From Square to the Block

Jack Dorsey has relinquished his CEO role at Twitter, the company he co-founded, to focus on Block, the new name for the Fintech powerhouse previously known as Square. As of 10 December, Dorsey will be solely devoted to Block and its business divisions Square, Cash App, Tidal, Spiral and TBD, the last two being Bitcoin and crypto initiatives.

As part of its acquisition of Afterpay, Block will be listed on the ASX and likely included on ASX indexes, giving local index investors crypto exposure, whether they like it or not.

The Square brand will remain as part of its Seller business, in which Square enables businesses to accept payments for goods and services. But Block, Dorsey tweeted, “references the neighbourhood blocks where we find our sellers, a blockchain, block parties full of music, obstacles to overcome, a section of code, building blocks, and of course, tungsten cubes”.

For the uninitiated, Tungsten cubes have recently become fashionable amongst the crypto set, possibly because their physical heft contrasts with the virtual nature of crypto — Tungsten is apparently 1.7 times the weight of lead. (Of course, they may simply be another entertaining meme).

Dorsey’s references to blockchain, code, building blocks and Tungsten cubes clearly point to Block’s future direction.

The rebrand includes a renaming of Square’s crypto project to Spiral to reflect its singular focus on Bitcoin rather than the crypto space in general. “Bitcoin’s growth will be like a spiral from a single point, encompassing more and more space until it touches everything,” according to a Square tweet. Investors will no doubt hope that the trajectory is up, rather than down.

Spiral is pursuing “open-source projects aimed at making bitcoin the planet’s preferred currency” including:

1. A software development kit (SDK) for Bitcoin’s 2^nd layer Lightning Network.
2. An SDK for Bitcoin’s base layer network.
3. A Bitcoin design community to foster better user experiences.

Spiral’s focus is helping other developers of Bitcoin-related products and services to reduce the work effort and simplify the complexity of getting to market. In that sense, Spiral is a business-to-business (B2B) business rather than a business-to-consumer (B2C) business.

TBD, Block’s other Bitcoin-focused initiative, aims to develop a decentralised exchange to convert fiat currency to Bitcoin and vice versa. TBD recently released a white paper describing tbDEX, a “Liquidity Protocol”.

“The tbDEX protocol facilitates decentralized networks of exchange between assets by providing a framework for establishing social trust, utilizing decentralized identity (DID) and verifiable credentials (VCs) to establish the provenance of identity in the real world,” TBD says.

The whitepaper also says it provides “the infrastructure necessary to create a ubiquity of on-ramps and off-ramps directly between the fiat and crypto financial systems without the need for centralized intermediaries and trust brokers. This makes crypto assets and decentralised financial services more accessible to everyone”.

While Spiral and TBD are directly Bitcoin focused, Block’s CashApp mobile wallet business and Tidal, the music streaming platform founded by rapper Jay-Z that it bought a majority stake in, aren’t left out in the crypto cold.

Block’s Q3 earning report said that Cash App’s revenue from Bitcoin sales via the mobile wallet app reached $US1.82 billion for a profit of $US42 million, up 11 per cent and 29 per cent respectively year-on-year, and incredibly, a compound annual growth rate (CAGR) of 250 per cent and 343 per cent respectively over the last two years. This is a 2.3 per cent profit margin for clipping the ticket on Bitcoin sales.

Cash App also recently announced that it would open the mobile wallet up to those aged 13 and above for peer-to-peer payments using fiat currency. Adding Bitcoin would likely drive incremental revenue, although so far, that hasn’t been announced.

Tidal’s synergy with Block’s focus on Bitcoin is perhaps less obvious, although one possible tie up could be Tidal’s register of artists and the current crypto craze for non-fungible tokens (NFTs).

In much the same way as Square has enabled numerous Sellers to accept payments and conduct both offline and online commerce, Tidal could enable artists to tokenise their creative output in the form of NFTs and take a cut of any associated fees, which could also potentially be paid using Bitcoin.

“The internet wants a native currency and I think bitcoin is probably the best manifestation so far,” Dorsey has said. “Everyone should be able to participate in cryptocurrencies and access the innovation underlying them”. 

The founder and CEO of what will become a significant listed company on the ASX is a Bitcoin bull and is putting Block’s considerable resources to work to further the growth of Bitcoin related products and services. In this context, this is quite remarkable.

CBA’s recent crypto announcement and tie up with Gemini demonstrates that it at least recognises the opportunities and challenges before it from the likes of Block, and the enthusiasm amongst younger investors for crypto, NFTs and related emerging technologies.

It will be fascinating to see how Block’s strategy influences the response of other local FIs, Fintechs and investors. But certainly, Block’s presence on the ASX register alone means that investors will no longer be able to ignore Bitcoin, crypto, NFTs and the like. The future is here.