Introduction
Nearly two years in the making, and with a very rocky beginning, the Novi crypto wallet from Facebook is finally being launched in Guatemala (as a pilot initiative for now).
Conceived as part of Facebook’s grand plans to create a new blockchain, programming language, and global currency, the initial version of the wallet was called Calibra, in reference to the Libra cryptocurrency that was then under development.
Numerous objections were raised following the announcement, not least from central bankers and governments nervous about one of the world’s biggest international companies making a move to creating a privatized, borderless currency of its own.
Facebook scaled back its ambitions (probably wise - given the technical difficulties involved in achieving them) and pivoted from creating a global currency to becoming a global bank. As it no longer poses a threat to the US dollar, government opposition, stateside at least, has subsided.
The revamped Novi program was scheduled to launch in early 2021, and as of the time of writing (September 2021) it appears that the app is finally nearing completion.
The head of Facebook’s financial services division David Marcus wrote a blog post in August 2021 outlining the aims of the initiative. Licenses have apparently been secured or approved in every US state, and the company hopes to expand into as many countries as possible.
Let’s take a closer look at it.
Overview of Novi - what sets it apart
Viewed just as wallet, Novi looks to be a solid addition to the range of options currently available for cryptocurrency users.
Think of it as ‘My First Crypto Wallet’. Currently limited to carrying the Diem group of currencies, Novi’s easy-to-use interface and large captive user base (anyone who uses a Facebook product such as WhatsApp or Instagram) could be a game-changer for crypto’s acceptance.
A large portion of the world’s population is unbanked (including 62 million Americans), and cross-border payments using traditional cash-to-cash methods face fees of up to 6.5% and settlement periods of up to 3 days. Facebook already processes $100bn in payments per year, and believes that it could become the global bank for those left behind by the current system.
Novi - Components in more detail
Novi stands for ‘new way’ (a contraction of the two Latin words novus and via).
The wallet is free to open, and there are no transaction fees for international transfers. Anyone with a smartphone and a government-issued ID can open an account.
Security is similar to a standard app, with two-step verification and biometric authentication methods available. Unlike the majority of crypto applications, users are guaranteed a full refund in cases of fraud, and customer support is available 24/7.
Money added to the wallet is converted to the corresponding Diem token (e.g. 100 USD → 100 DiemUSD, equivalent in value), and transfers are made in seconds. To send money to anyone on the planet, you only need their Diem address, which you can look up easily by entering their name followed by @novi (e.g. JohnSmith@novi). It is also possible to make purchases with the Diem currency, where accepted.
When withdrawing funds, users can convert the money back to fiat after reviewing the exchange rates.
Facebook does not own the Diem currency. It is based on a permissioned (i.e. not decentralized) blockchain backed by the Diem Association, a non-profit consortium of which Novi Financial is a member, and which also includes Lyft, Spotify, Uber, Shopify, Coinbase, Andreessen Horowitz, along with over a dozen other members.
The Diem currency basket consists of stablecoins pegged to individual currencies (≋USD, ≋GBP and ≋EUR). There are also plans to add a combination currency (≋XDX) as well as additional tokens (potentially BTC, ETH etc.) and NFTs.
Outlook
There’s no denying the sheer level of determination behind this project, which has had to overcome considerable resistance even before going out to the consumer base for judgment.
Indeed, the promised Diem currency has yet to see the light of day, with the Guatemala pilot currently using the existing Pax Dollar (USDP), in a tie-up with Paxos and Coinbase.
The controversy has mainly surrounded the Diem currency, rather than the wallet itself. The Novi app also appears to do what it sets out to do - making something that is as easy to use as Apple Pay, but with the majority of benefits that a blockchain-based system can offer.
Compared with the Wild West reputation that the crypto world currently enjoys (not without some justification), a family-friendly version could be just what is required to normalize the use of crypto across the standard financial consuming public.
Covid has created a greater need for remote payment options both within and between national borders. According to Bain, the % of transactions processed conducted digitally worldwide is set to increase from 57% to 67% in the coming 5 years. Small businesses (which are also explicitly targeted on the Novi home page) are likely to be interested in this.
That said, nothing is in the bag. Facebook appears to be placing a lot of hope in the unbanked and underbanked, which critics have pointed out have existing schemes that they can turn to (and have not).
And despite a stable reputation, ease-of-use, high speed, and low costs, the issue of data privacy remains. While not completely autonomous, Novi is a subsidiary of Facebook, which means that strictly speaking there is no means of combining social data with transaction data. However, in the minds of many users simply the name Facebook will be enough to sew doubt.
The group for whom privacy would be a dealbreaker, however, is small compared to the opportunity. It is not a major issue for current 2.5bn users who have yet to delete their Facebook account and is unlikely to feature on the radar for the 1.7bn unbanked.
The long-term impact of Novi may well be to normalize the use of cryptocurrencies, and this can only be a positive. While functionality remains limited to payments for a narrow group of stablecoins, if usage picks up, we can expect to see more ground-breaking developments from the social media juggernaut in the months and years ahead.
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DISCLAIMER: The above is designed to be a review of the Novi digital wallet network and its associated coin tokens. It is not intended to offer any financial advice or to recommend any action to the reader.