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Facebook sparks joy in the crypto sector with talk of its own virtual token

But diving head first into the crypto pool could bring a regulatory overhang, warns one CEO

Man with Facebook glasses
Cryptocurrency could create an alternative revenue stream to advertising for Facebook

It might just be the case that Facebook’s adoption of cryptocurrencies could turn virtual tokens into a wildly popular thing.

The news today from the US news site Cheddar that the social media network is looking into creating its own cryptocurrency and putting digital wallets into the hands of its two billion users is both radical and brilliant, say crypto-industry watchers, who are already attempting to sketch out how Facebook (NASDAQ:FB) would go about incorporating a cryptocurrency into its business

“It’s a radical idea that crypto wallets could be in the hands of 2 billion people. That would be a massive sea change for the industry. This could be the catalyst by which normal people have a use for cryptocurrency,” says Alex Harrington, chief executive of PeerStream (OTCQB:PEER), a blockchain software development company. “Facebook has a bigger reach than almost anyone else.”

Jeff Koyen, the founder of 360 Blockchain (CNSX:CODE, OTCMKTS:BKLLF), a blockchain investment company, is just as bullish as PeerStream’s Harrington, and says that any adoption of a cryptocurrency by Facebook would revolutionize the fledgling crypto-industry.

It’s great. It’s brilliant,” says Koyen. “This could be the first killer app in cryptocurrency. We’re looking for those killer apps. Those apps that are going to use crypto and blockchain and make them mainstream."

Reasons for Zuckerberg's attraction to cryptocurrency 

Koyen thinks Mark Zuckerberg, Facebook’s chief executive, is attracted to the crypto-space for several reasons. Chief among them is that by introducing virtual tokens, Zuckerberg could persuade users to stay on Facebook for lengthier periods of time and conduct some business on it as well.

“Look at Baidu, the Chinese equivalent of Facebook. People do everything on that. They even do their banking on it,” says Koyen.

A cryptocurrency would introduce a way for Facebook to embrace the exchange of money on its site. “Facebook is obviously looking for a way to smooth the exchange of payments. They must be tired of what they’re doing on the back-end,” says Koyen.

Depending on whether they want to monetize their tokens and face additional financial regulations, cryptocurrency could be an alternative revenue stream to advertising as Facebook could receive transactional fees of some sort when a Facebook token crosses its network. Looking even further ahead, the coins might also one day be accepted at Amazon.com Inc (NASDAQ:AMZN) or Overstock Inc (NASDAQ:OSTK).

Regulatory overhang?

But any plans Facebook has for a cryptocurrency remain vague at best, and the closer the token gets to serving like a real currency, the tougher the regulations that will be faced.

Harrington of PeerStream warns that if you transact in cryptocurrency, you might “find yourself facing a taxable gain.” He also predicts that Facebook isn’t likely to engage in an initial coin offering, or ICO, an unregulated auction by which funds are raised for new crypto ventures, as such activities would draw considerable scrutiny from the U.S. government and the public.

Instead, Facebook coins could simply serve as internal currencies and not proxy currencies, so that the social media giant avoids confronting regulatory hurdles.

Dismissing ICOs as unregulated crowd sales, David Vincent, chief executive at Canamex Gold (CSE:CSQ, OTC:CNMXF), argues that Facebook will have to go down the regulated route even if they do introduce utility tokens which share characteristics with bitcoin. “They can’t cut corners,” he says.

Vincent has experience in the token arena as his company Canamex is the first publicly listed company to launch gold security tokens which offer a 40% discount to the spot gold price. He goes so far as to say that Nasdaq-listed shares in Facebook – which closed at US$186.99 Friday – could be used to back asset-backed tokens one day.

“They might stick to a traditional utility token, but shares in Facebook could be tokenized and put on the blockchain,” Vincent concludes. “A lot of people are watching to see what they’re going to do.

Facebook token may take years to be introduced

Debating how and why Facebook is investigating the introduction of a cryptocurrency remains a parlor game for crypto-currency watchers. “It still remains to be seen exactly what application they would put the currency towards,” says Harrington.

READ: Facebook realigns management structure, creates blockchain team

For now, industry watchers must hold their collective breaths and wait for additional smoke signals coming from the social media giant as Facebook's work on blockchain technology and cryptocurrency will likely take years to bring to fruition and it may involve an acquisition or two to bring its tokens to the market.

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