Social network giant Facebook Inc. is reportedly set to launch a digital currency that will be traded on a blockchain like inviolable ledger that will make it as easy to send someone money as it is easy to send them a text message.
This development potentially means any of its 2.4 billion monthly users across Facebook, WhatsApp and Messenger could send money without a bank account, or transfer its digital money online to pay for common services or goods such as dinner out at a restaurant or a new pair of jeans.
The key difference to Facebook's digital currency with less credible rivals such as Bitcoin, Ripple or Etheruem is that Facebook's currency will reportedly be pegged to a number of other government currencies to prevent the volatility that is the hallmark of other still valueless digital currencies such as Bitcoin.
As I've written before the blockchain or distributed ledger technology that underpins these currencies is most likely to prove transformative in payment processing going forward due to its potentially instantaneous nature. For example you might even be able to go for dinner one day and pay with some of your Telstra Corporation Ltd (ASX: TLS) shares for example. Although only if the restauranteur is bullish enough to accept them.
Facebook's digital currency reportedly already has official backing from consumer-facing tech leaders like Uber, Visa, MasterCard, Stripe, PayPal, Stripe, Spotify and Ebay, among many others.
The social network is reportedly looking to raise up to a $1 billion in investments from its blue-chip tech partners to help create a whole new digital economy where you could pay your Uber driver with Facebook coin.
However, it seems likely that Facebook will initially target heavy users of its WhatsApp and Messenger accounts in emerging economies where internet use per head is still growing strongly.
This is because populous countries like Russia, Brazil, Venezuela, Nigeria, or Turkey have diabolical problems with inflation where corrupt governments print so much money or take on so much debt that local currencies become worthless and send most of their ordinary citizens broke.
Therefore we can see that Facebook's network of emerging market users alone gives it the potential to create a whole new digital money transfer business.
Of course critics will claim the digital currency will not take off due to trust issues, its existing privacy issues, or due to the natural consumer preference for cash. It's also clear the launch of an alternative global currency could see a ship already taking on water sail into a regulatory storm around the world. Especially if we consider that governments like Russia or Venezuela complain bitterly that U.S. sanctions are causing the Rouble or Bolivar to crumble in value.
However, if you're like me and you like making money in the share market, the main question to ponder is how will Facebook make revenues and profits from its digital currency venture?
Most likely the venture will involve some sort of revenue sharing scheme amongst its joint venture tech partners in skimming micro fees from transactions, particularly business to business ones.
A revenue sharing scheme will also incentivise the partners it needs and deflect the heat from accusations that this project is just about making more profits and riding roughshod over regulators and governments.
Aside from the digital currency it has also implemented other plans to let its user base go shopping online via Instagram Checkout by directly buying goods or services without leaving the Instagram platform that is currently driving the group's growth with plenty of room to run.
So despite the regulatory risks, I expect Facebook's seemingly unbreakable network effect and technological lead means it's likely to be one of the biggest companies in the world 3 to 5 years from now.
As such I'd rate the stock a buy today.
