As Facebook's crypto obstacles mount, rivals rush in
No crypto company wants to be in Facebook's shoes — but many of them want to fill those shoes once the social network's Libra cryptocurrency has is done being pummeled by global regulators.
Facebook's Libra cryptocurrency project has drawn howls of regulatory protest since it was first announced. But this process has also drawn attention to the many use cases Libra was designed to target, and many other crypto providers — ranging from startups to large banks and retailers — are ramping up their efforts to steal the spotlight.
"There is more than a chance that we will see proliferation," said Marc Kaufman, co-founder of the Blockchain IP Council. "We are currently seeing exponential growth, year over year, in worldwide patent filings directed to blockchain technology and applications thereof."
In just the past two weeks, at least two alternative initiatives have emerged. Malta-based cryptocurrency exchange Binance plans to create a regional version of Libra. Unlike Facebook, Binance did not announce any partners, but reportedly hopes to use its experience with stablecoins to encourage financial inclusion. And messaging service Telegram is reportedly working on a digital currency called the Gram, which will be released in the next two months and will include a digital wallet.
These initiatives join more traditional companies that are putting the building blocks in place for potential digital currency, if not making a formal announcement. Bank of America and Walmart have both filed patent applications for technology that could be used for digital currency or digital wallets. Among governments, China plans to issue its own digital currency to rival Libra.
Similar to how Amazon grabbed most of the attention in the nascent trend to build checkout-free stores while dozens of other initiatives progress, Facebook's Libra has become the face of mainstream cryptocurrency payments projects. That includes absorbing a large share of the controversy and political pushback, while the other projects (which have baggage of their own) progress with much less attention.
But even if Libra launches and gains traction, there will likely be other well-supported cryptocurrencies that can be used for payments. Bank of America has categorized its latest patent filing as a "concept" and not a product blueprint, but there is an opportunity to use the technology to both boost digital ID and build new use cases for banks.
Banks have been traditionally reluctant to support bitcoin and other cryptocurrencies for payments or financial services, but have benefited from the underlying blockchain technology for security and to streamline cross-border payments.
Even amid the regulatory uncertainty, cryptocurrency use appears to be growing. ICOmaking.com reports the blockchain user numbers tied to cryptocurrency increased from about 3 million in 2015 to about 26 million in 2019. As the number grows, so will the demand for banks to provide more services that accommodate cryptocurrency or other alternative currencies.
"Creating and ultimately maintaining digital wallets for their customers provides a great business opportunity for a bank to provide traditional banking services to customers who maintain balances in alternative currencies," said Mike Minihan, a partner at BX3 Capital.
Bank of America's foray into this area is a natural step to manage the challenges tied to decentralization.
"As we have seen, full decentralization brings with it many practical headaches, such as loss of passwords, bad actors, etc.," Minihan said. "This type of wallet adds some centralization benefits to the decentralized world of cryptocurrency; it is a sort of decentralization lite."
Any bank that pursues crypto wallet technology can also pay interest on its customers’ crypto wallet balances, in exchange for the opportunity to originate crypto-denominated loans, as well as a means to boost reserves.
There's also competitive pressure on banks from the retail sector. Walmart's patent application describes a currency micromarket in which users can store funds in the hypothetical retailer wallet and gain interest on those funds. Walmart frequently makes investments that raise concerns among banks that the retailer will move into banking, and a cryptocurrency wallet could be seen as a similar service.
"Facebook’s Libra and the Walmart coin will perhaps accelerate the interest in a wallet like this, and provide further justification for the development that BofA is undertaking," Minihan said.