Read the original article at http://chirpstory.com/li/71685 or its related stories at http://www.theverge.com/2013/4/23/4252808/can-zerocoin-and-ripple-build-a-better-bitcoin and http://www.wattpad.com/15940557-gold-2-0-can-code-and-competition-build-a-better?d=ud#.UXncG6KnpDA

1. Gold 2.0: can code and competition build
a better Bitcoin?
Original article: http://www.theverge.com/2013/4/23/4252808/can-zerocoin-and-ripple-
build-a-better-bitcoin

2. Visit the original
source of the article
at:
http://www.the
verge.com/201
3/4/23/4252808
/can-zerocoin-
and-ripple-
build-a-better-
bitcoin

3. Gold 2.0: can code and competition build a better Bitcoin?, international the avanti
group news blog
Bitcoin has had a wild ride these past few months. The stateless digital currency’s
price has soared to new heights only to plunge back down to earth at less than half
its previous value. As the price of gold takes a nose dive of its own, some serious
economists have risen to Bitcoin’s defense as true believers urge traders to hang
on. Others argue the electronic money scheme is either a dangerous fad, a form
of Dadaist art, or more simply,not money at all. But even as the debate rages
on, one thing that's fostering hope for Bitcoin as a stable store of value is the fact
that, unlike a gold bar or a dollar bill, new code and alternative currencies being
built alongside Bitcoin might help change it for the better.
Since Bitcoin is open source, many of these solutions potentially lie within its own
thriving developer community. Take for example Bitcoin’s most advertised
feature, its supposed anonymity. Everyone from the mainstream media to
Wikileaks to the now-disbanded hacker collective LulzSec has trumpeted Bitcoin
as "anonymous." But the truth is that researchers have long since proven it's
anything but — since every bitcoin transaction appears on a public ledger
distributed to everyone in the network (called the "block chain"), tracking bitcoins
back to individuals is often trivial.

4. ZEROCOIN PROMISES TRUE ANONYMITY BY GIVING BITCOIN ITS OWN
BUILT-IN MONEY LAUNDERING SYSTEM
One team of researchers is saying they might be able to fix that. Developed by
cryptographers at Johns Hopkins University, Zerocoin is being proposed as a
kind of "plugin" for Bitcoin clients that promises true anonymity by essentially
giving the Bitcoin network its own built-in money laundering system. Bitcoin
laundries normally work by taking your coins and mixing them up with other
peoples’ in a big pool. But being as how they're controlled by third
parties, using a laundry means trusting your bitcoins with often-shady
intermediaries like Silk Road, the notorious darknet bazaar where you can find
everything from black tar heroin to contract killers.
That's not true with Zerocoin, since the laundry would be built into the Bitcoin
network itself by standardizing code across client software. If adopted, the
new functionality would allow you to add a transaction to Bitcoin's block chain
that turns a bitcoin into a zerocoin — a “flipped” bitcoin, if you will. Then, when
you redeem (“spend”) your zerocoins, your client scans the block chain and
returns a totally different set of coins, making it impossible to determine who
they really came from.

5. Transactions on a normal Bitcoin block chain (top) and one using Zerocoin (below).
The special sauce is a zero-knowledge proof, a statement used to verify a piece of
secret information without giving away the secret in the process. This makes it so that
if someone looks at the block chain, they’ll be able to see that you minted a zerocoin at
some point, but there will be no way to tell which one you're redeeming.
It's a promising solution that tackles a crucial missing piece in the narrative of bitcoins
as "crypto-anarchist cash." But still unaddressed is the even bigger problem of liquidity
— the fact that buying and trading bitcoins in the first place is still such a huge pain. It’s
for this reason that some economists believe the future of Bitcoin is not an upgrade to
the currency itself, but a new generation of digital currencies that take the best of
Bitcoin while avoiding its weaknesses.

6. To that end, consider Ripple, another digital money scheme with its own transaction network and
a shared public ledger very similar to Bitcoin's. Although Ripple uses its own currency (known as
Ripples or XRP), the people behind it — including Jed McCaleb, creator of the P2P software
eDonkey2000 and Bitcoin exchange Mt. Gox — are nonetheless directly appealing to Bitcoin
users.
It's easy to see why. If you want to buy bitcoins right now you have a few options, and none of
them are great. The easiest and (usually) safest method is using an exchange like Mt. Gox. But
those trades can take time (the transaction must first be verified by number-crunching bitcoin
miners) and of course forces you to trust in the reliability of a centralized third party. That trust
has been repeatedly shaken within the Bitcoin community following
massive heists, DDoS attacks, and recurring downtime due to network overload — not to mention
the recent closure of the fourth-largest bitcoin exchange, Bitfloor.
RIPPLE PROMISESTO BE QUICKLY AND EASILY SWAPPED FOR ANY OTHER CURRENCY
Where Ripple starts to sound interesting for Bitcoiners is its promise to be quickly and easily
swapped for any currency — bitcoins, euros, rupees, whatever — with virtually no fees and
without the need for these big centralized exchanges. There’s no mining, so ripples exist in a fixed
amount, and a tiny fraction is destroyed in each transaction to prevent people from spamming the
system (which should be no problem assuming the ripple's value appreciates). Ripple’s built-in
exchange system uses “gateways,” conversion portals which can be run by any individual or
company connected to the Ripple network. The big difference here, Ripple’s creators say, is that
the liquidity is “pooled” — if one gateway gets taken out by a DDoS attack, you can simply use
another.

7. “Trading can continue without interruption because it does not rely on a particular
Gateway,” explains McCaleb. He also points out that unlike bitcoin exchanges like Mt.
Gox, the system is designed so that gateways can’t freeze accounts or seize
funds, “meaning it takes less trust to use a Gateway versus an Exchange.”
But what’s more interesting is that the Ripple system also supports the opposite of
Bitcoin’s “trustless” anonymous exchange: a form of trust-based P2P lending
(pioneered by its original designer, Ryan Fugger) that lets you rely on the
trustworthiness of people in your social network rather than a gateway or exchange.

8. It works a lot like Facebook’s “friends-of-friends” mechanic: if I wanted to exchange
USD for BTC, I’d find someone I trust in my social network who knows someone else
that’s selling bitcoins. A line of credit would be created, using the credit limit and terms
that my acquaintance assigned to the person I’m buying from. In other words, everyone
becomes their own bank, issuing IOUs based on personal reputation.
IEEE Spectrum's Morgan Peck explains:
When you join the Ripple network, you designate primary contacts and establish levels
of trust by choosing the amount of credit you are willing to offer each individual. I
might feel okay lending up to $1000 to a few close friends whom I know will have a
deep obligation to pay me back, while making only $50 available to the man I talk to
every morning at the deli. But with Ripple, the credit isn’t only available to my
acquaintances. It becomes available to anyone else who knows the people in my
network.
Let’s say, for example, that I want to sell a Web application to Bob, who knows my close
friend Alice (credit limit $1000). Ripple allows Bob to trade with me using his credit limit
with Alice. If she trusts him for $100, that becomes his credit limit with me. I would send
Bob the merchandise in exchange for his promise to pay. But instead of owing me, Bob
would actually owe Alice, who would in turn owe me. Once Bob satisfied his debt, the
Ripple network would destroy the entire chain of IOUs.

9. It’s hard to tell how most of this will actually play out in practice. Ripple is just getting
started, and the company behind it, OpenCoin, claims it will be “distributing” 100 billion
ripples among everyone who starts an account. That’s led to some ambivalence and
suspicion within the Bitcoin community — not to mention the fact that OpenCoin is a for-
profit company, having just finished a major round of angel funding that brought in VCs like
Lightspeed Ventures and Andreeson Horowitz. Still, Ripple and Zerocoin both stand to
potentially improve things for Bitcoin in their own way. Of course that all depends on their
widespread adoption — something that, in a community of traders founded on mutual
distrust, is always a hard sell.
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