We have all heard the line “There is strength in numbers.” That is absolutely true when it comes to Facebook.
Why did the government suddenly take interest in cryptocurrency as soon as Facebook announced its interest with the possible introduction of Libra? While the mainstream rhetoric of recent privacy breaches and lack of trust in Facebook as a company to be ethical with user data have some truth to them, the real reason why everyone is panicking about Facebook’s move can be found in the numbers we are about to examine.
Caution: Some outrageous (maybe not) assumptions ahead
We have deliberately used some outrageous assumptions in this article. For instance, we take 70% of Facebook’s user base as “potential” users of Libra, the Facebook cryptocurrency.
From a “potential” standpoint, we could say 100% users minus the bot-driven and abandoned accounts. But we are sticking with 70%.
Bitcoin wallets, according Bitcoin.com, are around 41 million, while other sources show around 35 million. We are using 41 million for the purpose of this article.
The number of users does not automatically dictate the revenues generated; however, we are deliberately comparing the user base instead of revenue for the purposes of this article. For instance, JPMorgan Chase had $131 billion in revenue, with just 62 million users served, while Facebook generated $55 billion with a user base of over 2.5 billion.
With those housekeeping notes out of the way, let’s begin the comparison.
If Facebook were a Nation
Purely by numbers, if Facebook were a nation, it would be the largest nation on the planet. In fact, it would have been bigger than the population of China, Europe and the United States, combined.
As of 2019, Facebook’s user base is around 2.41 billion.
Recent stats put China’s population at 1.4 billion, Europe’s population at 743 million and the United States at 327 million, adding them to get a total of 2.47 billion.
Let that sink in for a second.
Facebook’s user base is bigger than China, Europe and the United States together.
Using the total user base of Facebook, we will look at the potential of Facebook’s Libra, if it launches as planned.
These numbers don’t even account for the Instagram and WhatsApp user bases. Both these apps together have a user base of over 2 billion and growing. I do not have a personal Facebook account, but I do have WhatsApp, and I know a lot of people who will never touch Facebook but have both WhatsApp and Instagram accounts.
We hear about exodus from Facebook, never WhatsApp or Instagram.
That is the genius behind Facebook’s long-term strategy, even if they lose users from Facebook, they still have a staggering user base that keeps growing on both WhatsApp and Instagram.
If Facebook’s Libra was a currency
Sir John Hargrave noted during our interview that “the power of the United States, among other things, comes largely from the power of the US dollar.”
As of today, the US dollar remains the most powerful currency in the world. It touches about 358 million people around the world.
However, if Facebook’s Libra were to be adopted by only 30% of its current user base, then Libra would touch 750 million people, more than twice the US dollar.
WhatsApp and Instagram could conservatively add another 20% to 40% new user base to the Libra nation. Again, a lot of people stopped using Facebook while they continue to use WhatsApp and Instagram.What happens if more than 50% of Facebook’s users start using Libra?
Cumulatively, the users joining the Libra cryptocurrency could be three to four times those that use the US dollar.
Of course, it scares the bejesus out of the governments, especially the US government. Imagine what kind of power that wields!
If Facebook’s Libra was a bank (World)
The potential user base that could one day become users of Libra, at 70% of its total user base and without counting the users who are easy converts on platforms like Instagram and WhatsApp, is around 1.8 billion. That puts Libra at three times the user base of world’s largest bank.
If Facebook’s Libra was a bank (United States)
JPMorgan Chase is America’s largest bank by revenue. JPM has a household customer base 62 million.
Following a similar logic as previously, with 70% of the Facebook’s 169 million users from the United States (and without counting the easy converts from WhatsApp and Instagram), Libra could one day have over 118 million customers. That is twice the size of the largest bank in the United States.
It took around 150 years to build the JPMorgan empire to make it the largest US bank by revenue with a lot of sweat, mergers, service and lobbying.
Facebook could surpass all that in less than a decade with a simple out of thin air cryptocurrency that is not even decentralized.
No wonder financial institutions are doing everything they can to put brakes on this monstrous venture.
If Facebook’s Libra was a bank (Europe)
Europe’s largest bank, HSBC, has a user base of 38 million around the world (not just Europe). While we couldn’t pull the data pertaining to the bank’s customer base in Europe, we assigned a generous 50% of total user base to Europe for the purposes of this comparison.
Facebook’s user base in Europe is around 286 million.
Same as before, we are using a figure of 70% potential Libra users (without accounting for the WhatsApp and Instagram users jumping in on Libra) from the 286 million Facebook users in Europe.
That puts Libra’s Europe customer base at 200 million. A staggering 10 times the customer size of Europe’s largest bank.
If Facebook’s Libra was AliPay for the World
AliPay, China’s most popular messenger-based payment system captures 54% of China’s market, making it the market leader. It has a user base of 608 million monthly active users.
AliPay’s revenue is around $100 million. Focused primarily in China, AliPay’s reach is somewhat restricted.
Facebook has a global reach (except in China), and with a user base of 2.41 billion and an assumed penetration rate of 70%, Facebook’s Libra could be three times the size of AliPay from the get-go.
We have not even scratched the surface with what happens when people who are unbanked join in because the ease and comfort of Facebook’s messenger-based settlements.
If Facebook’s Libra was to replace Bitcoin!
How can we leave bitcoin from our conversation when we are talking about cryptocurrencies? After all, it is still the king of cryptos.
While bitcoin is truly decentralized and Facebook’s Libra is a lousy copycat of a cryptocurrency concept, that will not stop Facebook’s Libra from becoming a household name.
This is because even at 41 million wallets, bitcoin’s adoption represents less than 1% of the total potential customers that could benefit from bitcoin.
On the other hand, with a direct access to over 2.5 billion people through Facebook, Instagram and WhatsApp, in a matter of months Facebook’s Libra could surpass hundreds of millions of accounts.
When it comes to technology adoption, numbers really matter.
One thing that is working bitcoin’s favor is the speed at which wallets are getting created. There were only 3 million wallets last year in July, and by July of 2019 we have over 41 million. That’s more than ten times the number of wallets.
Even at under 4% growth from 2018 to 2019, Facebook added approximately 90 million users.
In spite of flaws, breaches and plethora of issues, Facebook just marches on solely on the power of its numbers.
It sounds ridiculous, but it could be worse
Imagine if and when Libra becomes functional and people are able to settle payments through its messenger, what Facebook would do to the 1.7 billion plus unbanked individuals around the world.
And as we have stated throughout the article, we have not considered the nonoverlapping user base on Instagram and WhatsApp who can be made to use Libra quite easily to the mix.
Think for a minute as to how powerful Libra could become when:
- Over 2.5 billion users from Instagram and WhatsApp users start using Libra
- 7 billion unbanked start receiving banking services through Facebook’s messenger with Libra
- What if Facebook’s Libra gets integrated with other online sites, like eBay, to compete with Amazon. Integrating cryptocurrency reduces the cost (like credit card charges, etc.) and may help other shopping sites to compete with Amazon
- Credit card companies charge anywhere from 1% to 3% on transactions. These costs eat into the profits of sellers. Integrating a messenger-based payment system could eliminate the use of credit cards and the installation of POS systems
All of these real issues that could be solved by Facebook Libra will draw more people to it.
And there you have it, a partial list of why everyone is scared of Facebook’s Libra project.
Thank you for reading the article.
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About the author
RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.
Read more about the author here.