PayPal's Wences Casares: 'I Can Imagine A World In Which Bitcoin Becomes A Global Standard Of Value'

In a recent interview with PayPal President and CEO Dan Schulman, PayPal Board Member and Xapo CEO Wences Casares shared his vision of a world where bitcoin becomes a global, apolitical standard of value.

Casares is known as "patient zero" in terms of Silicon Valley’s interest in Bitcoin and blockchain technology, but he thinks the road to success for Satoshi Nakamoto’s original creation may be much more boring than most of the people in Silicon Valley and on Wall Street would like to think. In the recent interview, Casares was also asked to compare Bitcoin with the distributed ledger technology (DLT) being worked on by major banks and the alternative public blockchains that compete with Bitcoin more directly.


Bitcoin vs Blockchain Technology

Although it became somewhat fashionable for people to say that they’re interested in blockchain rather than bitcoin a couple of years ago, Casares believes this is an ignorant viewpoint to hold.

“That shows quite a lot of ignorance about how the system works because that would be the equivalent of saying, ‘I like the web, but I don’t like the Internet,’” Casares told Schulman. “Well, the web doesn’t work without the Internet. The blockchain doesn’t exist without bitcoin.”

Casares went on to explain that, in his view, the key, world-changing attribute of the Bitcoin blockchain is that it is no longer necessary to trust anyone else to verify the data held in a particular database. Instead, the level of trust in the data found in the blockchain exists on a spectrum related to the amount of work that has been expended on the verification of that data. In other words, a transaction gains more trust as it receives more confirmations from miners on the network.

“A blockchain of four banks — it’s a database of four banks,” added Casares. “It’s nothing new. That’s not really a blockchain. A blockchain is something where you don’t have to trust any counterparty.”

In Casares’s view, Bitcoin is the only blockchain working at scale in this manner, and that is due to the financial incentives around mining the bitcoin asset.


The Incentives for Everyone to Build Around a Single Blockchain

When asked about cryptoassets more generally, Casares was quick to point out that anyone making a prediction in this area is nothing more than a speculator.

“I think that this is an experiment, and as such, nobody really knows what the outcome of the experiment [will be],” said Casares. “It will take a long time, and a lot of different things can happen.”

In terms of his “best guess”, Casares analogized Bitcoin to the early days of the Internet. According to Casares, solid cases were made for the use of different Internet protocols for different use cases. For example, TCP/IP could be used for low-bandwidth applications (email for example), while X.25 could be used for something like Netflix.

This is similar to how some people view Bitcoin as a network for digital gold today, while Ethereum is a network for smart contracts or Monero is a network for privacy-focused transactions.

“Even though it made some engineering sense, it didn’t really make sense as a whole,” said Casares in terms of using different protocols for different use cases in the early days of the Internet. “There were huge incentives [around TCP/IP]. Today, the Internet won, and TCP/IP transports everything . . . Even things you never imagined — at some point, [started] being transported via TCP/IP.”

To Casares’s point, layer-two networks on top of the base Bitcoin blockchain, such as the Lightning Network or sidechains, are intended to enable any value-related use of a blockchain. For example, RSK recently launched the beta version of an Ethereum-esque sidechain for Bitcoin (also see my post on the effect the Lightning Network may have on altcoins focused on low-value transactions).

A counterpoint from advocates of alternative public blockchains would be that the security assumptions of sidechains are not well-tested at this point.

From Casares’s perspective, the success of TCP/IP was due to the incentives for everyone to build around a single, robust protocol. In his view, the incentives around the use of one protocol for digital value transfer are even stronger.

“There is a huge incentive to have one very, very robust blockchain,” said Casares. “At least for any process that, in the end, will be moving value of any kind.”

If everyone built around the same blockchain, the amount of trust that can be placed upon that particular blockchain would increase due to the financial incentives in mining. Basically, the security of the Bitcoin blockchain would be much greater if alternative proof-of-work blockchains were ignored.

In Casares’s view, there will be one blockchain that becomes the standard. This is similar to how there is one Internet and there are not separate networks at the base layer for Skype, web browsing, and every other Internet application.

“I think we’re going to have one blockchain for value,” Casares continued. “There may be other use cases that do not entail value that may merit a different blockchain, but in terms of value, it’s most likely, in my opinion, that we’re going to have one. And right now, the most likely one seems to be the Bitcoin blockchain.”

Casares then reiterated that this is a “highly speculative” viewpoint and Bitcoin is still an experiment. However, he indicated that there is a greater than 50% chance of success and roughly 20% chance of failure for Bitcoin during the opening portion of the interview.

Casares added that there are a number of possible use cases of blockchains that may not have anything to do with the transfer of value, which leaves the door open for the existence of Bitcoin alternatives.


The Boring Case for Bitcoin

While there is a large amount of excitement generated around Bitcoin in Silicon Valley and Wall Street, Casares is of the belief that the cryptoasset network’s road to success could be rather boring. Casares claimed that Silicon Valley is waiting on a killer app and Wall Street would like to see more use of the technology as a payments mechanism. However, the Xapo CEO can envision a world where neither of these scenarios play out and bitcoin still succeeds.

“I can imagine a world in which neither one — in which they keep waiting and they never see the killer app and they never see payment adoption, yet bitcoin or cryptocurrencies win and people are forever late,” said Casares.

In this hypothetical scenario, bitcoin would be used as a global standard of value that could be used to price every other asset in an apolitical manner. For example, fiat currencies would be quoted in bitcoin rather than other fiat currencies. Casares added that our children may one day wonder how assets were fairly priced in a world before bitcoin.

“I can imagine a world in which bitcoin becomes a global standard of value — it’s the first global and non-political standard of value — coupled with the first global and non-political standard of settlement,” said Casares. “That would be super powerful. It doesn’t really need a killer application or much payment adoption to become that, but that would change the world as we know it. It would be the biggest leap forward in the democratization of money we’ve ever seen.”

It could be argued that bitcoin’s role as an apolitical store of value was solidified by the abandonment of the SegWit2x hard fork proposaljust days before it was supposed to activate. Ironically, Casares’s bitcoin wallet provider Xapo was a supporter of the New York Agreement, which was the basis for the SegWit2x proposal.

Casares added that tracking the the success of Bitcoin may be a boring process, similar to tracking the adoption of email over time. There are simply more people using the protocol every year.

“Success looks like more of the same,” said Casares after covering Bitcoin’s adoption metrics up to this point (Bitcoin enjoyed a tenfold increase in dollar-denominated transaction volume per day in 2017 alone).