The CEO of Twitter and Square says there will be a native currency for the internet. Speaking to Joe Rogan, Jack Dorsey said:
“I believe the Internet will have a native currency and I don’t know if it’s Bitcoin. I think it will be given all the tests it has been through and the principles behind it, how it was created. It was something that was born on the Internet, was developed on the Internet, was tested on the Internet, it is of the Internet.”
His Square app, therefore, offers the opportunity to buy and sell bitcoin, but no other crypto. Suggesting Dorsey is betting on BTC.
As the first and still biggest cryptocurrency, it’s not a bad wagger. Bitcoin processed an incredible $9 billion in the past 24 hours, dwarfing any other blockchain by miles. Including ethereum, which moved only $137 million, down from the usual one billion or two in its heydays.
Bitcoin, moreover, is the most integrated crypto. It remains still the only one to have regulated futures, its logo stands for the blockchain and its brand is a household name.
As a currency, however, it’s perhaps a different question. It’s currently handling 330,000 transactions a day and can’t go much higher than that on-chain.
It is trying through second layers like the Lightning Network to squeeze more and more transactions, but LN has network effects as it requires the other party to be on LN for them to receive payments.
In addition, there is no such thing as an LN cold storage so your funds might be constantly at risk due to being connected to the internet all the time, allowing hackers to potentially steal them.
Bitcoin, moreover, doesn’t have smart contracts. It has a very limited scripting language which can allow for some if/then, but you’d think the currency of the internet would have far more powerful capabilities.
Finally, bitcoin has a limited number of 21 million coins. That means all of the network security will eventually have to be paid by fees which may require relatively high fees for on-chain transactions.
Thus there has long been a suggestion that there would be a new bitcoin that does things better for currency usage, with the counterargument to that being that bitcoin would incorporate any innovation.
That argument may have been persuasive some time ago, but now it isn’t very clear whether bitcoiners would want to incorporate things like blockchain virtual machines as they’re focusing on doing one thing and doing it fairly well: digital gold.
For a currency, therefore, one might have to look elsewhere. Perhaps the second biggest public blockchain: ethereum.
That has smart contracts which allows for dapps and for it to provide all the promises of internet money it would need only two things.
First, capacity. That’s being addressed, although perhaps a bit too slowly for the taste of some. It might not be another 2-3 years or realistically perhaps five years until it reaches a good enough stage with sufficient space to handle perhaps even world level commerce.
That would be a wonder in itself and whoever cracks it would be the internet money, but there are also other issues: usability.
It is currently somewhat complex to jump on the ethereum ship from the providers’ perspective and that of the users.
Providers arguably could tap into a blockchain infrastructure service like Infura, add some web3 code, and so blockchenize their site. Users could also simply download the MetaMask plugin and so access it.
Yet that approach adds friction because a site might not easily be able to serve both blockchain users and non-blockchain users. So eventually, if cryptos do become internet money, there would need to be at least one tradeoff in regards to centralization.
Browsers like Chrome and so on could themselves be a node and allow tap-able blockchain capabilities in a native manner. In addition they could provide every browser with a blockchain address where cryptonians can keep their spendable crypto.
That would then open huge opportunities, including automatic payments and so on, but would it be with actual eth or some other crypto?
As a currency, eth has significant problems, at least for now. Few go out of their way to buy dollars as an investment, for example, but plenty do for eth. That means the crypto is primarily an investment for now, so it is subject to volatile price movements.
That volatility makes it difficult to price something in eth, and thus makes it difficult to create a “real” eth economy as far as currency usage is concerned.
Such economy would act as a buffer against traders volatility, but the absence of it means there is no floor above perhaps 90% of the value as we have seen since 2018.
If there was real eth based commerce and it experienced a 90% drop in the value of the money within a relatively short time, then all that commerce would be destroyed.
The counterargument is that cryptos are still very nascent with volatility to lower considerably if they ever reach a $10 trillion market or $100 trillion.
We don’t have a crystal ball so we don’t know whether that would be the case with an argument against it being that a great deal of the volatility is due to the concentration of new supply in the hands of few miners due to the centralizing nature of Proof of Work (PoW).
There has been no major “proper” blockchain that uses Proof of Stake (PoS), so we don’t know how much the PoW argument really applies. What we do know is that volatility is unlikely to reduce to a significant extent in the near future.
By near future we mean perhaps five years. One important factor will be how scalability affects volatility. That’s because, in theory at least, if there is more capacity then presumably there would be more use cases and thus there would be a wider distribution so there may be some sort of crypto economy backing eth or whichever coin manages to achieve it.
In such scenario one can potentially envision a natively digital currency that is widely used on the internet. With the internet being a real part of the economy, it may spread into the physical space and thus gradually upgrade paper or fiat money or complement it.
Volatility, however, might remain potentially due to the chicken and egg problem. As cryptonians pay merchants crypto, merchants insta-convert it into a more stable currency due to volatility, with that insta-conversion then itself being a cause of volatility.
That might perhaps be gradually solved as more and more just keep it in crypto due to wider adoption, but it may be the case that the internet money isn’t something like bitcoin or eth, but something running on top of ethereum or perhaps some other eth like blockchain that plans to launch.
We say ethereum because in its current form bitcoin can’t do tokens very well, yet five or ten years down the line things may have changed considerably as bitcoin is afterall just code not really controlled by anyone.
In any event, based on where things stand at the present, something like ethereum might be more of erm… well gold ironically.
Unlike bitcoin, ethereum is actually acting as gold currently due to being used for collateralization on MakerDAO’s DAI.
Gold of course serves as a reserve currency, while one rising use case for ethereum is to also serve as a reserve of sorts for the algorithmically pegged dollar coin running on top of it, dai.
Dai is pegged to the dollar, but it can be pegged to anything you want. You can peg it to Apple’s stock price, or oil, or diamonds, or house prices, or literally anything that has a price.
That could act as a native internet currency, but it would have a subtle problem which doesn’t really matter for most people, yet could potentially matter in black swan events.
The dollar could crash or it could be inflated to pay off the current $21 trillion debt, making it a better currency than most for now, but not as good as it could potentially be.
As this is just code, rather than pegging the currency to something, there could be an algorithm that has price data as an input based on the onchain transactions made with the crypto. That data is then used to algorithmically manage supply with the aim of keeping the purchasing power roughly constant.
Now that’s rocket science and we’d be lucky to see even a working prototype within perhaps 20 years, but it is what natively digital money could mean.