Two Visions for World Currency, Compared
Satoshi Nakamoto, the mysterious creator(s) of Bitcoin once stated its vision was to “create a global currency that was independent of interference by cartels of banks and governments that were debasing their currencies.”
Actually, this statement is from Luke Nosek, one of the co-founders of Paypal. Luke is describing the original vision for Paypal during a panel at the World Economic Forum entitled Can Digital Currencies Strengthen Trust in a Chaotic World? To paraphrase Luke’s own words, although Paypal has achieved great innovation, it has fallen short of its original vision. That is, to create a global currency independent of interference by sovereign states or central banks.
Luke also indicates that by the urging of early investors, Paypal’s creators were never able to fully realize their goal of creating a truly decentralized cryptocurrency. Paypal settled for centralization, which required a huge compliance machine upon a maze of international money transmission laws.
Thus Paypal’s promise was beset by the phenomenon it initially hoped to avoid: Paypal being disrupted by governments because of inability to follow international money laws, and Paypal blocking its own users for the sake of further cooperation with its international networks. Paypal has played this game well, and has built an innovative payments network that is accessible in most countries worldwide.
No matter Paypal’s efforts, however, its access can be shut down by governments on a whim. In 2016, for example, Paypal had to halt operations in Turkey because of a new law requiring the company to host data centers in the country (presumably for surveillance or censorship purposes). The closure likely affected tens of thousands of businesses and hundreds of thousands of customers.
Beyond Turkey, the list of other blank spaces on Paypal’s map of world dominion is limited. Geopolitical danger zones, or countries under U.S. sanctions, mainly comprise Paypal’s remaining blind spots: Cuba, Myanmar, Pakistan, Afghanistan, etc. Citizens in these countries suffer from extremely limited access to the global financial system.
U.S. sanctions are designed to isolate and punish bad actors in the international political system, especially corrupt dictators. The effectiveness of sanctions, however, has a long history of mixed results, or in the words of the Brookings Institution: “Sanctions are blunt instruments that often produce unintended and undesirable consequences.”
Financial sanctions targeting dictatorships may harm innocent citizens living under the regimes while also scapegoating the United States. Autocratic governments, not sanctions, is the root problem however. And according to the Human Rights Foundation, over 50% of the world population lives under an authoritarian regime.
If you are a citizen whose only crime is being born under the dominion of one of these dysfunctional, autocratic regimes, is there a digital payments option to potentially take Paypal’s place? Evidence is growing that a solution to economic repression may be found in Bitcoin, a peer-to-peer electronic cash that does not require a trusted third-party to approve (or censor) transactions.
Anyone, anywhere with internet and wallet software can receive or send Bitcoin directly, so Bitcoin’s presence has grown in autocratic regions. In September, U.S. News reported an estimated 10,000 Cubans using Bitcoin to overcome economic obstacles. From online purchases to renting hotel rooms and topping up cellphone bills, Bitcoin seems to be facilitating digital payments for those who have been otherwise barred from the global economy.
Further, countries like Turkey do not need Paypal bans to effectively repress its economic potential. Turkey’s economy has long been wracked by government corruption and monetary inflation. Frivolous bans against innovative fintech systems like Paypal represent only one of Turkey’s many economic woes. It is no surprise then, that Turkish citizens are meaningfully adopting a decentralized alternative:
And there is evidence of Bitcoin’s use in almost every other country Paypal is restricted from serving: In May, the Central Bank of Myanmar said that Bitcoin was being used as digital payment for individual use or services in May. And in Pakistan, meaningful Local Bitcoins trading is occurring against its national currency, the rupee:
Even Afghanistan shows evidence for Bitcoin’s unstoppable payments network. When a nonprofit devoted to digital literacy for women wanted to pay Afghani women for their work, it found traditional payment systems to be insufficient: “PayPal wasn’t an option for paying the students for their work — the payment system isn’t available in Afghanistan — and Western Union transactions were quickly dismissed for their hefty international transaction fees.” Instead, the organization ended up using Bitcoin to send payments to Afghani women.
Of course, however, Bitcoin is no panacea. Bitcoin has significant UX, educational, regulatory, and volatility issues that hinder its use as a truly global monetary system. Hopefully some of these drawbacks will lessen as development and adoption improves. Regardless, today, any global citizen can receive or send Bitcoin across borders, with only an internet connection and a Bitcoin wallet.
Could Paypal compete with Bitcoin?
Paypal’s current CEO, Dan Schulman, recently indicated his belief that Bitcoin’s innovation is not a competitor to Paypal’s digital payments, by saying: “Until it becomes less volatile, it won’t be a currency that is widely accepted by merchants on the web.” As further proof that Paypal does not believe Bitcoin is a competitive threat, Dan even declares that he currently owns Bitcoin. Peter Thiel, co-founder of Paypal, likens Bitcoin to “digital gold” instead, as it is too cumbersome for use for digital payments.
Turkey’s case study also may back up the digital gold thesis. Turkey has a long history of gold demand by its citizens, as a check against monetary debasement. So it’s likely no coincidence that Turkey also leads in global cryptocurrency adoption. Due to rampant fiat currency inflation, Bitcoin valued in Turkish Lira has recently flirted with all-time-highs, years after Bitcoin’s infamous 2017 bubble. Inflation and capital controls make Bitcoin useful as not only digital gold as seen in Turkey, but also as a digital payments system as seen in places like Cuba.
Future development, and geopolitics, will likely continue to grow Bitcoin’s promise as a store of value and/or digital payments system. In the meantime, Bitcoin is fulfilling Paypal’s original vision. That is to create:
“A digital currency that would be controlled by individuals instead of governments.” -Peter Thiel, Zero to One
