Facebook’s cryptocurrency “GlobalCoin” has been making serious rounds in the media lately as it has gotten a lot of attention. The white paper for the cryptocurrency being launched by one of the biggest social media platforms, Facebook, is going to be released very soon but before that happens, it is being speculated that Facebook’s GlobalCoin might just not truly be a “cryptocurrency”.
Nouriel Roubini, a renowned economist and crypto skeptic, recently floated this talk of GlobalCoin not being pure crypto as he stated:
It [GlobalCoin] has nothing to do with blockchain. Fully private, controlled, centralized, verified and authorized by a small number of permissioned nodes. So what is crypto or blockchain about it? None.
GlobalCoin aims to provide the world a crypto channel through the social media thus making it easier for people to participate in the blockchain ecosystem and send money across the world through digital transactions.
Since Facebook has billions of users and GlobalCoin is expected to introduce the crypto world to a major population in the world thus increasing the overall adoption of cryptos. But in order to understand this difference of GlobalCoin being a digital currency but still not being crypto, one needs to look at the basic pillars behind the crypto world.
Cryptocurrencies present forward the idea of decentralization. This is the major claim that the crypto world makes and it is often something that is looked upon suspiciously by some. Most of the systems that are seen nowadays are all centralized.
Be it Facebook, Twitter, YouTube or any other social media platform, these are centralized platforms where there is a centrally controlling party governing the platform holding on to the data of the users itself. Policies and guidelines set by the central parties in such networks have to be followed by all the users using them. In a blockchain-based system, this control possessed by a single party is decentralized as various nodes take up the responsibility of maintaining the network.
For example, one of the prime examples of a global cryptocurrency is bitcoin. The bitcoin network is not controlled by a single party and anyone can participate to maintain the network by acting as a node. The record of all the transactions happenings on the network is kept by every node and in this way, an open and transparent ecosystem is developed. But with Facebook’s GlobalCoin, this is not the case.
As suggested by Nouriel, the centralized nature of GlobalCoin does not make it “pure” crypto as the network is not public. Besides, it was recently reported that Facebook has been inviting external parties in its ecosystem to act as nodes. This idea of having permissioned nodes is against one of the basic principles of the crypto world: openness.
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GlobalCoin is also not pure crypto in the sense that it is expected to have pegs with multiple fiat currencies. With these pegs, problems of the traditional debt-based banking system automatically get inherited into the GlobalCoin world and hence another core principle of the crypto world gets violated.
Although confirmed details regarding the coin are expected to be released in the white paper, these speculations are also the ones that make the most sense for Facebook. The cryptocurrency world has been surrounded by a lot of controversies and scams. Owing to the decentralization, crypto also finds its usage in a lot of illegal activities like money laundering and usage in illegal online marketplaces like the ones on the dark web. Besides, the technology lying underneath the cryptocurrency world, blockchain, is still pretty nascent.
It has just been over a decade since bitcoin erupted out on the global scene challenging the centuries-old banking system and it is still engulfed in its problems on both technological and legislative fronts. Facebook has a need to avoid all this.
Facebook does not have a 100% working model of a public and fully decentralized cryptocurrency that does not possess its fair share of issues. In order to stay in the safe zone and avoid legislative issues so that various fraudulent activities are taken out of the picture, the move by Facebook of making its digital currency poised against a few core principles of the crypto world makes sense.
Despite the divergence, GlobalCoin is still expected to increase the adoption of the crypto space in the general public as more and more people across the world will get enlightened to the prospects offered by blockchain. It’s a give and take relationship. Although GlobalCoin might bring a lot of new people in the nascent crypto space increasing its adoption, it might just not be a pure “crypto”.