Bitcoin enthusiast and Twitter CEO Jack Dorsey recently put his mobile payments company Square at the center of one of the most talked about areas of innovation in finance. On Thursday of last week, Dorsey announced on Twitter that he would launch a decentralized finance (DeFi) platform for developers to create projects based on Bitcoin (BTC).
Square plans to ride the fourth crypto wave
Dorsey, who says he would be working on Bitcoin if he were not working at Twitter and Square, announced that he plans to create a “new business” with the “goal of making it easy to create non-custodial, permissionless, and decentralized financial services.”
Dorsey tweeted: “Our primary focus is #Bitcoin. Its name is TBD.”
The latest announcement came after Dorsey confirmed that his fintech company is working on a Bitcoin hardware wallet.
The DeFi market size has surged from less than $1 billion at the beginning of the pandemic year to an all-time high of $87 billion in May this year.
The so-called fourth crypto wave of DeFi has attracted a lot of capital last year and shows little sign of slowing. At its core, it promises a technology that is meant to end the role of mediators in the financial system. The first crypto wave was Bitcoin innovation followed by Ethereum (ETH) and the initial coin offering boom of 2017.
Why is Square’s entry in DeFi markets gaining heat?
DeFi has already attracted a significant amount of capital in the last year alone, but Square’s involvement could completely change the DeFi market.
In an act of rare innovation for an established financial services company, Square wants to build a DeFi platform based on Bitcoin instead of Ethereum smart contracts or other DeFi enabled blockchain cryptocurrencies.
The lack of smart contract ability, the main ingredient for dApps, has made it challenging for Bitcoin to compete with Ethereum for developers.
Currently, the de-facto crypto leader’s network is not supporting smart contracts. Nevertheless, Square’s strategy of building a DeFi platform on the Bitcoin network could create fierce competition among the leading cryptocurrencies.
The upcoming Bitcoin upgrade, which is the first in four years, is due to take effect in November. Also known as Taproot, the upgrade could support Dorsey’s plan to offer DeFi business on the Bitcoin network. Along with greater transaction efficiency and privacy, the upgrade will unlock the potential for smart contracts like what Square is building.
“The most important thing for Taproot is…smart contracts,” said Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings. “It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain.”
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