Someone like overstock, who’s a major corporation is just starting off their own coin. Isn’t it going to be a little bit too much to manage it for the average user? I think they need a coin to buy things from overstock. An average user is buying from something like the 50 different brands, should there be 50 different altcoins then? How do you see this?
I think it’s important to realize that as part of the transition towards fully programmable digital money, one of the things you are changing is this idea of having very high switching costs.
Switching costs in economic sense, and as a term used in economics, switching cost is the cost to switch to a different competing system. I’m with Comcast, I want to be with… oh wait, they bought all of them! I can’t find a single example of competition!
But the theory in economics is that when you have two substitute goods, and you try to switch between them, one of the considerations is the switching cost.
What is the switching cost with traditional currencies? It is actually quite high – if you want to switch from USD to EURO from EURO to YUAN, there’s some significant switching costs in that. And for many people around the world the switching costs are equivalent to infinity, because it is illegal or highly controlled as to who can use multiple currencies.
What happens in a world of digital programmable money, is that the switching costs drop to zero, and you have liquid systems that can be swapped.
One of the technologies that I’m really excited about now is the application of payment channels and simple smart contracts, to do what are called “atomic cross chain swamps.”
An atomic cross chain swap is when you take two chains and you nuke one of them. No. Atomic comes from computer science and it means indivisible, so an atomic cross chain swamp is a transaction that occurs effectively in a coupled way on both blockchains where I’m selling my Bitcoin and buying Litecoin from another individual. And we do two transactions.
I do a transaction on the Bitcoin network that gives them my Bitcoin, and they do a transaction on the Litecoin network that gives me an agreed-upon exchange rate amount of Litecoin. We both lock those in with multi-signature, and then we have secrets that we can exchange in such a way that they can’t cheat me by taking the Bitcoin and not giving me the Litecoin, and I can’t cheat them by taking the Litecoin and not giving them the Bitcoin.
That’s why it’s called atomic – either both of those happen, or neither of them happens. That way you don’t have to trust the other person – you can put up the money, worst case they disappear and three days later you just get a refund transaction. But if all goes well, you can do it swap between.
What happens when that becomes completely and fully automated, when essentially your currency can transmogrify itself into another currency instantaneously, fluidly, liquidly?
The other technology that’s really exciting is the possibility of Lightning Network which is routed payment channels, to have multi currency capabilities. Meaning that you have a lightening channel with some node, and you transmit Bitcoin down that lightning channel, and at the other end that gets converted and pops out as Litecoin.
So effectively the channel itself in between has atomic cross-chain swap is one of its functions.
Now you have a multi currency micro payments network that allows you to move any amount, even tiny tiny amounts with near zero fees between two currencies.
At that point what I hope to see is that wallets take over that, and you never see it. The wallet simply says: “Okay, I want to buy something from overstock.com – the example you gave. Query the overstock server, what currencies does it take? Here’s the list. What currencies do I have? Here’s a list. Which one can I do the fastest with lowest cost of transaction between the two? Or maybe in my wallet I’ve actually set it to optimize privacy. Which is the currency that it is going to use which is going to optimize currency, or minimize transaction fees, or maximize cross-border activity, or maximize mixing?” Why not?
And then my wallet will execute an optimal strategy. It will convert what it needs to convert into whatever it needs to execute that strategy, with a set of payment channels and lightning network channels it has.
Eventually all of that disappears into the background.
One of my thoughts is that maybe we start seeing a currency that only exists as a unit of account. It’s only used for pricing, and it’s not used for the actual transaction. You price everything in that, and that just translates on to everything else.
Who knows? If you want to see a world like that, go invent it! You know that’s basically how open source works: anybody who wants to build a wallet like that is going to be pretty useful. Go forth and build.