John Shinal

Special for USA TODAY

SAN FRANCISCO —Gregory Maxwell, a co-founder of the digital currency startup Blockstream, sat in front of a crowded room of Bitcoin experts and investors in a conference room of San Francisco's Kabuki Hotel this week and answered a question that many came to hear:

Should development of "blockchains"—the globally-distributed encryption technology at the core of the Bitcoin currency—remain united?

Or is it better to have many so-called "sidechains," each with its own rules?

While the latter approach could boost Bitcoin innovation, it might also result in competing standards, slowing the commercialization and adoption of the currency.

A wide range of startups are now developing products based on the Bitcoin protocols, on the hope that it will compete with other global payment systems.

These new software companies and their future rivals look likely to do more than transform online payments.

They may one day transform stodgy business processes such as escrow, insurance and incorporation.

All thanks to a core Bitcoin principle: When a business or a person can run machine learning software on a massive computer network to prove that a financial transaction occurred, they won't need to pay humans to guarantee that it did.

TRUST IS SO 1987

In the view of crypto-currency believers, trust is an anachronism of the analog age, ill-suited to digital commerce.

"The price of trust just fell to pennies," said Andrew Barriser, a proponent of a unified currency approach who sat to Maxwell's right on the panel, and spoke just before him.

Money is now pouring into this disruptive software innovation, with some coming from traditional venture capital investment and much of it from crowdfunding.

Ethereum, founded by Vitalik Buterin as a teenager, raised the equivalent of $15 million worth of Bitcoin in a crowdfunded campaign reported in September.

Its software research has led to the notion of "smart contracts," which could guarantee digital transactions quickly and at little cost.

Then there's ChangeTip, a peer-to-peer, social-media-based tipping service that raised a $3.5 million seed round led by San Francisco's Pantera Capital on Dec. 2.

Pantera invests exclusively in Bitcoin startups, says CEO Dan Morehead, who expects total Bitcoin investment to exceed $300 million this year.

Last month, Blockstream raised a huge seed investment round of $21 million.

The sidechains that Blockstream and others are developing could be efficient platforms for conducting fast, low-cost, secure transactions over the Internet.

But the competing efforts also risk Bitcoin splitting into multiple competing currencies.

That could slow its adoption rate and open the door for any of the dozens of other digital currencies out there, including a notable one from Ripple Labs.

Back in Japantown, Maxwell was treated with noticeable deference by attendees.

'PROFESSOR BITCOIN' SAYS STANDARDIZE

His reputation for finding security holes in Bitcoin code of all types has earned him a reputation one attendee described as "Professor Bitcoin."

In the end, he told Bitcoin fans in the audience what they wanted to hear: Support for a standardized approach.

Bitcoin "should be THE blockchain," and not one of many, Maxwell pronounced.

While that may calm the Bitcoin faithful, those are fighting words to rival crypto-currency camps.

Ripple Labs operates an online exchange where currency traders can swap many types of digital currencies.

The software platform doesn't rely on the core Bitcoin technology.

That means acquiring it doesn't require the massive computing power to "mine" a currency, or find and prove ownership of Bitcoins through a confirmed blockchain transaction.

A key hurdle to Bitcoin's broad acceptance is that mining it has become more expensive and thus concentrated in the hands of those who can afford to.

That in turn could allow bad actors who accumulate a majority of the currency to manipulate its inflation rate, by changing blockchain rules, and thus manipulate the value of Bitcoin.

RIVALS: RIPPLE, STELLAR

Ripple's currency unit, the XRP, is capped at 100 billion units by its founding protocol, according to the company.

Yet another digital currency came this year from the Stellar Foundation, which is using a philanthropic model of creating a currency and giving away grants of it to non-profit charities.

Whether Bitcoins or Stellars or XRPs or some other future currency will emerge as an enduring alternative to paper is an unknown right now.

The same goes for exchanges like Coinbase, BitPay and GoCoin, all of which signed processing agreements with eBay's PayPal unit in September.

But winners will eventually emerge, with their underlying technologies quite likely to shake up the world of digital finance over the next 10 years.

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