The message is the medium

Why W3C:s Payment System Proposal Interledger Won’t Work

This is the first paragraph in the white paper introducing W3C:s Interledger payment system:

“We present a protocol for payments across payment systems. It enables secure transfers between ledgers and allows anyone with accounts on two ledgers to create a connection between them. Ledger-provided escrow removes the need to trust these connectors.”

You are crossing the river to get to the water. Why create a system of several ledgers, which is messy, when there is already one unified ledger for the whole world? Bitcoin is, in effect, a global accounting system. You don’t need any new ledger system.

IF you want to connect a digital unit to a physical property you can use colored coins IN the Bitcoin network, and soon also sidechains connected to the Bitcoin network. Also, there is already a money protocol for the Internet: Bitcoin. You are trying to take control (humans tend to want control) – just like the many “founders” of altcoins. The decentralisation of the Bitcoin network is a feature, not a bug. You cannot compete with central banks without changing the game. Interledger is more or less a copy of the current SWIFT system (it may increase efficiency in a SWIFT-type system marginally, but can never compete with the commodity-based currency bitcoin and its permissionless, global and decentralized network).

This idea is based on a flawed assumption; that you need more than one cryptocurrency for the value-transferring mechanism. This is already covered by Bitcoin, it’s just more messy to introduce several currencies for the same mechanism. Other currencies can serve other purposes, like domain names in the case of Namecoin (but Bitcoin can do this too actually). The Interledger assumption goes against both Gresham’s and Thier’s Laws, and the experience we’ve learnt from network effects on the Internet.

And this is the first paragraph in section 2 in the white paper trying to explain how payments would work in this system:

“A ledger may be used to track anything of value—from currency or stocks to physical goods and titles—and may be centralized or decentralized.”

You cannot “peg” a digital unit to a real-world substance without immense security costs. You are looking for magic/alchemy. This won’t work. I’m not going to continue to refute this whole piece as it’s based on this flawed assumption. Who is going to guarantee that the pegging (tracking) of anything of value is actually correct? The government?

And why present this ledger at all? Bitcoin is a fully functioning world-wide ledger already today. Why would we need a bunch of currencies interoperating with each other when all can be done on the safe chain that is already up and running? And why introduce new actors, new escrow entities? These things already exist with the powerful and secure Bitcoin network.

When one of your pegged ledgers/actors/connectors/whatever-you-call-them break the confidence in all of your ledgers break. So, your ledgers won’t work. In Bitcoin the unified ledger simply keeps track of the number of bitcoins in each adress, and the system timestamps cryptographic hashes of any type of information in an indisputable record of events thanks to the network of miners who prove their immense capacity every 10 minutes (on average). There is no simpler and more efficient way to create security and it can only be done within a system (the Bitcoin network). Once you start “pegging” (“tracking”) stuff in the “real world” you are treading on very thin ice.

Therefore there is no point in delving deeper into the white paper of this Ripple-type system, as the rest of it is based on these primary flawed assumptions. Interledger won’t work (people will choose Bitcoin instead). And why would banks give up the control of their own transactions? They won’t trust your connectors/notaries/whatever. Put your time and efforts into the Bitcoin network instead. If you implement Interledger as a sidechain it may stand a chance of doing something useful (you’ll still have many of the problems mentioned here though).

Another thing missing in the Interledger proposal is the actual explanation on how this system will be safe and secure. Without security you have nothing.

And now I haven’t even mentioned the problems with KYC/AML this system would experience (a problem the Bitcoin network does not have to worry about as it is missing an accountable person/organisation at the top – again, this is a feature, not a bug). The people proposing Interledger does not fully understand the value of a truly decentralized system or why Bitcoin has value in the first place. Bitcoin was put into place to serve the people of the world, not the banks (IMHO). Everything that can be decentralized will be decentralized, even corporations.

These types of proposals are reminiscent of ancient times’ efforts to create gold from less valuable materials; alchemy. I’ll sort this proposal under the moniker “digital alchemy” – together with Ripple.

And with different ledgers/payment systems, you mean altcoins more or less, right? You can use Shapeshift to do that today.

Did the W3C just make this up themselves without consulting reality and people who understand security?

And here’s the ensuing comment thread on Reddit if you’d like to comment.