I was recently sent a link to an article discussing the development of "the money protocol". The idea has been around for awhile - we have standardized protocols for communicating between computers in form of TCP/IP and others, so it would similarly make sense to develop protocols for moving money around on the Internet just like now we move information around it. However, we will likely have more one new protocol created from Bitcoin and related technologies...
Accounting for all payments
In an ideal world, we would have everyone using the same currency on the same network. However, there are many reasons why this probably won't happen. Instead of hoping everyone will start using Bitcoin in the near future, we should assume that we will be dealing with many different currencies, both cryptographic, fiat and otherwise. We will need a protocol that can handle:
Atomically trading between multiple currencies at the same time
Locking in / confirming trades and money transfers
Providing digital receipts for the payment
All of those would need to be included in the same "money protocol". Once we figure out how to convey the information of who is sending the money, who is the receiver, which type of money is being spent and received (more on how this could look), we can finally start to connect different networks together. Whether it would be through W3C's Web Payments Community Group, something like Interledger or some other forms of bridges, we could finally be able to easily send money around (hopefully).
What's left?
When dealing with crypto as they say, money is the least interesting application. We also have smart contracts, proof of existence, etc. A lot of those applications of crypto will probably also warrant their own protocol - they don't exactly fall under "money protocol". I do believe the following will eventually become their own protocol on par with TCP/IP:
Proof of existence. As we all know, the Bitcoin blockchain is the most secure, inalterable record of history currently available due to the amount of computing effort put into it. Anything embedded in the blockchain can be forever referenced as the latest date some file could've been created. This functionality, perhaps expanded with protocols like Factom, can be a useful protocol for creating timestamped receipts and other applications.
Smart contracts / smart oracles / proof of execution. With Ethereum being released, we can expect to see more use of smart contracts for business applications. Smart oracles, such as the ones proposed by Codius. would compliment them to interface between the crypto and the real world. All in all, we could bundle those up into "proof of execution" - a protocol dictating what code needs to be run, at what time and by how many independent parties (some of them in form of computers, some in form of autonomous contracts), as well as what was the result of the execution. This could enable, for example, to build autonomous financial derivatives or contracts ("code is law").
Conclusions
It is very likely in the future we will see a "money protocol" similar to TCP/IP for money. It will have to encompass more than a single currency and network however. We are also likely to see more blockchain-based protocols emerge from the non-monetary applications of crypto.
In computer science, there is a concept of "pervasive computing" - an idea that instead of using a specific device to perform computation, it would instead be distributed "everywhere" and we would instead just use our devices as interfaces to access this ubiquitous computing environment. So instead of having say, a laptop or a PC where we run our programs, we could have a local cloud of computing devices to provide us with their resources at our disposal. Just as computing appears to be moving to this model with say, home game streaming, perhaps it's time for the banking services to take a clue as well?
What would constitute a pervasive banking experience?
The ability for anyone to access the banking network
The ability to cash in and cash out at any location, not just the banks and ATMs
The freedom to pay conveniently in any fashion
Number 1 we've discussed before. It would be really good if banks were considered to be a common carrier, and thus unable to refuse the service to anyone that pays the fees and follows the rules.
Number 2 is interesting. There are a few examples of some convenient cash in / out cropping up here and there. I've seen a few banks offering cash out services during checkouts at stores, Apple Pay looks like it will be offering P2P payments to allow people to pay for other people's purchases and what not, and Abra is looking into offering P2P remittance services.
Perhaps in the future we will see more companies embracing the "anywhere-in, anywhere-out" nature of banking and we might see say, self-checkout kiosks or even vending machines acting as our convenient ATMs? After all, if they can already accept deposits, make change and accept credit cards, they have all the functionality needed.
Perhaps this step will become easier once everyone is talking on a common standard. Luckily, we have a W3C Web Payment Interest Group hoping to create a standard protocol for payments (list of participants includes Ripple Labs, although I don't see any other cryptocurrency expert representing). It is possible that with the standard being established it would be easier for companies to build gateways in and out of the old banking systems and allow for everyone to be able to pay in a way that is the most convenient for them - cash, credit, mobile or crypto.
Conclusions
All in all, it seems that we are heading towards the pervasive banking / Singularity of Money concept on a few fronts, although it might still be years before the idea is fully realized.
I am a strong believer in the Crypto 2.0 space. I see the world heading towards the Singularity of Money, where the currency we transact in won't matter as much as the value of that currency. Today, I would like to share with you my thoughts on how various services we know from the Bitcoin ecosystem might look in the "2.0 world".
Exchanges turning into gateways
In the current model, we have a lot of Bitcoin exchanges. Everyone is trading their local currencies to and from Bitcoin. Because of this, every exchange has to fulfil a few roles:
Verify customer identity
Onboard and offboard both Bitcoin and fiat
Securely store both Bitcoin and fiat
Facilitate trades through its trading engine
Usually provide some open API for automatic trading
If the exchange fails on one of those aspects, they are essentially out of business - an exchange with a crappy trading engine is no good, neither is one that can't hold its BTC balance. Because of this, building an exchange is no easy task - you have to be proficient at all parts of your business.
Now, in the 2.0 world, a great deal of what an exchange does can be fragmented using the gateway model. Instead of dealing with everything, a gateway can focus on handling one part really well. We can have a gateway that handles only Bitcoin (onboarding, offboarding and securely storing BTC), and a separate gateway that handles only one fiat currency. Neither of them have to worry about holding more than one currency they know how to handle, and neither of them has to build any trade engine - that is either provided by the 2.0 system itself (like Ripple), or can be built separately.
Once we have a gateway for a given currency, that currency can be traded for anything else on the system - BTC for USD, CAD for EUR, gold for oil or whatever else you want. The market will decide what it wants to trade, and all the gateways need to do is provide IOUs for their currencies or commodities of choice.
Lastly, good money will drive out bad money - if a gateway is involved in some shady dealings (like MtGox in the exchange space), their IOUs will devalue quickly for everyone to see. In contrast, good and diligent gateways will secure the value of their IOUs. As nobody wants to hold inferior money, people will flock to the good gateways, leaving the bad ones in a subversion of Gresham's law.
All in all, in the Crypto 2.0 world we will see the rise in importance of gateways and a diminished need for exchanges.
Currency-agnostic exchanges
Even though we will move away from the current proliferation of exchanges, there will still be a market for high-performance currency-agnostic exchanges. Usually the first place to trade IOUs from gateways will be the 2.0 system they are issued on - be it Ripple, Omni, NXT or something else. Since those are distributed exchanges, they can only settle so many trades and work so fast - a trade on Ripple might clear in 5 seconds, while a trade on Coutnerparty might take 10 minutes on average. There are some applications where you need to achieve higher speeds and transaction volume, and that's where we can see the rise of high-performance currency-agnostic exchanges.
The exchanges built on the 2.0 systems can be quite different from what we see today. They might only take one settlement method - the 2.0 network they are connected to, but would accept any number of supported currencies from that network. For example, we could have a Ripple-powered exchange that accepted BitStamp.USD, SnapSwap.EUR, as well as DYM - the silver dimes. Once the deposits are settled, the exchange users can trade them away using the high-performance trading engine. Once all the trades are settled, the withdrawals would similarly take place through the 2.0 network.
In general, while we might see the decline in the number of exchanges, we will also see the rise of high-performance currency-agnostic exchanges.
Market makers
Similarly to how we currently have traders going into multiple exchanges and copying the market between one platform onto another in hopes of locking in some profit, we will see the rise of importance of market makers in the Crypto 2.0 space. Both the distributed exchanges living in the 2.0 systems and the various currency-agnostic exchanges will need liquidity from many markets. Since we will be dealing with a lot more currency pairs than just everything-to-BTC, we can see people copying the stock market, FX market, as well as copying the existing liquidity from Bitcoin and altcoin exchanges. Efficient market makers will get their trades and earn money, thus creating an incentive for many parties to compete and bring everyone the most competitive prices. Thanks to that, everyone will be able to get an FX rate for their currency conversion, rather than relying on "spot +-3%" usually offered by the banks.
In the 2.0 world, we will see a number of market makers copying the liquidity from the old world into the new.
Bridges between worlds
Built either as part of the gateways, or perhaps as standalone services akin to ShapeShift, the 2.0 world will be connected to both the "old world" as well as between the various 2.0 systems through the use of bridges. A bridge in this context is a service that provides onboarding and offboarding between various systems in a convenient fashion. For example, if I go into the RippleTrade wallet (a wallet handling only Ripple) and decide to make a transfer from my account into a Bitcoin address, the wallet will figure out how to pay the recipient, even though they are on a completely different network:
Bitcoin bridge from Ripple
One can imagine the same bridge functionality for any other system - SEPA, PayPal, etc.
All in all, in the spirit of the Singularity of Money, we will see a lot more bridges connecting various systems together.
Currency-agnostic services
Just like with exchanges, the current model for services usually ties them down to a single currency. For example, we see Bitcoin-only payment processors like BitPay, Bitcoin-only ATMs like Lamassu, and Bitcoin-only wallets like Blockchain.info's wallet. In the 2.0 world, we will most likely see a lot of services become more currency-agnostic (like say, CoinPayments to BitPay).
All of the services will focus on what they do best while letting everyone else focus on their strengths. Lamassu might decide that it is really good at handling cash, and instead of also converting the cash into Bitcoin, it might either pay its customers directly in fiat IOUs from a gateway (USD cash in, BitStamp.USD IOU out for example), or perhaps use ShapeShift or other dedicated high-performance currency conversion tool to pay its customers in any currency converted on the spot through open APIs.
There is a lot of room for many companies to redefine themselves when transitioning from the Crypto 1.0 world into the Crypto 2.0 world to benefit from the network effect. In the end, if you can do something better than everyone else, you can still be in business letting everyone tap into your strengths as long as you separate them from your weaker points.
In the 2.0 world, a lot of services will focus on the service they offer, not the currency they use.
The connectors - putting it all together
The last important part of the transition into the 2.0 world will be the connectors - services that bring everything together and form a coherent user experience. Instead of going to all the services separately and managing everything yourself, you are very likely to see some user-focused all-in-one services. They might take a form of a currency-agnostic wallet that automatically connects you with all of the gateways to let you receive any currency you want, uses the bridges to deliver your money where it needs to go, perhaps even has some built-in handles into an exchange to allow you to trade on the FX market.
If the 2.0 world is ever to be mass-adopted, it will require a user-friendly layer that connects everything together.
Conclusions
When we transition into the Crypto 2.0 world, we are more likely to see more specialists, not generalists. Every service will have to re-examine their strengths to build on and weaknesses to move away from. This works similarly to the Principle of Comparative Advantage - even if you can do everything better than everyone else, focusing on your few key strengths and letting everyone else focus on their strengths might be better overall:
60 Second Adventures in Economics - The Principle of Comparative Advantage
So, does your company have a Crypto 2.0 roadmap yet?
