Facebook’s Foray Into Crypto: How It All Began

Adding Blockchain Faces to Facebook: the Acquihire of Chainspace

Facebook hired the founding team of Chainspace in Feburary 2019. Chainspace is a blockchain startup developing new technology to scale and speed up the execution of smart contracts on the Ethereum platform.

The social media giant seems to be more interested in acquiring Chainspace’s talent than its technology. Co-founders like George Danezis and Alberto Sonnino are now blockchain researchers, according to their LinkedIn profiles, while Dave Hrycyszyn is a “technical program manager, blockchain” at Facebook.

Danezis is a professor of security and privacy engineering in the Information Security Group of the Computer Science department at University College London. He focuses on anonymous communications, traffic analysis, statistical inference, smart metering, and peer-to-peer security.

Hrycyszyn has led major development projects for Britain’s National Health Service, Tesco, Qualcomm, the University of Cambridge, Microsoft, and Coca-Cola.

Facebook’s Blockchain Team Specializes in “Sharding”

Chainspace was specifically working on “sharding,” a technique to speed up the blockchain. One problem with the technology is that it often takes too long to process transactions. 

With traditional protocols, each individual node on the blockchain stores information like account balances, transaction history, and contract code, and then processes the transactions in sequential order. The blockchain is only as fast as its individual nodes, which limits the speed and scalability of the technology.

Instead of waiting for one node to complete a transaction, sharding allows several nodes to process different data sets associated with the transaction at the same time.

Chainspace, acquired by Facebook, focused on “state sharding,” in which the network splits into different shards, each equipped with a subset of nodes that carries out a specific function related to processing the same transaction. The combination of different shards working together to complete the transaction ultimately speeds up the network.

For Facebook to offer fast and secure payment services through WhatsApp, Instagram, or Messenger, the company might need technology like sharding to make sure its platforms can effectively process transactions from billions of users.

Facebook’s Interest in Blockchain

It’s no secret that Facebook has been increasingly interested in blockchain. In May 2018, the company said that David Marcus, who previously oversaw Facebook’s messaging services, would lead its new blockchain team. Marcus, a former president at PayPal, also previously served on the board of directors at Coinbase.

Marcus has focused on a digital currency, which users will be able to store, trade, and exchange for regular currency through Facebook apps including Messenger and WhatsApp. Creating a simple way for Facebook’s more than 2 billion users to pay for things and exchange money between countries could help the company diversify beyond advertising, which today accounts for nearly all of its revenue.

Facebook’s blockchain hires comes amid a major strategic shift for the company. Founder and CEO Mark Zuckerberg has stated that the social media firm, which encouraged people to share as much as their lives as possible, will focus on building out mobile messaging platforms that emphasizes privacy, encrypted communications, and secure data.

“I believe the future of communication will increasingly shift to private, encrypted services where people can be confident what they say to each other stays secure and their messages and content won’t stick around forever,” Zuckerberg wrote in a blog post. “This is the future I hope we will help bring about.” 

“We plan to build this the way we’ve developed WhatsApp: focus on the most fundamental and private use case — messaging — make it as secure as possible, and then build more ways for people to interact on top of that, including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other kinds of private services,” he wrote.

Zuckerberg’s reference to WhatsApp, commerce, and payments is especially important as the strongest use case for blockchain technology thus far has been to secure and verify financial transactions around the world without relying on centralized institutions.

Payments may be the missing puzzle for Facebook. With 1.5 billion users on WhatsApp, Facebook could be uniquely positioned to launch a cryptocurrency payment solution that could realize global adoption almost immediately.