Is Facebook Becoming a Central Bank?

wasimkadak sends this quote from an article at Forbes: "Facebook's 27-year-old founder, Mark Zuckerberg, isn't usually mentioned in the same breath as Ben Bernanke, the 58-year-old head of the Federal Reserve. But Facebook's early adventures in the money-creating business are going well enough that the central-bank comparison gets tempting. ... Initially, the Credits-based economy was confined to the virtual world’s trifles. Credits could be spent to buy imaginary gold bars for aficionados of Mafia Wars, or bouquets of virtual flowers for birthday postings on friends’ Facebook accounts. This new form of digital money was cute but essentially useless for mainstream activities. Lately Credits have become more intriguing. Warner Brothers this summer offered movie-goers a chance to watch Harry Potter and The Dark Knight for 30 Credits apiece. Miramax and Paramount countered with film-viewing offers, too. In a provocative post this week on Inside Facebook, guest blogger Peter Vogel argues that Credits in the next few years will become more of a true currency. Facebook's 800 million worldwide users represent a lot of buying power. He figures Credits could evolve into commercial mainstays for digital movies and music."

Comments

Cash out early

[LostCluster]

The history of the web is filled with play-online games for points that could be used for other things... but all crash in an inflationary spiral. Points are free, but the prizes offered are not and eventually the value falls below the "par value" the site originally had. Has anybody recently cashed out with GSN Oodles or Moola.com's Moola points?

Re:Cash out early

[GuruBuckaroo]

SecondLife's Linden Dollar, exchangeable for real cash, has maintained its value remarkably well, at roughly L$265/US$1, for the last 5 years.

Re:Cash out early

[rasmusbr]

The real value of silver has undergone drastic changes in the past, sometimes because of enormous new finds, sometimes for other reasons.

It's probably better to use "a nice lunch" (as in a good but unpretentious restaurant meal of tasty, nutritious, healthful food, containing about 500 kcal) as your price reference. A meal at a restaurant is both a product and a service, and it contains a range of raw materials. Since the restaurant needs to pay real estate costs it also reflects the housing market.

Re:Cash out early

[M. Baranczak]

Facebook credits are like the old Soviet-block currencies. If you were an American visiting the USSR, you could exchange your dollars for rubles when you arrived. But there was no way to exchange them back. And rubles were worthless outside the USSR.

Not a true currency.

[TheNarrator]

The mark of a true currency is that it can be used to pay U.S tax liabilities. For Americans at least, anything else is just, at best, a commodity subject to capital gains taxes. For example, if you buy gold coins, or facebook credits, and then sell them after their value has doubled you'll have to pay capital gains tax on the amount they appreciated against the dollar. if you barter the gold coins, or facebook credits, for services or goods you will have to pay taxes on that barter transaction in dollars. If the dollar appreciates in value against other currencies though, there is no capital gains tax to pay, even though your dollar might buy more.

Re:Not a true currency.

[Geminii]

If you can buy goods or services with a currency, and exchange those goods or services for US dollars (via eBay, Craigslist etc), then the currency is a de facto method of paying US tax liabilities.

This guy is flogging his own product

[Animats]

From the article:

Peter Vogel is co-founder of Plink, a Facebook Credits-based loyalty program that rewards Facebook members for dining and making purchases at their favorite restaurants and stores.

"Facebook credits" are just another gift card scheme. You can't cash them out. You can't invest them. You can't convert them to another currency. You can't transfer them to another individual. And Facebook takes a 30% cut off the top.

The only virtual currency that comes close to behaving like a currency is Linden Dollars, the monetary unit of Second Life. Those, you can transfer and convert.

Bitcoin had potential, but it turned into a pyramid scheme.

Re:This guy is flogging his own product

[Anonymous Coward]

BitCoin is not a pyramid scheme, technically it is a pump and dump.

Re:This guy is flogging his own product

[Teppy]

Bitcoin hasn't gone away. It may not be an investment to hoard at the moment, but as a currency it's functioning beautifully. I run Dragon's Tale, a casino MMORPG hybrid, which uses Bitcoins exclusively. Our new-players-per-week initially peaked right at the peak of the Bitcoin bubble (around 120 new players per week for a couple weeks), dropped to about 20/week, and has been growing for the last few months. Currently we get around 60 new players per week. Revenue from Dragon's Tale's hasn't passed our other game, A Tale in the Desert yet, but on several recent weeks it's come close.

Players love Bitcoin because deposits *and withdrawals* are instant, unlike all other online casinos. I know that some of my players also play poker at Seals With Clubs, a Bitcoin-only poker site. They may have a win at Dragon's Tale, shoot the money over to Seals, shoot their winnings back to DT, or into their Silk Road account to buy some goodies, or into their desktop wallet. If Bitcoin were never to go beyond gambling, it will be a success: it allows all Bitcoin-based casinos to function as one huge meta-casino.

Re:This guy is flogging his own product

[lightknight]

Agreed. I purchased web hosting for a year (out of the US), and a domain name. I'm considering a Parisienne firm for some minor website artwork. The number of businesses / services that accept BitCoins are growing.

The only people shouting Pyramid Scheme as those who are butt-hurt from trying to 'get in' at the wrong time; many of those people were more invested in turning a magical short-term profit by reselling their coins to 'suckas' who would buy in later. Surprise, surprise, the same kind of mentality seen with the flipping of homes on the real estate market, and just like with that market, it backfires -> absolutely no understanding of market fundamentals or finance, but the people involved think they've found a path to Easy Street. Probably bought in at $14 / coin, and sold out at $3 / coin, only to watch the market rebound, as of late, back to $7 / coin. Guys, if you want to turn a major profit, do two things -> 1.) read up on some finance / economics (the heavy stuff that you special order online, not the stuff B&N stocks in the "Investing" aisle), and 2.) long-term investing (not everyone is cut out to be a day trader, and long term tends to be quite profitable).

One of the larger things harming BitCoin is the constant f*ckups the various exchanges and online wallet sites keep experiencing. Mt. Gox kept screwing the market with their repeatedly hacked accounts (ah yes, PHP, the epitome of secure languages), followed by Dwolla and their API nonsense (has anyone seen my head? it appears located inside my rectum), and that one online BitCoin wallet service whose owners took everyone's wallet and cashed out (why yes, everyone, why doesn't you store your unencrypted wallet with me for a while? wink wink). In all seriousness, I myself am surprised that BitCoin is still around -> it's based on a sound design, but the growing pains it has experienced from every goober who has come along since have been synonymous with a 90 lbs geek trying out for the high-school football team.

Look I'm sure they'll only create a few extra

[Colin Smith]

When they discover they can get stuff for free. Same way the US government has done.
 

Re:Look I'm sure they'll only create a few extra

[postbigbang]

Ummm, no. The finance majors don't say that. Nor do the economists. There is chutpzah, there is subterfuge, and there are varying indicators, but it's not pretend.

When a letter of credit clears, there's a complex set of events that's spawned. Lots of people get paid. Sometimes they get paid in differing currencies, but they get paid. When the Russians had their post Soviet-breakup crunch, maybe they paid in potatoes, but they paid. Trading is something humans do well, and there is some predictability beyond "pretend".

Re:Look I'm sure they'll only create a few extra

[repapetilto]

It is relatively easy to spot debt bubbles. I predict here that higher education is next.

No, and here's why.

[MrEricSir]

Betteridge's Law of Headlines is an adage that states, "Any headline which ends in a question mark can be answered by the word 'no'".

Re:No. No, no, no, no, no, no.

[tragedy]

You're half right. Money hasn't been worth anything since before the gold standard was dropped. Even gold is fiat currency. Money, including precious metal coinage, is just tokens meant to simplify complex barter arrangements. It only has value based on people's faith in its value.

IPO imminent

[slasho81]

I clicked through to TFA. I know, what was I thinking...

This is a guest post by Peter Vogel, co-founder of Plink, which lets consumers earn Facebook Credits for dining out and shopping online.

So, a co-founder of a business based on Facebook Credits thinks they're super-important and could be equivalent to actual money. Right. Next ridiculous story, please.

I expect more stories inflating Facebook's perceived worth to be pushed to the mainstream media in the coming months as Facebook's IPO is imminent.

Re:No. No, no, no, no, no, no.

[arose]

It only has value based on people's faith in its value.

Or, more precisely, by their willingness to accept it as payment. Recursively. Acceptance all the way down.

Re:And, with perfect investing prowess...

[Bill, Shooter of Bul]

Left it in my coat pocket? Heck no, I was a college kid back then. It was the end of the school year, and I was pretty much broke. That $10 was enough to buy food for two weeks!