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Bitcoin has potential to disrupt existing traditional payment networks, especially with the growing adoption of the Lightning Network, executives from payments company Block (SQ) said during its virtual investor day Wednesday.
The Lightning Network provides a cheaper and faster way to process bitcoin transactions than directly on the Bitcoin blockchain.
“Bitcoin is going to have a profound impact on financial services, particularly as a tool for economic empowerment and as a global currency for the internet,” Block Chief Financial Officer Amrita Ahuja said during the presentation.
Block, which was formerly known as Square, is building integrated hardware and software to address self-custody with its wallet, along with a decentralized mining system. Jack Dorsey, its CEO, is a well-known proponent of Bitcoin.
“These initiatives are early in their development,” Ahuja said. “We intend to build out in the open.” She added that Block expects self-custody to be the “future of decentralized finance” as the process becomes easier for individuals.
With respect to mining, Ahuja said that bitcoin mining currently is “not conducive for consumers or small companies to participate” in, and Block wants to expand access to the field. Ahuja said Block’s mining initiative also seeks to add resilience and security to the bitcoin ecosystem.
Ahuja said that with its TBD initiative, Block wants to enhance and change how consumers and financial institutions interact, ranging from verifying indemnity to underwriting and transferring money globally. TBD is a decentralized exchange that Block is building.
Brian Grassadonia, Cash App's co-creator and lead, said that Bitcoin is a positive for Block as customers bring money into the overall ecosystem, with "multiple opportunities for monetization." In addition, given Block's network scale, Grassadonia believes Cash App can help bitcoin "evolve beyond an asset class," and offer more transactional utility for individuals. Since bitcoin was incorporated into Cash App in 2018, the company has seen mover 10 million monthly active bitcoin users within its app, according to Grassadonia.
In the first quarter, Cash App, Block’s peer-to-peer payments service that allows users to directly buy and sell bitcoin, generated $1.73 billion in bitcoin transactions and $43 million of gross profit. Block also holds a significant amount of bitcoin on its balance sheet.
Block is also trying to build out a mining platform as the current barriers to enter mining remain high, said Jesse Dorogusker, who leads bitcoin hardware and Blocks's streaming music service Tidal. Dorogusker said he sees mining as a potentially "sizable" business opportunity for Block.
Bitcoin mining systems are tough and pricey to acquire, while the manufacturing and sales of bitcoin ASICs are concentrated amongst a small group of companies, he noted.
Block wants to build its own bitcoin ASIC that will be optimized for cost, performance and smart system integration. Dorogusker said the custom ASIC will be part of any system Block builds, and that the company plans to make it available for sale to other developers.
Miners will store mined rewards in a bitcoin wallet, creating new opportunities for distribution and integration with Block’s bitcoin wallet or Cash App, he said.
Current mining systems also lack optimal clean energy use, Dorogusker added. He said he sees an opportunity to create a distributed mining cloud service that relies exclusively on clean energy.
“Addressing all of these shortcomings will create a more durable and decentralized Bitcoin ecosystem,” he said.
UPDATE (May 18, 18:41 UTC): Updates to include comments from the lead of Cash App.
UPDATE (May 18, 20:46 UTC): Updates to include commentary on bitcoin mining.