There is already a high degree of trust there, and certainly anyone who understands what reverse engineering a dongle entails also understands why the alternatives are equally vulnerable to fraud.
That's already a risk every time your card leaves your sight. The details on the strip aren't much more than what's on the front of the card. I know I had access to people's cards back when I worked retail. The store-copy of receipts had full card number, name, and expiration date. This device is the least of your security worries when it comes to a credit card.
The details on the strip aren't much more than what's on the front of the card.
The magnetic stripe gives you Track 2 data, which you can't read of the card without a machine.
To step back a bit: I love how elegantly Square has adapted the market's current de facto e-payment option, but I have to wonder if that's really the way forward. If Square is really in it for the long haul, they'll probably do a Netflix: build a solid business on applying good UX to the current technology, then use that leverage to pioneer in the next paradigm.
Not only that, I remember hearing years ago about a scam where a cashier had a PDA and was swiping the cards twice that came through the register, once in the register and once in a card reader attached to the PDA.
Theres no doubt that the concept and execution of square is ahead of the curve, but there certainly exists an array of intangibles that may prevent it from gaining critical mass.