Bitcoin may have fallen 60% from its December highs, but the cryptocurrency industry has never been stronger, as venture capitalists continue to pour money into blockchain companies and sponsor countless conferences where speakers foretell of the coming crypto revolution.
The most prominent booster of blockchain to emerge in the months since bitcoin’s dramatic collapse is Jack Dorsey, the pseudo-philosophic CEO of Twitter and Square. His argument of late is that bitcoin is going to be the currency of the future, telling the Consensus Blockchain Conference in New York Wednesday that “the Internet needs a native currency, and I hope it’s bitcoin.” He was even more bullish in an interview with the U.K. publication The Times, saying he thought bitcoin would surpass the dollar as the world’s currency of choice within a decade.
A man who’s launched two companies worth a combined $50 billion, even if they aren’t quite profitable, deserves the benefit of the doubt. But given bitcoin’s recent price collapse, growing technological problems, and complete failure to actually get people outside of failed states to use it as money for anything other than illicit activities, it may be time for Jack to take his meds. And we’re not the only ones concerned, as Dorsey himself reports that Square’s decision to act as a bitcoin market maker for its Square Cash customers is highly controversial at the company, even up to the board level.
Square board members can rest easy for now, as the company reports its losses on bitcoin holdings have been insignificant, while revenue from bitcoin sales hit a healthy $34 million due in part to Square’s healthy bid-ask spread on bitcoin transactions. But Dorsey’s unexplained conviction that the Internet “deserves” a native currency, outside of those managed and issued by democratic governments, is one that should give us all pause.
Dorsey came up with the idea for Square after a friend of his was unable to sell a piece of glasswork to a customer abroad, because there was no way for him to accept the customer's foreign credit card. This got Dorsey investigating the payments business and found that there was space for innovation in payments services, or the technical work that enables a lending bank to issue mini loans to customers via a credit card, and transfer those funds quickly to merchants around the world. Square has been one of fintech’s biggest success stories, but it’s important to keep the firm’s success in context. Despite projecting 30% revenue growth in 2018, the firm’s top line will be just $1.33 billion this year, while Visa’s will be fifteen times that, and growing in the high single digits.
Square and competitors Stripe, Ayden, and Paypal have fared well in the world of rapidly growing e-commerce, but the promised disruption of financial services has never come. Visa, JPMorgan, and the Federal Reserve are more powerful today than ever before. So where does Jack get the idea that the world is yearning for a native digital currency?
For one, it would be good for Square’s business. “If we were able to use it [as] a currency today, we could release our apps in every app store around the world instead of the five we're in,” he told the Consensus Conference, complaining that the complex web of laws and regulations demanded by fiat currencies makes it uneconomical for Square to be available in most countries.
What never seems to occur to Dorsey or other Silicon Valley luminaries is that those complex webs of laws and regulations may have been put there for a reason. Central banking is a discipline that has been developed over hundreds of years of trial and error, and now does a relatively decent job of keeping a lid on involuntary unemployment. Know-thy-customer laws have been built up, again, over the centuries so that law enforcement agencies can stop terrorism and organized crime.
Dorsey’s cluelessness is a microcosm of Silicon Valley’s persistent blind spot to its own unintended consequences. But while Uber and Facebook snuck into many jurisdictions before voters and officials knew what was happening, voters and government officials are ready this time around for any whiff of venture-backed tech companies swooping in to establish themselves before a democratic process can weigh in.
London’s ban of Uber is the latest evidence that Silicon Valley companies will no longer be given the benefit of the doubt. But at least in the case of the car sharing company, there’s an obvious demand for the product, even if that demand is propped up by artificially low prices. There’s no evidence whatsoever that the typical citizen of a stable democracy is demanding a new technology to replace the U.S. dollar. And the more Dorsey claim’s the shift is inevitable, the greater resistance he will find.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.