Facebook and Telegram Are Hoping to Succeed Where Bitcoin Failed
Eden Weingart |
SAN FRANCISCO —
Some of the world’s biggest internet messaging companies are hoping to
succeed where cryptocurrency start-ups have failed by introducing
mainstream consumers to the alternative world of digital coins.
The
internet outfits, including Facebook, Telegram and Signal, are planning
to roll out new cryptocurrencies over the next year that are meant to
allow users to send money to contacts on their messaging systems, like a
Venmo or PayPal that can move across international borders.
The
most anticipated but secretive project is underway at Facebook. The
company is working on a coin that users of WhatsApp, which Facebook
owns, could send to friends and family instantly, said five people
briefed on the effort who spoke on the condition of anonymity because of
confidentiality agreements.
The
Facebook project is far enough along that the social networking giant
has held conversations with cryptocurrency exchanges about selling the
Facebook coin to consumers, said four people briefed on the
negotiations.
Telegram, which
has an estimated 300 million users worldwide, is also working on a
digital coin. A coin is in the works that will work with Signal, an
encrypted messaging service that is popular among technologists and
privacy advocates. And so do the biggest messaging applications in South
Korea and Japan, Kakao and Line.
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The
messaging companies have a reach that dwarfs the backers of earlier
cryptocurrencies. Facebook and Telegram can make the digital wallets
used for cryptocurrencies available, in an instant, to hundreds of
millions of users.
All of the new
projects are going after a market that has already proved popular with
consumers. Venmo has taken off in the United States by making it easier
to send payments by phone. And in China, many consumers use the payment system that operates inside the hugely popular WeChat messaging system.
“It’s
pretty much the most fascinating thing happening in crypto right now,”
said Eric Meltzer, a co-founder of a cryptocurrency-focused venture
capital firm, Primitive Ventures. “They each have their own advantage in
this battle, and it will be insane to watch it go down.”
In
a statement, Facebook did not directly address its work on a digital
coin. The other companies declined to comment on their projects. Most of
them appear to be working on digital coins that could exist on a
decentralized network of computers, independent to some degree of the
companies that created them.
Like
Bitcoin, the new cryptocurrencies would make it easier to move money
between countries, particularly in the developing world where it is hard
for ordinary people to open bank accounts and buy things online. The
current designs being discussed generally do away with the
energy-guzzling mining process that Bitcoin relies on.
But
the messaging companies are likely to face many of the same regulatory
and technological hurdles that have kept Bitcoin from going mainstream.
The lack of a central authority over cryptocurrencies — a government or a
bank — has made them useful to criminals and scammers, and the designs
of the computer networks that manage them make it hard to handle
significant numbers of transactions.
“They
are all going to run up against these same types of technological
limits,” said Richard Ma, the chief executive of Quantstamp, a firm that
provides security audits for new cryptocurrencies.
The
companies are throwing significant resources into their projects, even
as the prices of cryptocurrencies have plunged over the last year.
Facebook
has more than 50 engineers working on its project, three people
familiar with the effort said. An industry website, The Block, has been keeping track of the steady flow of new job listings for the Facebook project.
The Facebook effort, which is being run by a former president of PayPal, David Marcus, started last year after Telegram raised an eye-popping $1.7 billion to fund its cryptocurrency project.
Facebook has
been coy about what it is building. The team is in an office with
separate key-card access so other Facebook employees cannot get in,
according to two Facebook employees.
Facebook
is looking at several ways to use the blockchain, the technology
introduced by Bitcoin that makes it possible to keep shared records of
financial transactions on several computers, rather than relying on one
big central player like PayPal or Visa.
The
five people who have been briefed on the Facebook team’s work said the
company’s most immediate product was likely to be a coin that would be
pegged to the value of traditional currencies, as Bloomberg first reported.
A
digital token with a stable value would not be attractive to
speculators — the main audience for cryptocurrencies so far — but it
would allow consumers to hold it and pay for things without worrying
about the value of the coin rising and falling.
Several other companies have recently introduced so-called stablecoins, linked to the value of the dollar. JPMorgan Chase even said it was experimenting with the concept last month.
Facebook
is looking at pegging the value of its coin to a basket of different
foreign currencies, rather than just the dollar, three people briefed on
the plans said. Facebook could guarantee the value of the coin by
backing every coin with a set number of dollars, euros and other
national currencies held in Facebook bank accounts.
The company is overhauling its messaging infrastructure,
which would connect three of its properties — Messenger, WhatsApp and
Instagram. That integration, which could take more than a year, would
extend the reach of Facebook’s digital currency across the 2.7 billion
people who use one of the three apps each month.
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The big question
facing Facebook is how much control it would retain over the digital
coin. If Facebook is responsible for approving every transaction and
keeping track of every user, it is not clear why it would need a
blockchain system, rather than a traditional, centralized system like
PayPal.
Working with cryptocurrency
exchanges would take at least some of the regulatory burden off
Facebook, since the exchanges would be responsible for holding the
digital coins and vetting customers.
But
if Facebook goes with a coin it does not entirely control, it will be
harder for the company to make money from transaction fees and easier
for criminals to use the coin for illegal purposes.
Facebook employees have told the exchanges that they are hoping to get a product out in the first half of the year.
The
coins from the other messaging companies are likely to look more like
traditional cryptocurrencies, with fluctuating values and a
decentralized design that would give users more control.
Telegram, which was started by a team of Russian exiles, has prided itself on thumbing its nose at governments.
This could help Telegram in places like Iran and Russia, where people —
especially dissidents — have difficulty using the traditional financial
system.
Telegram sent a letter to its investors
last month saying that it was 90 percent done with the key components
of the network that would house the Gram, the name for its digital
token.
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The
company has told investors that it hopes to have some version of the
system out in the next few months, according to two investors who spoke
on the condition of anonymity because of confidentiality agreements.
Another
team is building a digital token, Mobilecoin, designed to work inside
the privacy-focused messaging application Signal. The project raised $30
million last year and is trying to raise another $30 million, according
to three people briefed on the effort.
While
the founder of Signal, Moxie Marlinspike, is advising the effort, it is
being run independently of Signal. The project is a favorite of many
longtime cryptocurrency advocates because of strong privacy controls.
But
Mobilecoin, like the other projects underway, will still have to solve
the problems that have stopped all the other cryptocurrencies from
living up to expectations.
“The jury is still out” on their effectiveness, Mr. Ma of Quantstamp said.
By Nathaniel Popper and Mike Isaac / The New York Times
Follow Nathaniel Popper and Mike Isaac on Twitter: @nathanielpopper and @MikeIsaac.
A version of this article appears in print on , on Page B1 of the New York edition with the headline: Here Comes A Facebook Coin.
Correction:
An earlier version of this article misstated the relationship between the messaging service Signal and Mobilecoin, a digital coin now being developed. Mobilcoin will work with Signal, but it is being developed independently of Signal.
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