Though experts had speculated for over a year that Facebook was considering launching a cryptocurrency, this month’s news reports confirming the rumors still sent shockwaves through the industry. For the first time, a U.S. tech behemoth is attempting to go all in and mainstream blockchain technologies with the goal of revolutionizing online payments.
The buzz shouldn’t be surprising. Few people outside Facebook, if any, know exactly what it is planning, but according to reports, GlobalCoin, as it will be called, will be integrated into WhatsApp, and could even be used one day to reward Facebook users for time on the platform, watching ads, and facilitating mobile checkouts on Instagram and elsewhere across Facebook’s properties.
With Facebook’s 2.3 billion users, a GlobalCoin would almost immediately become one of the most popular currencies of any kind—crypto or fiat — in the world. And because Facebook could charge transaction fees for coin purchases, one Barclays analyst has estimated that the coin could generate up to $19 billion in additional revenue by 2021.
Facebook isn’t the only top-tier firm contemplating an entry into the crypto business, however. Amazon, too, has reportedly purchased three crypto-related domains including AmazonCryptocurrencies.com, AmazonEthereum.com, and AmazonCryptocurrency.com.
For obvious reasons, Amazon’s move is being compared to Facebook’s. With nearly universal name recognition (and usage) in the U.S., Amazon, too, would be a game changer for the mainstreaming of cryptoassets in the business world. It could even complicate efforts by the likes of JP Morgan to create a dominant cryptocurrency for use among institutional clients.
With all that said, Amazon’s move into the world of blockchain appears to be far from imminent. Though its customers are looking at ways to adopt the technology, the firm’s web-computing subsidiary, Amazon Web Services, is reportedly focused on assisting their efforts by launching a service to support and manage various blockchain networks using the open source frameworks Hyperledger Fabric and Ethereum.
At first blush, Amazon’s market play would be highly similar to FacebookCoin: a BezosCoin (my name) could enable a crypto-based payment infrastructure, obviating the need for country-specific websites and prices denominated in specific currencies. It could presumably be leveraged for cheaper cross-border payments and remittances. And customers could benefit from reward points and lower fees for viewing ads.
But Amazon isn’t just a digital firm. It is also the world’s largest retailer—and owner of WholeFoods. A functional cryptocurrency could consequently enable the company to further optimize its logistics—and potentially document the movement of any one (or all) of the 12 million products sold on the platform as well as the foodstuffs sold by WholeFoods stores.
It could also theoretically offer debit and other card services in ways that Facebook presumably couldn’t, or at least in a more integrated way. Unlike Facebook, Amazon wouldn’t need to find brick-and-mortar businesses to accept BezosCoin to expand into the physical world. It already has Whole Foods’ 500 grocery stores.
One blockchain expert I’ve spoken to has gone so far as to speculate that a BezosCoin could even serve as a first step in the transformation of the company’s financial bookkeeping and supply chain management: Amazon could use BezosCoin to buy 1,000 shoes for customers; its shoe supplier could take a subset of the BezosCoin it earns to pay for rubber, cloth, and employees; and the suppliers could then use those coins to pay for essentials on Amazon. Amazon’s role? Custodianship of fiat value and a big internal book transfer intermediary.
But Here’s the Catch
For all this to happen, however, Amazon would want to operate a blockchain capable of processing the nearly 300 transactions per second (and 20 million transactions per year) estimated to occur on the site. Certainly, Amazon wouldn’t be able to borrow bitcoin’s blockchain—which processes on average of three transactions a second—or leverage the ethereum platform, which supports just 15 transactions per second. And though much greater scale would be possible with a permissionless, private blockchain, executives have suggested that the technology necessary to service Amazon’s needs just isn’t there yet.
And even if it was capable of developing such a platform, the blockchain would have to be fully integrated into its business line to be cost effective.
Now all this requires some technical caveats when you get into the weeds. Payments of any kind tend to consist of two distinct processes—messaging and settlement. Messaging refers to the process whereby a receiving party or paying party indicates intent to transfer value. Settlement denotes the process whereby value is exchanged after accounts of the parties are updated.
Facebook and Amazon already have the messaging capacity—Facebook with WhatsApp, and Amazon with its internal protocols. It’s what makes cryptocurrency adoption by them exciting. Settlement is the real question. In theory, settlement doesn’t need to happen in real-time. From what I’ve heard, if either ever used a blockchain that can reach safe consensus within 5-10 seconds, they could “batch” those authorizations, do immediate netting, and settle using a blockchain-native settlement asset. It is near-immediate net settlement. But even this latency comprises a cost—and a source of risk if one party attempts to back out of a transaction or finds itself unable to honor an obligation.
Form over Substance?
This ultimately makes one wonder whether Facebook has something that Amazon doesn’t. Or if GlobalCoin will look a lot like that announced by JPMorgan—a stablecoin (a cryptocurrency pegged to the US dollar, or a basket of currencies) used on its platform as a virtual accounting system. Either case would be telling: the former revealing perhaps greater ingenuity and ambition than even the world’s greatest retailer; the latter illustrating a comparatively greater comfort with a big pubic launch of a modest (even simple) tool, and focusing on continual, incremental upgrades.