Facebook must prove it can be trusted with cryptocurrency

Facebook Inc’s development of its own cryptocurrency, reported by Bloomberg in December, has the potential to jumpstart adoption of digital tokens, such as bitcoin, but it also hints at a dark, dystopian future.

Whispers of Facebook’s foray into this new world have circulated for more than a year in cryptocurrency circles. But few had any idea what the company was up to. There are, after all, many applications for cryptocurrency and its related blockchain technology.

Citing anonymous sources, Bloomberg reported that Facebook is developing a so-called “stablecoin,” a type of cryptocurrency pegged to the U.S. dollar, for use in its WhatsApp messaging platform.

Facebook’s project seems to resemble the payment system in the popular WeChat, by China’s Tencent Holdings Ltd. While not using cryptocurrency, that payment method has been so prevalent in China that anyone still using cash is instantly marked as a tourist.

Facebook’s cryptocurrency has the potential to do that for the rest of the world. If it is even half as successful as WeChat Pay, it will probably become widely used, ingrained in people’s lives the same way the social network was.

Cryptocurrencies — of which bitcoin, which marks its 10-year anniversary on Thursday, was the first — operate without a central authority, letting users make peer-to-peer payments. With wide adoption, it can get rid of the transaction fees of debit and credit cards that merchants incur and bake into prices.

Facebook is perhaps the biggest mainstream player to embrace cryptocurrency on this level, and its move reaches the most people. It would bring the new technology to the attention of billions more, potentially sparking the great change in payment systems for which cryptocurrency enthusiasts had hoped.

But a Facebook cryptocurrency comes with a dark side. The technology giant would be able to glean much more than just the transactions people make; it would be able to combine and parse that information with personal details pulled from their social network profiles. That is powerful, priceless information that few have on a large scale.

While not legal tender in most countries, cryptocurrency, especially one with a stable price, functions just like money. By issuing it, Facebook also becomes a quasi-bank, with the great power that comes with it.

Control of a widely used stablecoin grants potential influence over prices, and the power that comes with that goes beyond cryptocurrency. With hedge funds that invest in cryptocurrency or related companies, and financial intuitions’ creation of bitcoin-backed investment instruments, the field of finance is increasingly intertwined with the new technology.

All that is not to say that Facebook has any malevolent intent. Its cryptocurrency is still “far” from done, Bloomberg reported, and its details are few. We do not yet know how the company intends to use the transactional data from its cryptocurrency, nor how it wants to wield its influence in the cryptocurrency sphere, if it wants to at all.

But we do know that Facebook has severely abused the great power it already has. In December, the New York Times reported that the technology giant let other companies see user’s private messages, among other intrusions. That was on top of the privacy scandals throughout the year.

In the Times’ report, Facebook’s own director of privacy and public policy said, “We know we’ve got work to do to regain people’s trust.”

Facebook has not shown that it is responsible enough to handle our personal information, much less become our bank.

Yet the technology giant’s foray into cryptocurrency represents perhaps the greatest union between the worlds of finance and technology. The old world merges with the new, coming under the same king. The technology giant has long been trying to move people to its services for as many aspects of their lives as possible — its own ecosystem, a Facebook world in which users do not have to step out — for that is where it gets is power. Pundits and politicians alike have called for considering antitrust laws to break up the company.

In developing a cryptocurrency, Facebook makes a great step toward becoming a sort of borderless corporation-government, with immense power that it has not yet proven it should have.

Ethan Lou is an early bitcoin investor and senior partner at the cryptocurrency firm Ocuis in Calgary.