Do consumers really need to pay their bills with cryptocurrencies?
Facebook announced its new cryptocurrency platform Libra
A recent spate of retail businesses like AT&T and Whole Foods have started accepting payment in Bitcoin.
Meanwhile, Facebook announced its new cryptocurrency platform Libra, with the goal of making one global digital currency that everyone can use to make payments and store money. Yet they all struggle to answer a basic question: do consumers really need to pay their bills with cryptocurrencies?
Cryptocurrencies present a unique problem for retailers. On the one hand, it makes sense to accept payments through any means possible, and currencies like Bitcoin can have much lower processing fees than bankcards, which saves companies like AT&T money.
On the other hand, almost no one is clamoring to pay for things with cryptocurrencies. When PornHub started accepting crypto payments — arguably the ideal use case for pseudonymous payments — less than 1% of its customers took the option.
Facebook's Libra platform is designed to help this problem by making cryptocurrency accessible to its billions of users across Facebook, Instagram, and WhatsApp. Libra is backed by major payment processors like Visa and MasterCard, and will be supported by companies like Spotify, Uber, and Lyft when it arrives in 2020.
Libra will be managed by the Libra Association, which means Facebook won't have sole control over it, but it will build its own wallet and payment apps on top of Libra that will give its billions of users the ability to store money and make payments with the currency.
First, though, Facebook will have to convince people they want to buy and pay for things with Libra in the first place.
There are two basic problems with using a cryptocurrency to pay your everyday bills: acquiring the cryptocurrency in the first place, and knowing how much what you have is worth. Anyone who has ever traveled to a country with a different currency might be familiar with this pain.
How many shillings is one-dollar worth? Where do you go to trade your shillings for Euros? In addition, how much is that going to cost me?
If all of this sounds like its way more complicated than just, you know, paying your bill with a bankcard, that is because it is.
Payment systems like Flexa and BitPay are designed to simplify this process for typical cryptocurrencies. Users can connect their crypto wallets to these services, and companies like AT&T and Whole Foods can collaborate with these payment processors to accept those currencies as payments.
BitPay even lets you convert your Bitcoin to dollars so you can pay with a prepaid Visa card. If you don't already have any cryptocurrency, you can use services like Coinbase to buy some with the money you already have, then transfer it to services like BitPay.
If all of that sounds like its way more complicated than just, you know, paying your bill with a credit card, that is because it is. In non-technical language, [crypto] is less like a currency you use to pay your bills and more like investing in a particularly volatile stock market.
According to a joint study by Survey Monkey and the Global Blockchain Business Council in 2018, only 5% of Americans owned any Bitcoin, to begin with, and an overwhelming percentage of those who did view it as a growth investment rather than a store of value.
Cryptocurrencies like Bitcoin behave more like investments because they have very little stability. At its peak in December 2017, one Bitcoin was worth around $20,000 USD. Six months ago it was worth $3,500. Today, it is in the area of $14,000, although by the time you read this it could be significantly higher or lower.
If you can buy low and sell high (not always an easy trick to pull off though), then you can make money trading Bitcoin. For speculative investors, it's an exhilarating asset that exists in a legally murky area with potential for great gains or huge losses.
None of that, however, translates to the kind of currency you'd want to use to pay your bills. When your AT&T bill is due, you need to pay whatever the Bitcoin equivalent of your shs100000 phone bill is.
Whether the value of your Bitcoin is high or low doesn't really matter. Your bill is due. If the value is down that day, then you're out of luck. You're forced to realize those losses or your phone gets turned off.
Typically, people don't pay their bills using assets that vary in value for precisely this reason. No one uses, for example, Apple stock to pay their bills because there's no telling what it will be worth in the future. If the shs100000 worth of Bitcoin you spend on your AT&T bill today is worth shs2000000 in a year, then you have wasted money.
It was exactly this kind of volatility that led to gaming storefront Steam dropping support for Bitcoin payments in 2017. According to the company, customers would transfer money to pay for a game, and by the time the transaction could be completed, the value of the Bitcoin they used had changed "significantly."
BitPay, Steam's former partner, currently tries to fight this by locking in the exchange rate during the transaction, but it can't control the value of Bitcoin once the transaction is over.
Facebook's new Libra system is designed to reduce that volatility by tying its cryptocurrency to existing fiat-based currencies. Libra is backed by currencies like the U.S. dollar, so as long as the dollar continues to be worth something in the global marketplace, so will your Libra coins.
That could make it easier to at least complete your transaction when paying for something with cryptocurrency, but it doesn't solve all of the problems.
Even if Libra is more stable than, say, Bitcoin, using it still involves extra steps overpaying for something with regular money. You get paid in regular currency, convert that currency into Libra coins, then hope that whatever services you need to pay for accepting Libra. Until then, your money is stored within one of Facebook's (or some other company's) apps and can't be used at most stores. So why not just keep your money in a regular bank and use a debit or credit card?
For starters, not everyone has access to a bank or credit card. According to a 2017 survey by the Federal Deposit Insurance Corporation (or FDIC), 6.5% of households in the U.S. alone were "unbanked" meaning they had no accounts at any banking institutions. Worldwide, 1.7 billion adults remain unbanked, especially among developing nations.
Facebook and the Libra Association are banking (quite literally) on the notion that these groups will find a stable cryptocurrency useful. It costs nothing to store your money in a cryptocurrency wallet, unlike banks which may require a minimum balance or charge a monthly fee. If payment fees are low, and more companies accept Libra payments, then maybe the platform can bring modern banking conveniences to the next billion people on the planet.
In developed nations with strong financial infrastructure, though, the cryptocurrencies still make little sense for daily life. In the best case scenario, it's a novel, if slightly inconvenient way to pay your bills by funneling your money through a secondary currency.
In the worst cases, the fluctuating value of currencies like Bitcoin can make even basic payment logistics impossible. There may be edge cases where cryptocurrencies are useful as investment vehicles or pseudonymous payments, but for now, even Libra doesn't seem well positioned to make cryptocurrencies a part of your everyday life. Even then, there remains this unanswered question. Will Libra and Calibra really be "decentralized"?
In a nutshell, what do you need to know? Libra coin or cryptocurrency and it's calibra and Facebook have been stopped for now, by US government.
In case you had gotten excited about this, now you get to understand that it's not just that easy to wake up and say you want to bring change to the current monetary system.
Only Bitcoin managed to do this because they had no one to warn or stop, and it has passed through all forms of attacks but is now over 10,000 times stronger than the dollar and no one can stop it, everyone who tries will find out facts about it and will just surrender and buy some Bitcoin for themselves.
The US government owns a good number of Bitcoin, on record. Russia does, all the big economies and banks do own Bitcoin even those which haven't revealed to anyone.
Someone will ask which African government owns Bitcoin? South African government should, they have been very positive. If they don't own some as government, we all know the president has.
Many presidents in Africa obviously have Bitcoin, am sure the President of Uganda has, remember he, last year, announced that he would open the Largest Bitcoin exchange in Africa right here in Uganda. I hope you know that this was effected last year.
In December of 2018, Facebook announced a WhatsApp stablecoin integration in the works, with a focus on India, a market with over $69 billion in remittances. But don't be fooled by Facebook's use of the term "crypto", this is nothing like decentralized crypto your grandson told you about. A Libra Consortium Does Not Guarantee "Decentralization"
Libra blockchain will be Byzantine fault-tolerant, meaning faulty behavior by some of the actors in the network will not compromise the security of the broader network.
Facebook is attacking banks and crypto in the same swoop, all the while pretending to be collaborative. If that does not mirror Silicon Valley's deceptive tactics, I don't know what does. We need real leadership in the valley, not these gimmicks.
When CNBC and crypto influencers are raving about what a great idea this is, you know something is very wrong. It might make them rich, but that doesn't mean it's a good thing. Mark Zuckerberg is not seen as a savior; he is seen as a criminal by the majority of cryptocurrency enthusiasts.
You can pretend you are a lot of things that you are not, but that doesn't make you a good business leader of the technology company we'll want to bank with. That makes you the kind of company that's difficult to trust.