The social media platform’s planned experiment with cryptocurrency needs to work as well as regular currency
It’s a question you might start hearing more: “Cash, credit, or crypto?”
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 credit cards, 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 yen is one dollar worth? Where do you go to trade your dollars for Euros? And how much is that going to cost me?
If all of that sounds like it’s way more complicated than just, you know, paying your bill with a credit card, that’s 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 partner 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.
In layman’s terms, [crypto] is less like a currency you use to pay your bills and more like investing in a particularly volatile stock market.
If all of that sounds like it’s way more complicated than just, you know, paying your bill with a credit card, that’s because it is. 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 viewed it as a growth investment rather than a store of value. In layman’s terms, it’s less like a currency you use to pay your bills and more like investing in a particularly volatile stock market.
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’s in the area of $11,000, 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), then you can make money buying 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 $80 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 $80 worth of Bitcoin you spend on your AT&T bill today is worth $200 in a year, then you’ve 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 over paying 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 accept 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.