The Facecoin Concept & Visualizing Economies of Scale
Recently, I had the pleasure of having a friend come over who wanted to talk until the cows came home about Bitcoin, and cryptoeconomics. Over the years I have realized that as I learn more about cryptocurrency, the more I enjoy talking about it with the unindoctrinated, the skeptics, and the outright non-believers. I look at these conversations as a test of my knowledge on the subject. While my friend came with most of the expected questions on cryptocurrency, perhaps the one that I found to be the most interesting was "well what about a company like Facebook creating Facecoin?"
I like this question, and not for the fact that I cannot answer it, but rather, for the fact that nobody has ever asked me this question before. It is evident, hence, that the current narratives surrounding Bitcoin concern what it is, do people need it, and whether it is over valued. The average person, however, rarely ever manages to take their comprehension of cryptocurrency all the way to the overall direction that the space is moving in. Usually, it takes one conversation alone about "what Bitcoin is" before getting the chance to truly delve some more complex topics and philosophies… More times than not, people don't want to have these conversations.
But the Facecoin concept is more important than it seems on the surface. Generally, the question is "what is to keep a company like Facebook or Google from creating their own cryptocurrency that would compete with Bitcoin?"
The short answer to this question is: absolutely nothing, and that is completely fine.
To understand this, we have to look at the ways that we currently look at economics relative to the direction we are being moved in as a society via cryptoeconomics. Generally speaking, we understand economies relative to macro factors and micro factors: that the economy functions with respect to different layers of operation--from the governments that issue currency and set interest rates, to the businesses that create jobs, and the people who work these jobs and simultaneously serve as a consumer base in this environment. Furthermore, these different levels function at different proportions of economic scale. Individuals and businesses operate at the level of communities, while governments and banks transact at the level of nations, with all parties expressing proportionate degrees of cause and effect. Obviously, it should be understood that the degree of effect that a government has on an environment has been historically understood as absolute, thus, government's degree of influence within an economic landscape typically extends to the lowest common denominator: money.
Because money has always come from a singular source, people have always known society where money, and the ability to transfer value, as truly a "this or that" affair. It is something that either everybody agrees to use, or nobody uses. Money, when within the borders of any country, has always been perceived as a zero sum game. Typically, given this context, that is why exchanging currency in a foreign country has always made sense: because regardless of how strong a foreigners home currency is or is not, on the virtue of visiting another government, the people under this government have agreed to use something else. However, most people do not see the logic in holding multiple national currencies because if their home currency is what everybody has agreed to use, then what is the point unless they are regularly travelling to the nation's where their foreign money is from?
This is to say that money is not only the most absolute form of individual expression, but it is also the most absolute form of governmental expression. The extent of it's use is literally corelated to the expansiveness of a nation's borders, or military dominion. Thus, economic expression in the form of business, has always been a game that has occurred on the government's court, so to speak. Businesses do their transactions in the government currency, get taxed in the government currency, create jobs in the government currency and render services in it. This is to say that micro economics are always subject to the movements of macro economics, for better or for worse. This can come in the form of jobs development, currency devaluation or interest rate setting, all of which affect able bodied workers who are also prospective consumers, and constitute the general base of economic demand.
"The Facecoin Concept," relative to the ideas of macroeconomics and microeconomics, presents the idea of "private economics."
But first, let's take the time to define what a private economy even is. A private economy is any Tier 2-Tier 4 community of producers and consumers transacting with one another in a privately run economic feedback loop.
To understand this definition, we must understand the respective tiers of the economy. Tier 1 is the government. Tier 2 are banks. Tier 3 is privately run businesses, while Tier 4 consists of individuals. Per the definition, we can see that a private economy is any kind of economy that is not established via government reform, intervention or legislative effort. While this definition may seem to lump in currencies such as Bitcoin, the key aspect to Bitcoin that prevents it from being recognized as a private economy is the fact that it is publicly run and managed by a community of over 100,000 developers. Furthermore, all advancements and implementations of innovations must occur through a consensus, meaning that innovation is no single person or board's decision.
Perhaps the biggest differentiator is the fact that while tokens such as Bitcoin represent protocols, private economies represent products. This is the case because a private economy traditionally has a company connected to it with profit and loss estimates, a CEO, and a board of directors. Public economies, such as Bitcoin, do not. Bitcoin does not have any formal profit and loss expectations, does not have a board of directors and Bitcoin does not have a CEO trying to fit Bitcoin into a greater corporate agenda.
Perhaps the major difference between protocols and products is the fact that products can be controlled by a singular source from an centralized location, while protocols cannot. Something such as Facebook, could shutdown Facecoin if they were to issue it, because Facecoin is an extension of the Facebook ecosystem. By contrast, however, no one company can shut down the Hypertext Transfer Protocol, not even the proverbial "providers" of the internet.
Understanding these different levels of control allows for us to look at the financial space with more verticality, and begin considering Bitcoin and cryptocurrency as a whole with respect to a layered economy.
To understand this trajectory, we should compare Bitcoin to a network of comparable influence: the internet. As I have alluded to in previous posts, what we are in right now is what I have referred to as the 56k days of Bitcoin. More accurately, however, we can call the space we are in "Bitcoin 1-Meg." If we were to take "56k Internet" and juxtapose it next to "Bitcoin 1-meg" we begin to see some things: the first is that in both spaces, e-commerce applications were few and far between during their initial phases. Secondly, the scope of applications began to change the moment people began having democratized, uninterrupted, and speedy access to the internet. It was only after the incorporation of DSL and cable into the american home, that services such as eBay, PayPal, Google and Amazon began to enter the fold. Furthermore, think of the things that could not be done without democratized, uninterrupted and speedy access to the internet? Yeah, no more Netflix and chill. No more Xbox Live. No more Instagram.
The reality of the Bitcoin space is that if one was to suggest cryptocurrency was doomed to go nowhere, and on the premise of transactional efficiency, that misses the point. It's like having a conversation about the usefulness of a car based on how fast it drives. I don't bring up these comparisons to rehash points I have made in previous articles. Rather, it is intended to drive home the idea of cryptocurrency being a space growing due to future utility, and only after a certain point will there be actual utility for the growth.
Just as much as Etherium Kitties proved that one of these uses is for game development, one of the intended utilities is commerce.
Insosfar, I believe many people think about this in a fairly 2-dimensional light: mostly that protocols such as Bitcoin will make it as far as being used in the bulk of online transactions. While this may, or may not, be true, what can be made certain is that cryptocurrency is changing the ways in which consumers, producers and governments interact with one another.
Bitcoin's adoption curve is currently positioning it as the foundational currency for the crypto economy. This applies to corporations, services, projects and other value transfer tokens. But if we were to again visit the idea of the internet as a political or geographic territory, with Bitcoin as it's territorial currency, the internet functions much like a continent. Internet users are citizens of this continent. But let's take this analogy a little bit further and ask ourselves what would constitute as a nation within this continent?
One of the characteristics of nations is that they typically manage full economic and productivity feedback loops. In other words, nations provide the means through which commerce is allowed to occur, such as money, and the necessary regulatory conditions, or absence of, to facilitate the existence of certain business types and consumer types.
A basic example of how this works would be how the US government issues dollars, but prohibits the use of dollars to buy illegal street drugs. While this prohibition doesn't stop the sale of street drugs, it does disincentivize their purchase with criminal offenses, and in turn, reduces the overall impression rate that a drug dealer would have relative to if they were allowed to run a store front.
So let's take this example and apply it to a corporation. Corporations such as Amazon, Google and Facebook already have the means to be classified as nations within the internet space. Firstly, they have user bases that are comparable to the citizenship of nations. This level of access to other people means that these companies are already providing the tools through which commerce can occur. When you sign up for a web account and agree to the terms of service agreement, like a nation, the TOS explicitly details what types of businesses are allowed on the platform. This means that corporations are providing the inherent rules and regulations surrounding which businesses are allowed to operate, and by extension, what types of consumers can patronize the marketplace. These complimentary factors such as having a network, a marketplace, and terms of service means that many of these networks already exist with near-complete economic feedback loops.
Incorporating cryptocurrency into the corporate space would complete this feedback loop, as crypto would be met with tried and true e-commerce applications, but it would do some other things as well. As stated before, nations provide the means through which commerce is allowed to occur, met with the necessary regulatory conditions, or absence of, to facilitate the existence of certain types of businesses. But if one of the primary means through which nations facilitate commerce is through the issuance of money, then that means the current system is designed to asymmetrically benefit some groups of people, and not others.
The reason why is because the success of corporations currently has much to do with the overall success of the nation in which they are based or founded. This is something that most Americans do not ever consider. But let's consider startups, for example, and ask ourselves what would a company like Facebook be like if they were not an American corporation, and were in fact, from Zimbabwe? Even if Facebook was the exact same idea, it would be confronted with significant and near-impossible hurdles to clear in order to achieve the same level of success. Aside from differences in sheer access to seed capital, there is the issue of not having access to the same media outlets and promotional means as the western market. Because a Zimbabwean corporation would have issues obtaining reach in Western outlets which, would in turn, lead to greater adoption, Facebook would be relegated to starting it's entire user base in Zimbabwe. This means a lower target market, as Zimbabwe is a significantly smaller country than the United States, and this market would only get smaller once internet users were factored in. So then let's ask the final question: what would this small slice of users be transacting with one another in while buying apps, and selling goods on Facebook? Zimbabwean dollars, which are worthless, that would ultimately be stored in a Zimbabwean bank, that is debatably solvent... Oh yeah, and this example assumes that the gross disparities between first world and third world banking do not exist, which they most certainly do.
All of this is to suggest that the centralized macro economy, whether intentionally or unintentionally, suffers significant issues related to scaling. Much of this has to do with the fact that politicians and corporations alike have been vehemently trying to sustain an economy that is modeled after the socioeconomic topography of the 1950's. Namely, that money was backed by a fixed resource, and entire demographics of people were intentionally left out of the economy. While today, we see systems such as racial segregation and gender-based discrimination as a glitch, in the bygone era, it was a feature, and one that secured banking opportunities, monetary incentives, and job prospects almost entirely for the demographic of people such a system was intended to benefit. We can even see that on a geopolitical level, countries that fell in line with this same demographic are usually the ones that have traditionally benefitted the most from this system.
Applying cryptocurrency to privatized models would lend corporations in disadvantaged parts of the world the necessary degrees of access to quality streams of capital. In turn, this would allow for more competition. An example of how this is beginning to happen, is via the ICO craze that has gripped the entire cryptocurrency industry. While ICOs present many of their own risks, what they also prove is that fundraising is now something that can occur in decentralized, borderless environments. Decentralization matters to the commerce development space because companies in disadvantaged parts of the world tend to suffer under economies based on centralized value systems. Thus, if a corporation's basis of value is defined by it's relatively to a borderless network of value, then all of a sudden, fundraising, promotional, and commercial opportunities are able to exist far outside of the economic framework of a country's borders.
This brings us to our final question: why would someone opt to use Facecoin instead of other tried and true payment methods such as Visa and MasterCard, and could something like Facecoin ever overtake Bitcoin?
To answer this question in the simplest of ways, someone would opt to use Facecoin because someone else would be willing to accept it. What determines value for people and entities is not subjective value, where one party tells another party that a basket of goods is desireable, but objective value, where more than one party can mutually agree on the desireability of a product or commodity. Facecoin would be valuable because the Facebook network is valuable, and people already use it for economic reasons. Because people and businesses already have access to this service, Facecoin would have some of he greatest coverage out of the gate, turning each Facebook user into a bank, and each Facebook business into a point of sale location. So, for instance, if I went to the local bar in my community with a Facebook page, I could simply pay the bar in Facecoin using the unique QR code on the businesses like page, and from that like page, I can tip the employees that are currently checked in as being on the job.
Facecoin, compared to other cryptoeconomic networks, would have frighteningly high levels of coverage if it were to ever be created. But would it be capable of competing with Bitcoin for economic dominance? The short answer is no.
The reason for this is because any fundamental analysis of cryptocurrency suggests that its greatest value proposition is found in its decentralized protocol. Why is decentralization one of crypto's greatest characteristics? Because if a network or organization does not have a concentrated point of origin, then there is no way to proverbially shut the network off. This feature is what allows for people to hold, invest, and save their assets in Bitcoin: because no one person wields the power to shut it down.
Inversely, Facecoin would come from a centralized service. Even if Facecoin were to allow a form of mining to gradually proliferate itself into the marketplace, the fact that Facecoin has a centralized platform (Facebook), and centralized developer base would mean that Facebook would still have the necessary levels of control to determine whether or not such a product can, or should, exist. So if a network of people are using Facecoin to transact with one another on Facebook, and the government told Mark Zuckerberg that Facecoin should be shut down, then millions of users are now immediately destitute.
But building cryptoeconomic systems on pre-existing networks should not be assessed from the vantage point of what companies have the ability to dethrone Bitcoin, but rather, what companies have the ability to add on top of Bitcoin. Having access to multiple currencies, relative to the fiat system, makes sense in cryptoeconomics because each currency can have a different application or penetration rate. The best example of how this already works with traditional payment systems is how payment cards work. Different networks are used by different groups of people, and have different levels of penetration across a collection of storefronts. While Visa is accepted in almost any store in America, people don't look at it as a glitch in the event that a business accepts Visa and American Express, or American Express and MasterCard, or Master Card and Diners Club, or fuck it, all of the mentioned providers.
The key, however, is that card companies operate on top of the fiat economic system. People are not under any kinds of illusions that companies like Visa or MasterCard invented fiat money. People understand that these services are designed to be used on top of the pre existing economic system. Looking at this within the context of Cryptocurrency, a product like Facecoin would be a lot like Visa. While it is a centralized platform, it would be an essential payment service, and because of it's levels of inherent coverage and usability. Furthermore, this system, like the card system, would still have a business or entity that serves as an end all be all for payments. In the future, it would not be unusual to step into a business that will accept multiple currencies such as Litecoin, Dash and Bitcoin, as well as centralized products such as Facecoin, Applecoin & Google Coin… This phenomenon will be no different than the way card providers, and their commeasurate levels of coverage, work today.
The problem with today's investors is that their current assessment of cryptoeconomics and cryptocurrency is almost entirely from the vantage point of zero-sum macroeconomics. In other words, much of the premise upon which investors place their money in cryptocurrency, largely originates from the standpoint of trying to find the "one coin to rule them all." For these investors, many of them are in a pursuit to find the one dominant crypto that will be used as tomorrows money, and assess this from the idea that there can, or will, only be one crypto that will be used as brick and mortar currency.
The problem with zero-sum macroeconomics is that it is a fairly incongruous school of thought to hold whilst assessing the landscape of cryptoeconomics. The reality of cryptoeconomics is that it is more likely than not, that the space will be dominated by half a dozen, or even a dozen cryptocurrencies. Some of these will be due to penetration rate, others will be embraced due to variances in demographic interest. Thus, the fashion in which the cryptoeconomy should be assessed, is not from the vantage point of which currencies will topple Bitcoin, but rather, which currencies have the greatest potential of mimicking Bitcoin's s-curve network adoption effect.
It is on this note, that the Facecoin concept is possible, but not necessarily disruptive... At least, to the cryptoeconomy. While Facecoin could, and should, be created, it is important to assess the amount of actual power that corporations truly have in influencing this space. While many people hypothesize that corporations could dominate the cryptocurrency space, I have counterfactually contended that they would not... But as I said before, that is not the point. The greater point of having corporate involvement is to not to beat Bitcoin, or increase its penetration rate, but rather, to increase the economic verticality of Bitcoin with respect to the other networks and services that it's value supports. While Facecoin would be a finite system, it's value would in part be based on it's exchangability with the Bitcoin blockchain. Because Bitcoin is a measure of global value, not American value, it should become clear that a company's role in the cryptocurrency space is not to compete with Bitcoin, but to create a system that is collaborative with Bitcoin. It is on this note, that the collaboration between public networks such as the Bitcoin network, and private economies such as the ones found on Facebook, can be used to do the one thing that every economist, president and legislature has failed to do: effectively and efficiently scale the global economy to the needs of the people that participate in it. All of these factors, when assessed on top of one another, contribute to one massive reality: that it is not only global money that is becoming decentralized, but the global economy is achieving this same level of decentralization in tandem with the money it supports. As time goes on, we will see how this system of decentralized commerce will not be an exception to a massive centralized system. In fact, it will be the rule, and one that will push us into the space of 21st century economics… Whether we like it, or not.
