Jack Dorsey quits Twitter to spend more time with his other business, Square. In some ways, the choice between Twitter and Square is a direct choice between political clout and profit. Square, a payments platform co-founded by Dorsey in 2009, is worth nearly three times Twitter’s current value at around $ 97 billion (£ 73 billion). But Square will never be credited with the equivalent of the “Twitter revolution”, nor will it make headlines by banning a former president.
Venture capital is to pay money in cryptocurrencies and payment platforms. Twitter, on the other hand, having only started to become profitable since 2018, has always been more notable for its political impact than for its commercial appeal. However, Twitter, like the larger social industry of which it is a part, may experience limits to its growth. In terms of business reach, Twitter is no competitor to industry giants like Facebook, YouTube, WhatsApp, Instagram, and TikTok, which each have over one billion users. But even Facebook and Instagram are slowing down.
Generation Z is shutting down major platforms. Downloads from Facebook and Instagram have declined, according to a 2019 Bank of America report. Twitter and Facebook have lost ground with businesses due to this demographic shift in demand. By capitalizing on the boom in video sharing, TikTok has captured an audience much younger than Facebook or Twitter. Some companies are also dropping social media altogether, from fashion house Bottega Veneta to Tesla, Lush and JD Wetherspoon.
It makes sense that investors are looking for the next big thing in tech, and social media bosses are looking for ways to cash in on the cryptocurrency bubble. Prior to his departure, Dorsey had tried to expand Twitter by offering crypto-based payments and non-fungible token services. His replacement as CEO, Parag Agrawal, has been tasked with developing Twitter’s crypto strategy, and it seems likely that Twitter will continue to plow this area.
Twitter isn’t the only social media company trying to exploit such opportunities. Facebook’s parent company, Meta, has attempted to launch a cryptocurrency that could be sent worldwide through Facebook products, so far to no avail. This decision makes more sense for a platform like Facebook, given that it has historically offered a patchwork of services, such as video, photo, fan pages, games, buy and sell, etc., compared to the service of Simple microblogging from Twitter.
However, it’s not just about profitability. It is about the economic power of belief. Dorsey is also a cryptocurrency fanatic. A particular champion of bitcoin, he claims that he will “one day unite a deeply divided country” behind him, and ultimately become the “single currency” of the world. Square accepts payments on its cash app from bitcoin, but no other cryptocurrency. Recently, Square released a white paper for a decentralized bitcoin exchange platform that would appear to freeze competing cryptocurrencies.
Dorsey is also a pessimist about fiat currencies – those issued by governments. “Hyperinflation”, he oracularly warns, “Will change everything. It’s happening. It is baseless. Recent inflationary pressures due to increased production and transit costs caused by Covid and extreme weather conditions are real. But there is no hyperinflation in the global economy. Given Dorsey’s profile and its potential impact on investors, this might be seen as a reckless thing to say; but it also reflects the strange ideology of all bitcoin enthusiasts.
According to its followers, bitcoin is a deflationary force that circumvents the inefficiencies and tyrannies of central banks and fiat currencies. It is deflationary because it is designed to mimic the supply of a real world commodity, gold. This means that the number of coins that can be mined is limited: the supply will eventually reach a cap with 21 million bitcoins. So even though, as the People’s Bank of China recently noted, the digital coin is not backed by any real value, it functions as its own virtual gold standard. Additionally, Bitcoin apologists say, decentralized blockchain technology eliminates all middlemen, a principle that can be deployed in games, finance, and social media. It makes transactions cheaper and faster and keeps efficient records without the oversight of a large state.
The advantage of this “upstart” libertarian ideology is that it directly corresponds to the commercial interests of bitcoin investors. Currently, a bitcoin will trade for £ 42,973. But it wouldn’t be worth a dime if enough investors hadn’t decided to treat it like gold. It is “hyperstition”: a fiction that comes true because enough people believe it. All currencies are based on what Michel de Certeau called a “secret network” of believers. We all need to believe, not only in the value of the currency we trade, but also in what others believe in it. We look to a higher power, usually the central bank, to secure this conviction. In the case of cryptocurrencies, the technology itself is said to eliminate the need for all of these elaborate systems. This is typical of “Californian ideology,” which mixes the values of the libertarian right with the countercultural ethics of some of the Internet pioneers.
Yet far from causing great disruption, the value of cryptocurrencies is primarily a by-product of the evolution of fiat currencies. The latter benefited from a glut of unused investment capital due to the institutionalization of quantitative easing. The crypto boom since Covid has therefore been made possible by central banks sending money through the roof. Ironically, cryptocurrencies have benefited from precisely the kind of central bank policies that the libertarian right tends to complain about.
Dorsey’s belief in a single global cryptocurrency is not likely to happen. And, as economist Yanis Varoufakis has pointed out, it would actually be disastrous for bitcoin to replace fiat currencies. The “bitcoin community” would have no incentive to increase the money supply in the event of a crisis. This scenario would benefit wealthy coin holders, such as tech monopolies, investment bankers, and energy oligarchs, while destroying the lives of everyone else.
Nonetheless, we would be foolish to underestimate the belief backed by available investment capital. Since at least 2017, when a bitcoin has been trading below $ 1,000 (£ 750), there has been an overabundance of articles explaining why the bitcoin bubble is not sustainable. But, far from collapsing, it continues to soar. Even after Elon Musk ditched the coin earlier this year and China banned traders from offering bitcoin prices, its tradable value increased. The total value of cryptocurrencies today is close to $ 3 billion. With Amazon looking to accept bitcoin payments, there is room for further growth. Dorsey’s messianic belief in the power of crypto will likely pay off with profits for a while, in a way the Twitter hype never has been.
If we underestimate the economic value of belief, we will underestimate the magnitude of the bubble’s growth.