Copyright John T. Reed 2014

The hacker community created a digital currency called bitcoin. It was an instant hit with various kooks like hackers, conspiracy theorists, gun nuts, gold bugs, paranoiacs, criminals, and anarchists. Why? Apparently some mix of anonymity, “the Man” has no control over it, and “the feds don’t like it so it must be good” childishness. And the media loved it because it was man bites dog and titillating.

In the last couple of weeks, however, serious business media types like the Wall Street Journal and Fortune have explained an actual intelligent use for parts of the silly digital anonymous currency idea.

‘Distributed ledger’

First, stop calling it bitcoin. The Fortune article (2/24/14) says the actual valuable idea is called a “distributed ledger.”

There is a brief Wikipedia article about Ripple, an early form of distributed ledger. Ripple is not a currency. Rather, it is a protocol. In computing/Internet, a protocol is simply a set of rules which are a consensus convention, like driving on the right, signaling before you turn, having brake lights, and so on in vehicles.

The p in the common Internet URL letters http is for protocol. (HyperText Transfer Protocol).

Here is a key sentence from the Wikipedia article:

The Ripple network enables secure, instant and nearly free global financial transactions of any size with no chargebacks. It supports any fiat currency (dollars, yen, etc.), cryptocurrency (bitcoin, litecoin, etc.), commodity or other unit of value (frequent flier miles, mobile minutes, etc.).

Instant, free, worldwide payment system

Note that it is a fast, free way of sending money anywhere in the world. “No chargebacks” means you cannot do as credit card users can and change your mind about a payment after you make it. All sales are final—which is about the same as many common cash transactions. And although Ripple can use bitcoin, it doesn’t need bitcoin. Transactions can be denominated in any type of unit of value.

There do not appear to be any store-of-value aspects to a distributed ledger. Store of value is one of the core functions of money. When you put money in a savings account you are using the store-of-value function. The other two functions of money are medium of exchange and unit of account. Ripple appears to perform those two functions, but that does not make it money, as bitcoin supporters claim it is, but merely a payment method like credit cards or debit cards or SWIFT.

In contrast to bitcoin which was “created” by “Satoshi Nakamoto”—a fake name apparently—Ripple was created by an actual person: Ryan Fugger of Vancouver, Canada. Not sure Fugger is better than Nakamoto, but at least we can tell if he’s is an al Qaeda terrorist, which “Nakamoto” may be. There is no creating new “coins” by “mining” as in bitcoin. Jed McCaleb reportedly cerated an improved version of Ripple that got rid of the central clearing house and the need for bitcoin.

Counterparty risk

I am not endorsing Ripple. It just has the attraction of being founded by known, experienced people and makes no pretense about being a way to stick it to The Man. There is counterparty risk in any on-line financial transaction service. The Fortune and Journal articles made no mention of Ripple.

I suspect the ultimate application will be a creative destruction payment system introduced by a very trustworthy company with no legacy, old payment system inhibitions—like Apple. Banks are trusted, but they would not want to encourage this faster, free system because it would kill off their current profits collecting a rake off on Internet transactions.

A free, instant, distributed ledger payment system would be to current payment systems what Craig’s List is to newspaper classified advertising: Enemy #1.

The killer apps that made the Internet famous were email and search. The killer app that made desktop computers popular was spread sheets. Fortune says the killer app suggested, but not achieved, by bitcoin is the trustworthy, instant, free or cheap transfer of money or other assets to others anywhere in the world. Such a thing would be a great improvement over existing payments systems like credit cards, SWIFT, PayPal, debit cards, snail mailed or FedExed checks, etc.

Fortune says this has all sorts of non payment applications as well, like your searches not having to go through Google computers where they data mine you or not having to have a phone number assigned by a phone company.

The issue is not bitcoin, but distributed ledgers that are trustworthy, fast, and free or cheaper than existing payment systems.


I like the idea of Xoom. That company will send cash to friends or family around the world cheap. You tell them to send the money and they give you a transaction number. You send the transaction number to a person in a foreign country. 15 minutes later, they then take their passport and go to certain local stores. When they show the passport and transaction number, the local merchant hands them local cash. In Argentina, which currently has high inflation and capital and price controls, the Xoom currency conversion rate is much better than the official rate. See my Dolar Blue article.

This is not quite distributed ledgers because of the in-person passport presentation. But it shows the potential for faster cheaper international payment systems than SWIFT.

There is no need for a digital currency per se. Cash and “junk silver” and, to a more cumbersome extent, gold and other precious metals already offer anonymity and there are plenty of well-managed, non-anonymous, fiat currency accounts if you do not like the USD or EUR or whatever.

John T. Reed