Thread by @real_vijay

1/ A tremor in the water, a distant rumble. Apprehension is in the air as one of Silicon Valley's apex predators enters the cryptocurrency market.

Should #Bitcoin owners fear the entrance of Facebook? Let's consider the risks...

2/ The reports are that @davidmarcus is heading a team at Facebook with the intention of launching their own foray into the crypto market. Those who know him, know David is an outstanding executive and he's already built a small, crack team within FB.

techcrunch.com/2018/08/10/fac…

3/ But what is Facebook going to launch? I see three main possibilities and I want to consider whether each of them (A, B, C) pose a direct threat to #Bitcoin and what resources and comparative advantages Facebook might bring to bear in the cryptocurrency market.

4/ A: FB launches a payment rail that allows their users to transfer digital currencies between each other, or perhaps allows merchants to accept them for payment. Such a service would directly compete with Square or Coinbase's merchant services.

5/ The comparative advantage Facebook has if it pursued path A is its dominance in the messenger market (FB messenger & Whatsapp). There is a tremendous synergy between messaging and payments as can be witnessed by the success of WeChat Pay in China.

read.bi/2CHDAzm

6/ Path A would be no threat to Bitcoin, however, because Bitcoin is nascent store of value, not a payment system. It is akin to how Visa and Amex do not compete with gold (gold, btw, has a much larger market cap than Visa and it only represents a fraction of the SoV market)

7/ B. Facebook launches their own digital currency over which they maintain substantial control. An example might be something similar to XRP (which Ripple controls) or EOS.

8/ Facebook could increase demand for such a currency by using the revenue stream they generate per user which they could issue as a dividend to holders of these tokens (or perhaps by buying up supply of the tokens and destroying them, as Binance does with BNB).

9/ Path B, again, does not compete directly with Bitcoin because Bitcoin is a *non sovereign* currency that has no centralized control. A Facebook controlled currency would still require trust of Facebook itself.

10/ FB has shown a worrying tendency to censor users and if it were to build its own currency it would need to comply with monetary regulations in all the jurisdictions in which the coin was used (i.e., everywhere). This would substantially increase their proclivity to censor.

11/ C Facebook launches a currency over which they do NOT have control, but provides the source code to birth the currency and a means for distributing it. The major advantage FB has is their massive identity database (over 2 billion people).

12/ Following path C, Facebook could undertake an airdrop far larger than anything anyone has ever done before. It could achieve a distribution of its token (FBCoin) across billions of people (BTC ownership in comparison is in the order of tens of millions of people).

13/ Path C is by far the biggest threat to Bitcoin, if Facebook were to pursue it. However, distribution is not an overwhelming advantage. People who receive something for nothing are highly unlikely to value it; if FBCoin has any value at all most people are likely to dump it.

14/ This is similar to the fact that early users of Bitcoin who obtained it cheaply and did not appreciate its underlying value dumped it:

https://twitter.com/real_vijay/status/942264329390321665

15/ Furthermore, the main attributes that would drive demand for FBCoin vs Bitcoin would be censorship resistance and monetary policy. Bitcoin already has the best monetary policy possible for a SoV (a strictly limited supply) and it has shown itself resistant to attack.

16/ FBCoin, as the arriviste, would have to prove that it was superior to BTC along the important attributes that give BTC its value. Without a strong ethos of censorship resistance and sound money (definitely not present in Facebook's corporate culture) this threat is unlikely.