Menus Subscribe Search

Follow us


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 Now it’s time for the Internet to revolutionize our outdated banking system.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

November 21 • 4:00 PM

Why Are America’s Poorest Toddlers Being Over-Prescribed ADHD Drugs?

Against all medical guidelines, children who are two and three years old are getting diagnosed with ADHD and treated with Adderall and other stimulants. It may be shocking, but it’s perfectly legal.



November 21 • 2:00 PM

The Best Moms Let Mess Happen

That’s the message of a Bounty commercial that reminds this sociologist of Sharon Hays’ work on “the ideology of intensive motherhood.”


November 21 • 12:00 PM

Eating Disorders Are Not Just for Women

Men, like women, are affected by our cultural preoccupation with thinness. And refusing to recognize that only makes things worse.


November 21 • 10:00 AM

Queens of the South

Inside Asheville, North Carolina’s 7th annual Miss Gay Latina pageant.


November 21 • 9:12 AM

‘Shirtstorm’ and Sexism in Science

Following the recent T-shirt controversy, it’s clear that sexism in science persists. But the forces driving the gender gap are still being debated.


November 21 • 8:00 AM

What Makes a Film Successful in 2014?

Domestic box office earnings are no longer a reliable metric.



November 21 • 6:00 AM

What Makes a City Unhappy?

According to the National Bureau of Economic Research, Dana McMahan splits time between two of the country’s unhappiest cities. She set out to explore the causes of the happiness deficits.


November 21 • 5:04 AM

Sufferers of Social Anxiety Disorder, Your Friends Like You

The first study of friends’ perceptions suggest they know something’s off with their pals but like them just the same.


November 21 • 4:00 AM

In 2001 Study, Black Celebrities Judged Harshly in Rape Cases

When accused of rape, black celebrities were viewed more negatively than non-celebrities. The opposite was true of whites.


November 20 • 4:00 PM

Women, Kink, and Sex Addiction: It’s Not Like the Movies

The popular view is that if a woman is into BDSM she’s probably a sex addict, and vice versa. In fact, most kinky women are perfectly happy—and possibly healthier than their vanilla counterparts.


November 20 • 2:00 PM

A Majority of Middle-Class Black Children Will Be Poorer as Adults

The disturbing findings of a new study.


November 20 • 12:00 PM

Standing Up for My Group by Kicking Yours

Members of a minority ethnic group are less likely to express support for gay equality if they believe their own group suffers from discrimination.


November 20 • 10:00 AM

For Juvenile Records, It’s ‘Justice by Geography’

A new study finds an inconsistent patchwork of policies across states for how juvenile records are sealed and expunged.


November 20 • 8:00 AM

Surviving the Secret Childhood Trauma of a Parent’s Drug Addiction

As a young girl, Alana Levinson struggled with the shame of her father’s substance abuse. But when she looked more deeply into the research on children of drug-addicted parents, she realized society’s “conspiracy of silence” was keeping her—and possibly millions of others—from adequately dealing with the experience.



November 20 • 6:00 AM

Extreme Weather, Caused by Climate Change, Is Here. Can Nike Prepare You?

Following the approach we often see from companies marketing products before big storms, Nike focuses on climate change science in the promotion of its latest line of base-layer apparel. Is it a sign that more Americans are taking climate change seriously? Don’t get your hopes up.


November 20 • 5:00 AM

How Old Brains Learn New Tricks

A new study shows that the neural plasticity needed for learning doesn’t vanish as we age—it just moves.


November 20 • 4:00 AM

The FBI’s Dangerous Misrepresentation of Encryption Law

The FBI no more deserves a direct line to your data than it deserves to intercept your mail at the post office. But it doesn’t want you to know that.


November 20 • 2:00 AM

Brain Drain Is Economic Development

It may be hard to see unless you shift your focus from places to people, but both destination and source can benefit from “brain drain.”


November 19 • 9:00 PM

Gays Rights Are Great, but Ixnay on the PDAs

New research suggests both heterosexuals and gay men are uncomfortable with public same-sex kissing.


November 19 • 4:00 PM

The Red Cross’ Own Employees Doubt the Charity’s Ethics

Survey results obtained by ProPublica also show a crisis of trust in the charity’s senior leadership.



November 19 • 2:00 PM

Egg Freezing Isn’t the Feminist Issue You Think It Is

New benefits being offered by Apple and Facebook probably aren’t about discouraging women from becoming mothers at a “natural” age.


Follow us


Sufferers of Social Anxiety Disorder, Your Friends Like You

The first study of friends' perceptions suggest they know something's off with their pals but like them just the same.

Standing Up for My Group by Kicking Yours

Members of a minority ethnic group are less likely to express support for gay equality if they believe their own group suffers from discrimination.

How Old Brains Learn New Tricks

A new study shows that the neural plasticity needed for learning doesn't vanish as we age—it just moves.

Ethnic Diversity Deflates Market Bubbles

But it's not in the rainbow and sing-along way you'd hope for. We just don't trust outsiders' judgments.

Online Brain Exercises Are Probably Useless

Even under the guidance of a specialist trainer, computer-based brain exercises have only modest benefits, a new analysis shows.

The Big One

One company, Comcast, will control up to 40 percent of Internet service coverage in the U.S., and 19 of the top 20 cable markets, if a proposed merger with Time Warner Cable is approved by regulators. November/December 2014

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