Democratization of money is not nonsense these days. There are over 8000 different cryptocurrencies available online. New coins appear one after another. Large multinational companies are also disclosing plans of issuing their own coins.
So what does this tendency really mean and can we trust these new means of payments? And what is the reason behind the large institutions to create their own crypto? Let’s look at this trend more in detail.
What’s wrong with Facebook?
Probably the most famous case with the branded cryptocurrency by now is Facebook coin. In April 2020 the media was buzzing about the new cryptocurrency by Facebook called Libra.
Although Facebook wasn’t too willing to comment on their plans, everyone knew that Libra would be pegged to a number of the most widely used fiat currencies (US dollar, Euro, British pounds, and Singapore dollar).
Large companies like Visa, Mastercard, eBay, and PayPal were going to partner Zuckerberg in this venture. Although later that year, the SEC addressed their scepticism about the ability of businesses to reserve enough underlying assets for maintaining the stability of such crypto. As a result, the biggest players have resigned.
A few months later, Facebook renamed Libra Association to Diem group and changed coin’s whitepaper. The official launch was planned to happen around January, 2021.
Even though Facebook was planning to unwind a huge hype about their coins, the news was met with a suspicious reaction from the audience. Most customers were concerned with privacy issues. The company replied that Diem wallets wouldn’t be tied to the social media data of their users.
Also, Facebook is only one of 27 and up to 100 partners in the future who will affect the price of the Diem coin so the reliability of this crypto is also questioned.
The difference between other crypto coins and Diem is that whether they start from ICO funding or not, their price is eventually determined by the market. Since crypto is not backed by any underlying asset like gold or Federal Reserve money, they suffer extreme market swings.
So, as a means of the private company tokens, they are not stable enough. Imagine yourself buying 100 Facebook coins in an attempt to buy something online and discovering the next day that the value of the coin fell 30% – not fun!
Yet, it’s still unknown whether regulators will create centralized governance for corporate coins or not because they regard stablecoins as the most unreliable and deceiving. Because, indeed, there is no legal or anyhow regulated mechanism for them to be tied to the dollar at all times.
But if you think about it, the US dollar is also not backed by underlying assets. Hence, the price of the dollar is formulated by the market swings, too. The allowance of the numerous digital currencies that are not part of any governments may affect the dollar in an unexpected fashion which will also inevitably affect the value of those crypto coins as well.
Why do companies want their own money?
It’s all for the good of their customers and their business, of course! One good example of people trusting the brand is Starbucks. They have accumulated over $1 billion on their customers’ prepaid cards. Similarly, those cards could be issued not in dollars but in Starbucks coins, incentivizing customers to use their products.
For example, if you use the Starbucks prepaid card, you’re sure you’re going to buy that coffee regularly so why make credit/debit card transfers each time, paying the excessive commissions? Those commissions also affect the price of the goods that you’re buying, so what if the businesses eliminate those extra payments? Sounds good!
Besides easy and instant remittance, brands like Facebook are also looking to stimulate advertisers to collaborate with them. This way, for example, you’d be promoting your products and/or services on Facebook with their coins, then maybe use those coins to buy something on this same platform, prolong your subscription to video streams, deposit to crypto exchange like cex.io, send your grandma a gift, play games, and so much more. Looks like a new online ecosystem!
From a technical viewpoint, having their own blockchain solutions allows companies to run more transactions faster. For example, Amazon runs over 600 transactions per second right now. They are already using their own Amazon coin, which is for now more like a gift card – not based on the blockchain. But if they owned their own blockchain network, performing all the transactions by its means would be much more profitable and efficient for the business.
How the new crypto are made?
Creating a new digital currency can either relate to coins or tokens. The difference is that coins have their own blockchain and tokens don’t. In turn, tokens are built using the already existing blockchain like Ethereum. To understand the concept of tokens, remember how you were playing any desktop or online game on your computer or mobile. Paying for the virtual swords or characters’ additional superpowers or new outfits have become pretty common.
In the same way, companies like Walmart, Amazon, Mitsubishi and even Google have publicly declared their intentions to create their own cryptocurrencies. Technically, the process of creating tokens can boil down to copy-pasting the code from GitHub since most crypto coins have open-source coding. Making a new blockchain requires much more computational power and related expenses.
Experts claim that we are on the verge of a completely new economic system that will completely revolutionize the way we are paying and using online services. Chances are, blockchain will be used not only for creating new money by multinational companies.
Also, its high security level makes it a great technology for adoption in a variety of business models. For now, companies are looking to create several types of crypto tokens. Asset tokens will be secured by real-world underlying assets like gold, security tokens will be a blockchain version of the stock market shares, NFT tokens will depict unique virtual pieces like baseball cards, game pets, or works of art.