Bitcoin launched the cryptocurrency revolution, but ultimately it could be end up more like Napster, which changed the rules of digital music without actually succeeding.
"We may come to find that bitcoin is kind of the Napster of digital assets," he said at Recode's Code Conference. "This is transformative technology, but Spotify and iTunes and Pandora rule the day because they engaged with regulators to solve a real problem."
Cryptocurrencies and blockchain, the accounting technology that powers them, face an uncertain fate. Big businesses, including Intel, IBM and Microsoft, as well as countless startups, are betting hard on the technology. But scams, confusion, hype and gyrating valuations make it hard to assess what's a good idea.
Garlinghouse is pretty clear he thinks the granddaddy of cryptocurrencies, bitcoin, is now in the bad idea category, at least for its original use, a replacement for ordinary money. Bitcoin's blockchain ledger records transactions on a global network of computers that no single entity controls. But actually buying something is a problem, he said.
"People talk about using bitcoin to buy coffee," Garlinghouse said. "The average bitcoin transaction can take as much as 20 minutes. And the transaction cost is going to double the price of your coffee."
Garlinghouse, unsurprisingly, thinks his company has a better alternative.
Ripple is one of the higher-profile startups in the world of cryptocurrency. Its XRP has the third-largest market capitalization after bitcoin and the Ethereum's Project's ether. The currency is set up for the finance world tasks like bank-to-bank money payments across borders that settle faster than conventional transfers. Ripple counts big names in banking like American Express, RBC, Santander and Credit Agricole as partners.
XRP hasn't been immune to volatility, though. And Ripple faces a lawsuit alleging that it violated securities laws in its handling of XRP.
Cutting transaction costs and speeding transaction times for banks might not be something the average person understands or gets excited about. But that doesn't mean it's not important, he says. "That's a multi-trillion dollar problem," Garlinghouse said. "I don't think blockchain is solving consumer problems yet."
Companies want blockchain to revolutionize everything from concert ticket sales and online betting to car maintenance records and. But Ripple is focusing on the relatively narrow job of cross-border payments.
"Blockchain has its own peanut butter problem," he said, referring to his famous 2006 memo criticizing his then employer, Yahoo, for being spread too thin. "There are lots of industries that can be touched, but it starts with one."