Recently I wrote about Bitcoin, the most prominent, and certainly most talked about virtual currency. Despite the fact that Bitcoin isn’t widely used on a population level, it is still used significantly enough to warrant a pseudo-mainstream label. In fact, CNBC even has a Bitcoin “ticker” on their website.
Bitcoin has it’s own pros and cons, chief among them is that it is both a currency and a commodity, and is being traded as such, resulting in market-driven price volatility. As the concept of virtual currencies becomes more widely accepted and understood, it is inevitable that more will gradually develop to complement, compete, or supplement the others. This article will shed light on a few of those and discuss their merits and pitfalls.
Litecoin is perhaps the biggest competitor to Bitcoin, launched in late 2011 with over 17 million Litecoins in circulation worth approximately $62 million. It is currently worth about $3.30/coin. Like Bitcoin, Litecoin has a planned ‘hard-capacity’ of 84 million coins. In many ways, Litecoin is very similar to Bitcoin, to a point of being identical – which is really the point – they say “Litecoin is the silver to Bitcoin’s gold.” Put simply, because Litecoin is designed to dictate lower value per unit, it is more amenable to casual, low-value transactions.
Due to the cryptographic differences, Litecoin is also quicker in transaction. Another benefit to Litecoin’s system is that it employs algorithms that do not become more resource costly to mine in the future – whereas Bitcoin keeps getting more resource-heavy to mine coins. Litecoin would seem to be more like cash, so perhaps Litecoin has out-Bitcoined Bitcoin! Importantly, the premier Bitcoin exchange “Mt. Gox” has indicated plans to add Litecoin to their trading system, improving access.
Freicoin is a virtual currency that changes the rules quite significantly. Launched in late 2012, with an unknown number in circulation, and an unknown terminal capacity. It is currently worth about $0.06/coin. What Freicoin does very differently is that it introduces the equivalent of a “storage fee”; if you were to store 5,000 lbs. of silver somewhere, you would be charged for the service, Freicoin charges for stable currency.
Effectively, Freicoin is penalizing speculators and encouraging the exchange and transaction of the currency, preventing, or at least discouraging stockpiling. If an individual holds on to Freicoins, they incur a negative interest rate that eats away at the value by about 4.6% annually. Other than this feature, Freicoin works much like Bitcoin and Litecoin – proving that Satoshi’s computational model of a virtual currency is a clever one. Interestingly, Freicoin has also created an institution, powered by its own currency to conduct philanthropy and charity.
PPCoin is a less well-known and understood virtual currency. Launched in late 2012, the number in circulation, the current market capacity, and the terminal capacity are all unknown. It is thought that PPCoin has no terminal capacity, and that the algorithms dictate a 1% per year increase in supply (roughly). It is currently worth about $0.16/coin. PPCoin gets its name from “Peer-to-Peer.”
PPCoin approaches virtual currency by addressing a chief issue with Bitcoin: Mining Cost. Because the resource load becomes greater as more Bitcoins are mined, it makes it less feasible for non-specialists to set their machine up as a network-node, thus causing a decrease in network size and cooperative nature – this is a risk. PPCoin solves this by altering the “proof of work” that Bitcoin uses. Bitcoin attaches the proof of work to each block of coins as it is generated, thus assigning ownership rights to the miner.
PPCoin uses “proof of stake”, which verifies the ownership timeline more carefully. What this means is that it adds a level of non-cryptographic ‘encryption’ that makes it more difficult for a coin to be counterfeited or tricked. It simply adds a layer of difficult-to-replicate information to validate a transaction.
Virtual currencies are expanding in both their market capacity, and their market penetration. As more consumer-friendly platforms, storage systems, and trading locations come to market, we can expect to see virtual currencies of all shapes become more widely accepted and utilized.
Virtual currency seeks to bring a cash-dynamic to virtual transactions, something that would be beneficial if for no other reason than identity protection. In the future, you might not have to give much information at all to a virtual vendor, just as a New York street vendor has no idea, and doesn’t care who you are, so long as you’ve got five bucks to hand over!