Facebook Moves Forward With Crypto Wallet Plan To “Fix Faulty Payment System”

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Facebook (FB) is moving forward with plans to shake up the cryptocurrency-based payment system, even as the company faces new accusations from the federal government that it is abusing its market power.

On Wednesday, David Marcus, the Facebook guru at the head of its crypto efforts, revealed new details about Novi, the digital wallet component of the initiative he called a challenger in the payments industry.

In a lengthy article on Medium, Marcus revealed that Novi has obtained licenses or approvals in almost every state. It will offer free peer-to-peer payments nationally and internationally and profit from merchant services similar to other crypto wallets.

Marcus’ post came a day before the Federal Trade Commission filed a new complaint accusing Facebook of setting up an illegal “buy or bury” program. Amid widespread concerns about the company’s business practices, it’s unclear whether the FTC’s action could impact Facebook’s ambitions in the blockchain industry.

Formerly known as Libra, Diem is the cryptocurrency and blockchain-based payment system that Facebook first announced in June 2019. After facing major backlash from global regulators and of industry players, the tech giant significantly downsized its plans and renamed the project as “Diem”.

Yet unlike Bitcoin (BTC-USD) and other cryptocurrencies like Ethereum (ETH-USD) and Dogecoin (DOGE-USD), Diem will run on an authorized blockchain. Instead of using governance models such as the Bitcoin Proof of Work or the Ethereums proof of stake mechanism, which rely on cryptocurrency mining, Diem proposes to use the Switzerland-based Diem association to process the transactions.

The private business group has run into problems after losing many departing members of associations such as PayPal (PYPL), Mastercard (MA), Ebay (EBAY) and Visa (V), just months after the announcement initial project in 2019. Regulatory concerns about consumer privacy and potential antitrust risks further slowed the launch of the project.

The story continues

In May, Diem announced a partnership with Silvergate Capital Corporation (SI), a banking holding company whose subsidiary, Silvergate Bank, provides banking services to businesses in the crypto space. The partnership said Silvergate would become the exclusive issuer of the Diem stablecoin, the value of which will be pegged to the US dollar. However, some analysts believe the creation of Facebook will face more regulatory hurdles.

A good stable part is hard to find

David Marcus, CEO of Facebooks Calibra, testifies at the House Financial Services Committee hearing on “Examining Facebook’s Cryptocurrency and Its Impact on Consumers, Investors, and the U.S. Financial System” on Capitol Hill in Washington, States -United July 17, 2019. REUTERS / Joshua Roberts

According to Marcus, the current payment infrastructure in the United States has remained “broken” and needs to be fixed. To serve the 62 million Americans and 1.7 billion people around the world who still do not have bank accounts, America must step up its efforts, he said.

And the executive said stablecoins like Diem should at least have a chance to provide the answer.

Basically, cryptocurrencies backed by governments, other fiat currencies, or even commodities traded on exchanges, stablecoins have little to no price volatility compared to un-pegged cryptocurrencies like Bitcoin and Ethereum.

And thanks to lower volatility, stablecoins arguably offer a better medium of exchange than other cryptocurrencies. The Chinese digital yuan, a government-backed cryptocurrency developed by the country’s central bank, has already been deployed in real-world trials since early 2021.

Contrary to many views, stablecoins with strong control at the network and wallet level open up huge opportunities for innovation in this area, Marcus wrote. In addition to the 1 to 1 reserves, a well-designed stablecoin offers better protections for consumers than a fiat balance held in any wallet available in the United States today.

The subject of stablecoins has become more hot in finance, and for good reason. With a market capitalization of $ 64 billion, Tether (USDT-USD), the largest stablecoin, has come under fire for failing to provide audits of its reserves.

Marcus also argued that well-designed stablecoins and their wallet ecosystem have the potential to enhance traditional controls for anti-money laundering, terrorist financing sanctions, and tax compliance. In short, they can make the financial system more transparent, increase consumer protection, and curb the hidden money flowing through the system.

The case for Diem received a slight boost from El Salvador, which announced in June its intention to make Bitcoin legal tender in the country. While Bitcoin is not a stable coin, its proposed use in El Salvador overlaps with some of the possible benefits and risks associated with stablecoins, such as financial inclusion, transparency, and legality.

One of the main goals of Salvadoran law is to reduce the cost of cross-border remittances, which accounts for 20% of the country’s gross domestic product (GDP). Currently, it offers to do this using the Bitcoin Lightning Network, a payment protocol on top of Bitcoin that makes transactions faster, cheaper, and more private.

Gabor Gurbacs, director of digital asset strategy at global investment manager VanEck, believes that with the right approach, the Facebook initiative will work.

Facebook has around 2.9 billion users. Their efforts and digitization trajectory could become one of the most important social media developments for the Western Hemisphere. I hope regulators will allow tech companies to innovate, Gurbacs said.

A model of how this might work could be found in digital company Square, which owns the Cash App mobile payment service.

David Hollerith is Blockchain and Cryptocurrency Journalist for Yahoo Finance.

For more information on cryptocurrency, see:

What is Dogecoin? How to buy it

Ethereum: What is it and how do you invest in it?

The 21 best crypto leaders to watch in the second half of 2021

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