This morning Block (formerly Square) CEO Jack Dorsey tweeted that venture capital firms and their investors control most blockchains. Dorsey has always endorsed the Bitcoin blockchain only and has never supported Ethereum and other blockchains.
“You don’t own ‘web3’,” his Tweet read. He continued, “The VCs and their LPs (limited partners) do. It will never escape their incentives. It’s ultimately a centralized entity with a different label. Know what you’re getting into….”
Elon Musk followed up with, “Has anyone seen web3? I can’t find it.” To which Dorsey responded, “It’s somewhere between a and z,” alluding to venture capital firm Andreesen Horowitz known as a16z.
One of a16z’s partners replied to which Dorsey responded:
Dorsey’s original tweet might be in response to a recent web3 article in the Wall Street Journal entitled, “Jack Dorsey and the Unlikely Revolutionaries Who Want to Reboot the Internet.” More revealing still is Dorsey’s retort: “I have nothing to do with ‘web3’. WSJ and others need names and photos to generate clicks.”
Dorsey has repeatedly dismissed Ethereum and other blockchains, alluding to a lack of decentralization. In August, he did a retweet, including a statement that “The Ethereum Foundation is bankrolled by their premine.”
Bitcoin did not start with an ICO, and Satoshi’s tens of billions of Bitcoin holdings are untouched. Hence it’s considered a “Fair Launch” as opposed to an ICO or free token drop where the founder and their backers keep a significant proportion of the tokens and can use them to incentivize others to participate.
While some might dismiss this as trivial banter between billionaires, there’s a decent philosophical debate to be made and a lot of truth to Dorsey’s statement.
The issue: Crypto promotes itself as decentralized
One of the main cryptocurrency pitches is that the users own the protocol and it will provide decentralization. Users may indeed profit from rising token prices and own a tiny share, but there’s no question that the ones that reap the most benefit are the creators and their backers.
That’s the way most startups have always worked and in itself is not a problem. However, there’s also no question that those founders and their backers have very significant influence, which often amounts to control. That’s also consistent with conventional startups. So it’s selling the promise of decentralization which may sometimes appear disingenuous. Although frankly, users often don’t care. They just want to receive some tokens and increase their own wealth.
At the same time, the incentive-fueled token economy has stimulated a lot of development. Dorsey’s point is that it may not be towards a genuinely decentralized goal.
However, a different question is whether decentralization is possible above the protocol layer? Looking at the applications on Ethereum and Solana, there are usually a small number of winning apps in a segment. That in itself is a kind of centralization. Think Uniswap in automated market making and Metamask in wallets. In many ways, the centralization of wallets is a far more significant issue.
Someone asserted that the Twitter protocol is owned by VCs, to which Dorsey responded “No it’s not, and no it’s not. Twitter is advancing a protocol not owned by itself or VCs, @bluesky.” The latter is the open source initiative for decentralized social media.
Our view is that this is what Dorsey is aiming for. Something that is closer to the open source beliefs than the cryptocurrency world.
Why the debate matters
As we’ve stated before, Block (formerly Square) is in a unique position in the future of money and payments. Not because its CashApp supports Bitcoin. But because it is one of a very small number of organizations that has physical point of sale retail outlets. While those merchants might currently accept mainly Visa and Mastercard, using Square, they can potentially receive digital money and get around Mastercard and Visa’s legacy platforms.
But if Dorsey wasn’t around, would that not just be replacing Visa and Mastercard with a different centralized player, Square? The one big difference is under Dorsey’s control, Block isn’t likely to be such a big rent seeker.
With the Square merchant app’s unique position and a founder that gives more than lip service to the belief that blockchain-based payments can be more inclusive, Dorsey’s thoughts on the topic matter far more than most.
Note: the author owns no bitcoin and less than $500 ETH