Beyond Bitcoin: the other new currencies paired with payment systems

Bitcoin is just the starting point: realities like Ripple and Blockstream are examples of an evolution towards a totally decentralized finance.


Last week, the giants of the Bitcoin world met in Amsterdam for their annual conference on the evolution of this technology. The atmosphere was one of a movement that was beginning to become a mass movement, opening up increasingly to the world of business and institutional finance. The future of Bitcoin was discussed in terms of regulation and business, as well as technologically.

Among the participants at the conference there were those who think that Bitcoin is only just the beginning of a process, and that other waves of innovation are about to hit the world of finance. According to some, in fact, Bitcoin is the first step in a long march towards a new form of finance that is completely decentralized.

And one of these people is David Schwartz, chief cryptographer at Ripple Labs. Ripple is, like Bitcoin, a protocol finalized for making online payments in a distributed manner, without having to resort to traditional financial networks. It is one of the innovations in the sector of mathematical money, and according to some it could be the next important step after Bitcoin. The difference is that in  Ripple the network is less decentralized, even though it permits faster transactions (in terms of seconds rather than minutes).

With a nerdy look and total disposition to explain what is happening behind the scenes, Schwartz immediately clarifies that Ripple is not in competition with Bitcoin. Bitcoin is, effectively, both a payment system and a currency and – according to Schwartz – a more fluid payment system for Bitcoin could make it emerge as a better reserve currency, or Fiat money, than those of central banks. Even if it is not totally convincing, the current argument rotates around the idea that the market today is dominated by incumbents that are so big that there would eventually be room for everyone. For a demonstration of this Schwartz updates us on the focus of Ripple Labs now: diffusing the Ripple protocol where Bitcoin has more difficulty penetrating.

The sector is that of intrabanking payments, where a single financial institution moves resources from one department to another, often using the same interbaking networks, which are costly and add up significant commissions on transfers. The German bank Fidor was the first to be convinced of this opportunity and will integrate, in fact, Ripple into its internal transaction system. Schwartz admits that a network like Ripple will need years for it to reach full regime, and also for this reason the focus of the company is limited to financial institutions, rather than private companies or individuals. In a not so distant future Ripple could even be used to manage credit but – notes Schwartz – it is still too early to talk about this. At the moment, there is still a lot of work to do, also considering the fact that they are working on distribution systems for ID management that would allow the network to remain distributed but be more “compliance-friendly” than big brother Bitcoin, therefore limiting the legal hassles for those who decide to use it.

And, finally, on the topic of XRP, the currency at the base of the Ripple network, of which the company holds 20% of the total in circulation, Schwartz confesses that he is satisfied with the fact that the sale of XRP is both a source of earnings that the business is currently supporting itself with, as well as having collected 9 million dollars from investors and venture capitalists. For the future business model, Schwartz touched on the topic of added value service for companies that want to delegate some aspects of the connection to the Ripple network to in-house management. But even in this case it is too early to really discuss it: today, the task is that of increasing the network and reaching the critical mass necessary to begin managing consistent payment volumes. The aim, at least what was spoken about, is not that of making money but, rather, that of releasing a good open-source code. If XRP money does not take off, or if Ripple itself is not successful, for Schwartz, the important thing is having pushed ahead by at least one step a protocol that can be used and improved on by others.

In this, Schwartz is not alone: other brilliant minds are working on interesting innovations for the Bitcoin protocol.

English cryptographer Adam Back is the creator of Hashcash, a digital currency that contained some of the essential characteristics that Bitcoin adopted years later. Today, he is at the head of the startup Blockstream. Founded in Canada with the support of investor Austin Hill, Blockstream is determined to allow for an improved connection between the spinal cord of Bitcoin, the blockchain, and eventual parallel networks, which Back calls “side-chains”.

There is a whole undergrowth of altcoins, alternative currencies to Bitcoin, which start from zero attempting to imitate the functions. The innovation that Back wants to bring is that of allowing this experimental money to support Bitcoin as an underlying foundation, to render it more liquid and favor the growth of Bitcoin and avoiding useless competition. Blockstream can boast of having both Jorge Timon and Mark Friedenbach on its team, the two creators of the Freicoin money and authors of the “Freimarkets” proposal, a system that would permit any economic operator to access credit without passing through the traditional banking system. It is a sort of trust peer-to-peer. The proposal, which was not very successful at the time of its publication, was very interesting to Back who invited the two developers to Canada to join the Blockstream team, and their vision reality under his protective wing. One of the goals of Back is to realize a “smart card” system where companies and individuals can make complex operations, much more so than those possible with Bitcoin and Ripple, to emit titles of any type of asset using Bitcoin as the currency of reference. While the majority of the Bitcoin community seems to focus on the disintermediation of traditional payment systems, these proposals aim at another market that is currently dominated by giant financial credit institutions. Just as today Bitcoin permits payments with a liberty that was once inconsiderable, could it soon be possible for a company to access the credit necessary to grow without having to pass through a bank? Friedenbach and Timon think so. The two, like Schwartz, are more interested in the advancement of technology than in business. Blockstream might make it or not, but what is important to them is pushing the boundary of what is possible with cryptocurrency.

Schwartz, Back, Friedenbach, and Timon are just a few of the minds occupied with the evolution of Bitcoin. From a certain point of view the most interesting aspect of Bitcoin is the community of people of such high caliber intelligence that are dedicating time and energy to “reprogram” the currency. Satoshi Nakamoto has opened a Pandora’s box, and it is improbable that this evolutionary process will be interrupted. The Bitcoin protocol, which for the masses is still science fiction, is already obsolete for this community: apparently they seem like simple hackers, but, in reality, they are constructing worlds. A code line at a time, they are building the future of finance, setting the foundations of the economic world that we will probably be living in within the next decades.