook’s control.

In 2018, companies including JP Morgan Chase and IBM pushedB2B’s digital cryptocurrency was used for small-scale applications. Some large Internet platforms have turned to digital currency to C this year. After Facebook, Japan’s social media LINE began an attempt to establish a digital cryptocurrency ecosystem in June this year. The most recent follower is the US retail giant Wal-Mart. On August 1st, Bloomberg reported that Wal-Mart had applied for a patent for “systems and methods for realizing digital currency through blockchains”.

From Wal-Mart’s application materials, the digital cryptocurrency it plans is simpler than Libra. The digital cryptocurrency holding Wal-Mart is more like a recharge card with Wal-Mart. On the surface, this currency is only a token of Wal-Mart, but its information is protected by blockchain technology, its currency is pegged to the US dollar, and it can be extended to the credit field, with a borrowing function in the future.

Because Wal-Mart and its partners are located all over the world, its digital cryptocurrency can be used in the global Wal-Mart ecosystem.

In fact, regardless of how much the proposed digital cryptocurrency of Wal-Mart differs from Libra, the two have the following common features in the application scenario: 1. Have online and offline settlement capabilities; 2. Have The function of cross-border remittance; 3. Future or financial lending function.

Although Wal-Mart said it has no plans to issue digital cryptocurrencies. But Internet giants, who are not lacking in data and technology, can replicate similar currency models and continue to create problems for central banks over the regulation of digital cryptocurrencies. “Facebook has opened up a new era. (The currency) trend will become more and more obvious.” Zhang Xiaochen believes. This will force global central banks to sit together and coordinate the laws and policies of digital cryptocurrencies.

When the trend opens, Libra’s own success is not so important.

Who can think of it? When a user turns on the phone and uses digital cryptocurrency to transfer money or purchase an item, it may trigger a butterfly effect.