Facebook is taking the plunge.
Behind closed doors and under a veil of not-so-secret hush-hush, they’re preparing to launch their own “cryptocurrency.”
No one on the outside seems to know what a Facebook coin will look like. But some experts and media observers have already responded with great fanfare.
“The Facebook coin promises to succeed where Bitcoin failed,” they rant. “With billions of users, the Facebook coin is going to roar to the top,” they rave.
They’re making three basic conceptual mistakes …
Mistake #1
They seem to think Bitcoin is down for the count.
Far from it!
Bitcoin was created with a fundamental promise — to create an open, public, shared database; to remove the need to trust any third party with sensitive data; and to transfer money securely, privately and permanently.
That promise has been fulfilled in its entirety.
Bitcoin lives on an open, public distributed ledger, shared by countless users.
There are no third parties involved. The miners who operate the network don’t even know — or care — who is sending and receiving the Bitcoin. All they do is verify that each transaction follows the rules of the network.
The network has never been hacked.
The underlying technology — blockchain or Distributed Ledger Technology — has never allowed a single leak of confidential information.
All personal data is encrypted, private and secure.
Then, once the transaction is written on the blockchain, the record stays there forever. No one has the authority — or ability — to change it.
If you use the Bitcoin network for a transaction — no matter how big or small — you reap the benefits:
- You don’t have to trust a soul.
- You don’t care who the miners are or how your transaction reaches them. All you know is that you have a valid signature, authorized to spend your funds.
- And you can send those funds to whomever you want.
This makes the Bitcoin network a trustless system. In other words, you never have to trust any central authority or intermediaries to handle your money — not even to enforce the rules.
Result: Today, Bitcoin’s adoption is stronger than ever. Transaction volume has doubled in the past year. Transaction fees are now much more affordable. And Bitcoin’s Lightning Network has grown steadily from the day it was launched.
Mistake #2
They think Facebook is compatible with
public open ledgers like Bitcoin’s.
It’s not. The Facebook business model is based on collecting vast amounts of personal data from users and selling it to the highest bidder.
User data is their single most valuable asset. And all the data is owned, controlled and monetized exclusively by the company.
Moreover, despite Facebook’s apologies for a never-ending series of privacy abuses, that business model is not changing.
So, how can Facebook marry a private, closed, centralized business with a public, open, decentralized technology? It’s a head-scratcher. In fact, CEO Mark Zuckerberg himself says he hasn’t “figured out a way to make this work out.”
Actually, there’s only one path: Facebook creates a digital asset backed with U.S. dollars stashed in its bank account.
This puts the digital assets on a computer network that it fully controls. And it winds up with a fully centralized payment system that’s essentially no different from Visa’s or PayPal’s.
Mistake #3
They think Facebook can at least use blockchain technology.
The idea is that Facebook will adopt and adapt blockchain. It will use it to create tamper-proof records. And the technology will somehow make its social media platform more secure or more private.
Truth be told, the main reason cryptocurrency records are more secure and more private is not because they use blockchain or other Distributed Ledger Technologies. It’s because no central authority controls them; no one has the authority to change or remove them.
They’re tamper-proof only because there are no owners or controllers who could do the tampering.
Once you uproot that technology from its native system and transplant it to a centrally controlled organization like Facebook, the security and privacy benefits are largely out the window.
Like planting an evergreen in the desert. Like installing a Boeing 777 jet engine on the 180-meter Azzam yacht.
It just doesn’t work.
Best,
Juan