The Twitter Investment Thesis and Why Jack Dorsey Should Go to Africa

Disclaimer: NOT investment advice. Just a thesis. You are on your own.

tl;dr: Jack Dorsey’s combination of vision, principles, and assets put Twitter in a unique position for growth and Africa will be a primary beneficiary.

Over the last year or so, the CEO of Twitter, Jack Dorsey, has increased the frequency and intensity of his belief in a few key trends–among them are Bitcoin, decentralization, and Africa.

Here’s my working thesis for what he might do to deliver a ton of value to Twitter shareholders while addressing a number of massive and critical global infrastructure issues.

By no means is this fully fleshed out. I am sure there are holes in it. Plus, what I am discussing is far from trivial on the implementation/execution side.

Finally, it is a contrarian view on Dorsey. Scott Galloway’s open letter to the Chairman of Twitter’s board lists plenty of reasons why Dorsey is the worst possible CEO.

I’m not going to debate all of those points. I don’t know enough about Twitter’s business to be in a position to refute the points. Plus, the recent stock and revenue performance evidence speaks for itself.

However, when I take the prevailing market sentiment and the nature of the opportunity that Twitter is uniquely positioned to pursue, I think it could be a good time to buy.

Queue Warren Buffet:

That’s a nice platitude, of course, but of all the places to be “greedy” (ht: GG), why Twitter?

[Note: I am not endorsing greed. Just using it for illustrative purposes.]

The Market Needs to Be Addressed

I’ve discussed ad nauseum* the issues around the unbanked, personal reputations that aren’t portable or self-sovereign, and the challenges of fiat currency and central banks.

There are hundreds of posts on each of those, so highlighting all of those data points will be redundant.

Given the extent of the problems facing the world in the categories of trust, immigration, and poverty, there is a critical need to figure out how to:

• bridge the gap between the underbanked/unbanked and the existing financial system for things like credit.
• liberate the underbanked/unbanked from the constraints of the existing financial system which cannot effectively serve them given the laws of economics.
• create a global, decentralized registry for trusted identity that would improve the verifiability of ratings, reviews, and news stories.
• deliver the benefits of a global, social network where data is owned by each member and control is decentralized to avoid the advertising/privacy dilemma that faces all the incumbents today.
• mainstream Bitcoin in order to protect the world’s most financially vulnerable people from the inflationary tendencies of central banks and irresponsible fiscal behavior on the part of governments.

and there’s probably more.

Yes, I realize it’s a big statement, so, let’s dive in.

The Opportunity in Africa

Back on November 27th, Jack tweeted that he was planning to spend 3-6 months in Africa in 2020.

While some people like Galloway are ticked off by this, I think it is a brilliant move.

Africa, Asia, and South America have the largest percentage of people who are not connected to the global financial system.

According to the World Bank,

The region is home to all eight economies where 20 percent or more of adults use only a mobile money account: Burkina Faso, C?te d’Ivoire, Gabon, Kenya, Senegal, Tanzania, Uganda, and Zimbabwe. Opportunities abound to increase account ownership: up to 95 million unbanked adults in the region receive cash payments for agricultural products, and roughly 65 million save using semiformal methods.

These areas (especially Africa and South America) also have more than enough experience with a corrupt government and irresponsible central bankers.

Zimbabwe is the leader of this pack, but hyperinflation across Africa is, sadly, a common occurrence. In fact, 18 of the top 26 countries in terms of high inflation (all above 8% annually) are in Africa.

Given the mobile penetration and weak existing FinServ infrastructure, plus the history of weak government and banks, Africa could “leapfrog” to a purely digital, decentralized monetary economy in much the same way that Eastern Europe skipped landlines and went directly to cell phones following the collapse of the Berlin Wall.

The Czech Republic, for example, went from 0% penetration in 1997 to more than 100% penetration (people have multiple phones) by 2003.

Bottom line: the opportunity to bring modern financial services, cost-effectively to a huge market is there. And the need is there as well.

Of the continents in the developing world, Africa stands to benefit the most for a number of reasons and, by extension, the global community will be better off, as well. For more on the growth potential, see this recent article from the Washington Post on celebrities and Ghana. Still, there are legions of structural reasons why the challenges will be astrononical.

What Square Brings to the Table

One possible solution for the first bullet above (“bridge the gap”) is Square.

Square is a fin-tech unicorn that has grown from $203 mm in revenue to $3.2 billion in revenue in 6 years. Its Q3 earnings for 2019 were $1.27 billion.

There are plenty of articles that highlight the growth, the penetration in the SoHo market, and the competitive advantages that it offers over Visa and other traditional processors.

Before Square, the “gap” was 3.5% (what Visa charges). Now, the fees are lower. The gap has already closed a bit. In short, Square has experience in bridging gaps in the financial services market.

So, it would make sense for Square to look at Africa hard, so much so that the CEO maybe should consider moving there?

The good news is that he is planning to. [nb: Dorsey is also the CEO of Square].

Imagine getting every African to have a Square account.

That’s a huge Total Addressable Market (TAM).

While we are on the topic of Square, it is interesting to note that the company also processed $125 million in Bitcoin revenue in Q3/2019 which was a doubling for the revenue generated in Q1 2019.

I saw a quote somewhere, but can’t find it now, that had Square as the #1 or #2 onboarding mechanism to any crypto globally. (But again, that’s just my memory, so don’t hold me to that one).

Not only is Square selling Bitcoin and allowing for Bitcoin transactions, Jack’s also stated a “when, not if” on Lightning Network support for Bitcoin, which will make payments faster (though LN isn’t ready for prime time yet).

Square’s assets include merchant tools, a wallet (important!), and an established brand which is, I am guessing here, probably more trusted than most banks.

But most importantly, they have the backend infrastructure to connect to all of the other banks and the legacy system.

What Twitter Brings to the Table

Great, but that doesn’t explain how Twitter fits into everything.

Admittedly, there’s a lot of distance between where we are today and where I am proposing that Twitter could go, but I think where it fits in is around the identity piece.

Like there are blue checkmarks of “verified” identity today, each of us could have a “verified” identity. However, the current system doesn’t scale well as it’s centralized. There’s too much administrative overhead associated with Twitter being an identity provider.

However, a decentralized, community-driven verification system could scale.

Imagine that 10 other people have staked a portion of a Twitter “reputation score” on your trustworthiness, which they could lose if you turn out to be a liar as judged by a jury of your peers (part of a Twitter community-managed governance process).

That would incentivize people to only verify the identity of people who won’t cost them money by being a drain on society through lying or other behaviors that minimize trust.

Now, how something of this scale would work exactly, I have absolutely NO idea.

However, if it’s going to be decentralized and incentive-driven, it must be a crypto asset supported economy.

The challenge, of course, is that crypto-economics is hard. 

Building a business in this new business paradigm is an innovator’s game.

Yet, many people would agree that game theory and behavioral economics lies at the very heart around what will (and won’t) make a for the successful decentralized economy, powered by crypto assets.

Which is why I found potential support for this point when Dorsey said that he’s hiring a game theorist and a behavioral economist to try and understand how people use the service.

IF Dorsey’s team can figure out how to scale Twitter ID verification, then you have “proof of identity,” which you can take with you when you travel, emigrate, or need to request asylum.

The verification process must also be decentralized because of censorship issues.

I would bet that Dorsey doesn’t want or enjoy the responsibility of policing the global communications platform for spam and “fake news.”

Nor does he want to have to figure out which accounts get to stay and which get kicked off the platform. And he certainly doesn’t want to spend his time tracking down if an account is fake or not.

All of these are just extra baggage on their true mission:

The mission we serve as Twitter, Inc. is to give everyone the power to create and share ideas and information instantly without barriers. Our business and revenue will always follow that mission in ways that improve – and do not detract from – a free and global conversation.

What the last few years have taught us and, according to Professor Galloway, Twitter shareholders, in particular, is that a truly “free and global conversation” cannot take place in an environment where the environment is hijacked by those who yell the loudest (the more outrageously said, the better) or the most (bots, spammers) or the most mischievous elements among us (agents of mistrust, e.g. ‘fake news.’)

So, in order to fix Twitter, you have to fix identity.

And I think the best way to fix identity is to decentralize the process of verification AND create a system of incentives that rewards people for being honest, all supported by a layer of immutable, non-negotiable trust.

But the key thing that Twitter brings to the table is distribution and brand, which puts it in a position that only a few other companies have…and most of them are trusted less than Twitter is.

Few people know Square. Everyone knows Twitter. Key for marketing.

What Crypto (i.e. Bitcoin) Brings to the Table

The trust layer, of course, is where crypto fits in.

No centralized entity can provide all of the benefits to individuals that a decentralized network can.

There are many chains out there, but Dorsey has been relatively vocal about his focus on BTC.

From Forbes:

“[Bitcoin is] not functional as a currency,” Dorsey warned the Australian Financial Review.

“The peaks and troughs are like an investment asset and are equivalent to gold. What we need to do is make it more usable and accessible as a currency, but it’s not there yet.”

Dorsey, who has been talking to Australian media outlets during a tour of the country to promote Square’s launch of new payment terminals there, added he is though still convinced bitcoin will eventually be adopted more widely.

“I think [bitcoin is] the best bet because it’s been the most resilient, it’s around for 10 years, it has a great brand and it’s been tested a bunch,” Dorsey said.

“As I look at all cryptocurrencies that could fill that role of being the native currency for the internet, [bitcoin is] a pretty high probability.”…

“We love you, bitcoin,” Dorsey told investors at the time.

He’s right…it’s not functional yet.

Another good example comes from his interview with Joe Rogan published on Feb. 2, where Dorsey stated:

“[Bitcoin] was something that was born on the internet, that was developed on the internet, that was tested on the internet…It is of the internet

And he has expressed his love for Bitcoin.

So, a method for creating verified Twitter IDs at scale and securing those IDs to the Bitcoin blockchain provides the foundation for a global, independent, censorship-resistant form of identification. This then opens the door to a new finserv infrastructure.

With this type of infrastructure of trust (all based on the Bitcoin blockchain, possibly using a RIF sidechain)  around identity, then Square can start engaging in offering micro-financial services at scale (think a digitally-native Grameen Bank).

The tech best suited to handle micropayments (e.g. Basic Attention Token from Brave or sablier.finance or any of 100 other examples) as well as ensure delivery in a way that protects property rights is a blockchain-backed crypto asset.

How Twitter Shareholders Get Returns

With all of this in place (and this won’t happen overnight or in a year), Twitter then monetizes through a reverse ICO that unleashes the era of stakeholder capitalism and creates a globally-owned communications commons.

The tokens (another scenario where using a RIF sidechain could add value) are secured against the Bitcoin blockchain, but used for governance, reputational staking (against identity), and payment.

To head down this path, Twitter is funding the development of a decentralized social media protocol

It’s called, appropriately enough, the Blue Sky Team.

Twitter’s top lawyer clarified further.

Yes, there’s a ton of “magic happens here” that must occur, but Twitter shares, converted into tokens of the single most trusted source of identity and financial infrastructure in the world, become the object of increased demand as entrepreneurs seek to build services that leverage the strength and trust of the system.

Jack Dorsey’s WHY

So, why would Dorsey do anything like this?

Well, my theory is that it actually starts with his WHY.

Now, I have NO idea at all if I am on the right track here or not. What’s more, I’ve never met Jack Dorsey and can’t say that I’ve spent a ton of time analyzing his motives.

However, I am going to project out a bit based on a few things.

First, he has tweeted a fair amount on his views on Bitcoin, Africa (per above), and decentralization. Interestingly enough, he said ‘hell no’ to joining Libra.

Second, my assumption is that he still maintains the ideals that led him to start Twitter in the first place.

The early days of the Internet were very similar to the early days of crypto. People who passionately believe that the tech can make the world a better place.

They just happened to get really rich along the way.

Sure, there were opportunists who got the timing right and there are always scammers in a booming market. And while many of them did not foresee the rise of “fake news,” I think they would still contend (and I would agree with them) that the Internet is a net positive for the world.

I feel the same way about crypto as I wrote in What you may not understand about crypto’s millionaires.

More importantly, I think Jack Dorsey sees in crypto a way to go back to those idealistic roots, but this time enforce the ideals via code…thanks to the blockchain.

He obviously doesn’t need the money. He’s a reflective/introspective person (even if he does meditation retreats in questionable countries). And he’s committed to an open internet.

Trusted Global Identity Empowers the Most Vulnerable

About 20 years ago during the Internet 1.0 boom, I met a Nigerian-born lawyer who lived in London.

He said to me, “understanding the problems of Africa come down to understanding one thing above all else:

“There is no respect for property rights in Africa.”

That’s stuck with me all these years.

Now, I don’t know how much it is better or worse now. I’m sure there are some countries where improvements have been made, so it’s not a general statement. Yet, if you look at the bottom of the Corruption Perceptions Index, Africa is, sadly, well represented.

So, I imagine that the key to turning around the fortunes of Africa and the people who live there is to significantly raise the game when it comes to property rights, particularly digital property rights since keeping corrupt governments with guns away from physical assets is very difficult. Digital assets are challenging, too, to be sure, but lower risk.

Identity and personal wealth are two critical property rights. When you have governments that can cancel passports or seize money, the rights of each individual cannot be guaranteed.

Without the basic assumption (which the West enjoys, for the most part) that you have the guaranteed right to the property that you have acquired in accordance with the rules of the society, economic growth is going to be dramatically hindered.

All of this comes down to rule of law issues.

Decentralized networks will, at scale, enforce property rights more effectively than corrupt governments…and possibly better than some less corrupt governments.

By combining the strength of Bitcoin blockchain as a immutable layer of global trust, Square’s bridge to the existing financial system, and Twitter’s public-facing and (eventually decentralized) identity layer, massive reach/distribution, and brand, and focusing on the African market, Dorsey has a chance to truly “put a dent in the universe” and help improve the lives of billions of people and enrich Twitter shareholders at the same time.

Feel free to rip this apart!

*no joke re: “ad nauseum.” My wife and children actually do get nauseous whenever I start expounding on the potential for decentralized economies utilizing blockchain-backed crypto-asset monetary and fiscal systems.

Many thanks to Asher, Billy, Abie, David, Sean, Ron, and Arif for helping me think through some of these issues.