Menus Subscribe Search
bitcoin-illo

(ILLUSTRATION: CARLOS AMARILLO/SHUTTERSTOCK)

What Comes After Bitcoin?

• July 02, 2013 • 8:00 AM

(ILLUSTRATION: CARLOS AMARILLO/SHUTTERSTOCK)

Activism. Education. Publishing. Now it’s time for the Internet to revolutionize our outdated banking system. Meet some of the cryptocurrencies vying for a spot in your digital wallet.

Bitcoin, a digital currency launched by the pseudonymous programmer Satoshi Nakamoto in 2009, hit a peak trading value of $266 per coin in April 2013, the biggest point in a bubble that would burst soon after.

The cryptocurrency, which is anonymous, untrackable, and can be used to buy illicit goods online, caught the attention of the U.S. government—and not in a good way. In May, the U.S. Department of Homeland Security froze the Wells Fargo account of Mt. Gox, the largest exchange that trades Bitcoin for other currencies, arguing that the company broke anti-money laundering laws. On June 20, the exchange suspended withdrawals from its accounts in USD, leaving users with piles of less-than-liquid Bitcoin (still worth around $95 each).

But even as it drew political and legal controversy, Bitcoin highlighted the possibilities of a mainstream digital currency. “The current banking system sucks because it was invented 60 years ago, before the Internet was created,” Jonathan Mohan, the founder of BitcoinNYC, a digital currency-focused meet-up group, complained to me in a recent phone conversation. Cold, hard cash has inherent inefficiencies. It’s bulky and difficult to transfer between owners (wheelbarrows notwithstanding). These days, money is barely even paper bills—it’s just a number stored on a computer signifying credit or debit. Digital currencies take that idea one step further, creating self-regulating mediums of exchange through peer-to-peer networks.

When transferring money in today’s international banking system, the value has to move through several entities before it gets to the end user, and each middleman takes a cut.

Bitcoin might be the largest such network, but its success has given rise to a new generation of digital currencies, each with its own vision for the future of money.

Ripple is one of the main contestants for the title of Bitcoin successor. Launched by OpenCoin, a company founded by Chris Larsen in 2012, Ripple is both a currency and a payment system that promises to create a frictionless, transparent method for instantly transferring money anywhere in the world, in any currency. It’s already catching on—in May of this year, the company received investment from none other than Google Ventures. “We are doing for money what email did for communication,” Larsen wrote to me.

OpenCoin is Larsen’s third technology start-up, but each business has changed how we think of money and what can be done with it. E-Loan made credit scores free and available to customers while Prosper created an online infrastructure for making personal loans outside of the banking system. “All three companies share a common DNA—to eliminate needless waste and middlemen in the financial process,” Larsen explained.

Ripple exists in two parts: the XRP, a mathematically regulated currency unit similar to Bitcoin, and a payment system. Users have “wallets” on the Ripple system that they can add value to in any currency by means of an online exchange backed by a bank, like Bitstamp (Mt. Gox doesn’t deal in XRP). Once the wallet is full, that value can be transferred to any other user on the Ripple network in any currency in seconds. Bitcoin transactions, in comparison, can often take minutes to verify.

When transferring money between currencies in today’s normal international banking system, the value has to move through several entities like banks and exchanges before it gets to the end user, and each middleman takes a cut of the value. Ripple minimizes that process to one step, moving effortlessly between USD, Yen, Bitcoin, XRP, or even Icelandic Krona with just one exchange. The only charge is a tiny fraction of an XRP (currently worth slightly more than a penny), which guards against the kind of large-scale cyber attacks that have disrupted Bitcoin.

Ripple’s potential is to make businesses like Western Union, which charges an average of 10.8 percent in money transfer fees, obsolete, giving a capital influx to countries that depend on worker remittances. It could also subsume Bitcoin itself. On July 2, OpenCoin announced that Ripple holders can send money to Bitcoin users in any currency, and they will receive it in Bitcoins. The move provides access to the Bitcoin economy for the newer currency, and also creates a simple bridge between Bitcoin and other non-digital currencies.

Like Ripple, MintChip is a digital currency designed to make monetary exchanges smoother—but it’s run by a government rather than a private company. The Royal Canadian Mint says that its new system is “better than cash,” but it’s actually a technology-enabled equivalent of the Canadian dollar. Like an official version of Bitcoin, MintChip “operates without the need for personal identification, is instantaneous and does not have any age or credit requirements for use,” Marc Brule, the RCM’s chief financial officer, recently noted. “MintChip could be the digital equivalent of cash for online transactions.”

Each currency has its strengths and weaknesses. Overseen by a government, MintChip certainly can’t match Bitcoin’s anonymity or its utility for buying illegal goods. Nor does Ripple provide a “solution without an agenda,” Mohan critiqued, because it’s controlled by a for-profit business rather than mathematics. Some have even suggested that Ripple’s owners are hoarding the currency. Created by Charles Lee in 2011, Litecoin is the frontrunner for a Bitcoin successor that remains wholly independent.

“We wanted to make a coin that is silver to Bitcoin’s gold,” Lee explained in his post launching the currency. In order to discover new Bitcoins, users must “mine” them with high-end computer equipment by solving complex equations. Litecoins, currently worth around $2.80 each, are easily mined by any normal computer set-up, and the currency has more coins in circulation than Bitcoin, with an 84 million cap versus Bitcoin’s 21 million. This accessibility, along with its increased transaction speeds and better encryption, means that Litecoin might have an easier time of being adopted by more mainstream users.

These examples are just the most prominent in a sea of obscure cryptocurrencies. There’s DYM, a Ripple-based currency that uses pre-1965 U.S. silver dimes for backing, and Feathercoin, which Mohan described as the “copper to Litecoin’s silver.” Freicoin augments Bitcoin with a charge that mounts the more time you don’t spend currency, the reverse of gaining interest from savings.

Despite roadblocks and competition, there’s also a chance that Bitcoin is simply the best in the field. Every currency depends on its users’ trust for legitimacy, and Bitcoin still has the largest fan base by a long shot.

No matter what denomination they come in, now that cryptocurrencies have broken into the mainstream, they’re not going back. What remains to be seen is which currency will emerge victorious: Bitcoin, Ripple, or a future, government-controlled digital payment structure. The competition could be a good thing. “Technology has revolutionized communication, health care, and dozens of other industries … but our underlying financial infrastructure has hardly changed,” OpenCoin’s Chris Larsen argued. “We are finally evolving.”

Kyle Chayka
Kyle Chayka is a freelance technology and culture writer living in Brooklyn. Follow him on Twitter @chaykak.

More From Kyle Chayka

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

July 29 • 10:29 AM

How Textbooks Have Changed the Face of War

War is more personal, less glorious, and more hellish in modern textbooks than in the past. But there’s still room for improvement.


July 29 • 10:00 AM

The Monolingual American: Why Are Those Outside of the U.S. Encouraging It?

If you are an American trying to learn German in a large German town or city, you will mostly hear English in return, even when you give sprechen your best shot.


July 29 • 8:00 AM

The Elusive Link Between Casinos and Crime

With a study of the impact of Philadelphia’s SugarHouse Casino, a heated debate gets fresh ammunition.


July 29 • 6:00 AM

What Are the Benefits of Locking Yourself in a Tank and Floating in Room-Temperature Saltwater?

After three sessions in an isolation tank, the answer’s still not quite clear.


July 29 • 4:00 AM

Harry Potter and the Battle Against Bigotry

Kids who identify with the hero of J.K. Rowling’s popular fantasy novels hold more open-minded attitudes toward immigrants and gays.


July 29 • 2:00 AM

Geographic Scale and Talent Migration: Washington, D.C.’s New Silver Line

Around the country, suburbs are fighting with the urban core over jobs and employees.


July 28 • 4:00 PM

Border Fences Make Unequal Neighbors and Enforce Social Inequality

What would it look like if you combined Israel, the West Bank, and Gaza, demographically speaking? What about the United States and Guatemala?


July 28 • 2:00 PM

Are Patient Privacy Laws Being Misused to Protect Medical Centers?

A 1996 law known as HIPAA has been cited to scold a mom taking a picture of her son in a hospital, to keep information away from police investigating a possible rape at a nursing home, and to threaten VA whistleblowers.


July 28 • 12:00 PM

Does Internet Addiction Excuse the Death of an Infant?

In Love Child, documentary filmmaker Valerie Veatch explores how virtual worlds encourage us to erase the boundary between digital and real, no matter the consequences.


July 28 • 11:11 AM

NASA Could Build Entire Spacecrafts in Space Using 3-D Printers

This year NASA will experiment with 3-D printing small objects in space. That could mark the beginning of a gravity-free manufacturing revolution.


July 28 • 10:00 AM

Hell Isn’t for Real

You may have seen pictures of the massive crater in Siberia. It unfortunately—or fortunately—does not lead to the netherworld.


July 28 • 8:00 AM

Why Isn’t Obama More Popular?

It takes a while for people to notice that things are going well, particularly when they’ve been bad for so long.


July 28 • 7:45 AM

The Most Popular Ways to Share Good and Bad Personal News

Researchers rank the popularity of all of the different methods we have for telling people about our lives, from Facebook to face-to-face.


July 28 • 6:00 AM

Hams Without Ends and Cats Tied to Trees: How We Create Traditions With Dubious Origins

Does it really matter if the reason for why you give money to newlyweds is based on a skewed version of a story your parents once told you?


July 28 • 4:00 AM

A Belief in ‘Oneness’ Is Equated With Pro-Environment Behavior

New research finds a link between concern for the environment and belief in the concept of universal interconnectedness.


July 25 • 4:00 PM

Flying Blind: The View From 30,000 Feet Puts Everything in Perspective

Next time you find yourself in an airplane, consider keeping your phone turned off and the window open.


July 25 • 2:00 PM

Trophy Scarves: Race, Gender, and the Woman-as-Prop Trope

Social inequality unapologetically laid bare.


July 25 • 1:51 PM

Confusing Population Change With Migration

A lot of population change is baked into a region from migration that happened decades ago.


July 25 • 1:37 PM

Do Not Tell Your Kids That Eating Vegetables Will Make Them Stronger

Instead, hand them over in silence. Or, market them as the most delicious snack known to mankind.



July 25 • 11:07 AM

The West’s Groundwater Is Being Sucked Dry

Scientists were stunned to discover just how much groundwater has been lost from beneath the Colorado River over the past 10 years.


July 25 • 10:00 AM

Shelf Help: New Book Reviews in 100 Words or Less

What you need to know about Bad Feminist, XL Love, and The Birth of Korean Cool.



July 25 • 8:00 AM

The Consequences of Curing Childhood Cancer

The majority of American children with cancer will be cured, but it may leave them unable to have children of their own. Should preserving fertility in cancer survivors be a research priority?


July 25 • 6:00 AM

Men Find Caring, Understanding Responses Sexy. Women, Not So Much

For women looking to attract a man, there are advantages to being a caring conversationalist. But new research finds it doesn’t work the other way around.


Follow us


Subscribe Now

How Textbooks Have Changed the Face of War

War is more personal, less glorious, and more hellish in modern textbooks than in the past. But there’s still room for improvement.

NASA Could Build Entire Spacecrafts in Space Using 3-D Printers

This year NASA will experiment with 3-D printing small objects in space. That could mark the beginning of a gravity-free manufacturing revolution.

The Most Popular Ways to Share Good and Bad Personal News

Researchers rank the popularity of all of the different methods we have for telling people about our lives, from Facebook to face-to-face.

Do Not Tell Your Kids That Eating Vegetables Will Make Them Stronger

Instead, hand them over in silence. Or, market them as the most delicious snack known to mankind.

The West’s Groundwater Is Being Sucked Dry

Scientists were stunned to discover just how much groundwater has been lost from beneath the Colorado River over the past 10 years.

The Big One

One in two full-time American fast-food workers' families are enrolled in public assistance programs, at a cost of $7 billion per year. July/August 2014

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.