Human Property

Jack Dorsey, the founder of Twitter, plans to change the focus of his tech revolution from communication to something just as fundamental:  money.

The Los Angeles Times writes that Dorsey intends on developing a small plastic device called a “Square” that any cell phone user can add to his or her headphone jack.  The Square converts the telephone into a device that can read and scan credit cards.

From the Times:

Dorsey envisions the service replacing virtually every cash transaction. Let’s say a friend owes you $30 for dinner last week, but there’s no ATM in sight. Grab the Square device from your key chain, plug it into your phone and tell him to pay up.

If Dorsey’s Square is convenient and as easy as it sounds, then there may be significant changes up ahead with how we deal with our money.  Dorsey’s focus is on small transactions that currently go under the radar of most banks or other institutions, like buying something off of Craigslist:

Then there’s the untapped market on Craigslist. The free and ubiquitous classified ad website “is doing more transactions than EBay today and has no inherent payment mechanism,” Dorsey said. “It’s a huge market for us.”

But the Square’s potential effects are fundamental to the way modern economies work.  The Square would change the speed and convenience by which money exchanges hands — what economists call the “velocity” of money.  Money could change hands in seconds, not in hours.  What we would have is a true “peer-to-peer” model for monetary transactions, without any type of middle-man or intermediary.

The Square would affect the anonymity of money.  A big advantage of paper money is that it is anonymous.  You can pull out $20 from an ATM and spend it on anything you’d like, without any real trace of what you purchased.  This has benefits for people who would prefer their purchases to remain private — for legal and illegal reasons.

A world where every dollar transaction is recorded would contain a wealth of information, both good and bad.  Do we really want our purchases logged like that?

Consider another twist:  The Square would open interesting questions related to currency arbitrage.  Let’s say I had a friend with a bank account in Euros.  Given the fluctuation in exchange rates, could I simply transmit to him money on Wednesday, wait for the rate to increase, then make a profit by my friend simply sending the money back to me over the internet?  This seems like it would open a highly dangerous market for currency speculation, with people reacting in real-time to shifts in the market.  Do we want a world where currency speculation could happen in seconds?

Money, at heart, is simply an agreed upon medium of exchange.  Part of our attachment to money is no doubt sensory:  we see it, we touch it, we give it to other people.  Would “the dollar” mean as much to us, as opposed to some other currency, if it were simply an electronic number and not the comforting images of dour Washington, bold Hamilton, and confident Franklin?

Very little would prevent someone from opening a bank account in Euros or Pounds and hooking up the Square to that account, and simply using that currency in everyday life.  Suddenly, you see a world where consumers would be able to pick and choose their currencies as well.  People could choose Euros because it has a higher exchange rate, the Rupee because they want to support the Indian government, or the Pound because they just adore the Queen.  Much of the control exercised by governments through their use of currency would evaporate overnight.  This is truly radical, and it is likely that we would see governments pass laws to restrict the use of the Square to prevent this.

But, these days, anything can be hacked.  And here is where we come full circle in the use of money, and the devleopment of technologies.  For centuries, governments used gold and silver because everyone valued them.  Then, in the 20th century, governments used fiat currencies (without any backing of any metal) because they had more control over the money supply.  Now we potentially have a device that may let people pick and choose which fiat currency they wish to use as their preferred medium of exchange, thereby stripping governments of whatever power they obtained through the use of fiat money.  How will governments react?

Of course, maybe the Square won’t find an investor.  But with Dorsey’s name and Twitter under his belt, we may be looking at a truly revolutionary idea.