Deliver liquidity, multiple ledgers at a time please

The low friction cost of Bitcoin is an appealing parts of its proposition. You can send bitcoins at a fraction of the cost of traditional payment platforms. Now that user interfaces are improving and supported by more secure technologies such as TEE the overall usability of Bitcoin as a payment platform begins to look more and more appealing.

But results are lagging. One of the main reasons that is grinding the Bitcoin dream to a halt is the volatility of the cryptocurrency. The lack of a fixed exchange rate with fiat currencies makes for an unattractive proposition where any user could suddenly pay x% more or less for a product or service. As a payment solution, Bitcoin is undoubtedly a great alternative. But since it’ll never be pegged to the Euro, Dollar or any other fiat currency it’s potential remains unfulfilled.

Distributed ledgers such as Ripple allow fiat currencies, backed by gateways, to exist on the ledger and be transacted as if it was a cryptocurrency. While this appears to be a great solutions the challenge now lies in how to transfer these fiat currencies from the Ripple ledger to another ledger, say the Ethereum blockchain. In short: You can’t. You’ll have to redeem the funds at the gateway where they were issued, wire them back to your bank account and deposit them with a different gateway.

For now the promise of frictionless payments via distributed ledgers can only be fulfilled when the funds reside on one distributed legder and remain there. This scenario is unlikely to sustain given the diversity of altcoins that already exist and the progress of many fintech companies to offer new services based on this frictionless promise. This is especially true for smart contract-based blockchains, whose utility accelerates as soon as both the funds and the contract can be stored and transacted.

If we want distributed ledgers to exchange value we’ll need to look beyond gateways that only transact value to and from a distributed ledger. Exchanges already fulfill a service where cryptocurrencies can be exchanged but when it comes to transacting with the real world, everything slows down to the same crawl we’re already used to. Ideally the right to redeem funds from a certain gateway can be transferred to another ledger (for example with a smart contract), otherwise gateways would have to act as a means of transfer and the cost of liquidity on a distributed ledger becomes as high as they are today.

Distributed ledgers hold a frictionless promise when it comes to volatile cryptocurrencies. Only once we’re able to transact fiat currency in between blockchains this promise can be fulfilled. If not we’ll just be stuck with a bunch of ledgers that can’t exchange real world value amongst each other, much like the system we use today.


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