Five virtual currencies other than bitcoin
18 November 2013
, by Saumya Vaishampayan (MarketWatch) http://www.marketwatch.com/story/five-virtual-currencies-other-than-bitcoin-2013-11-18Bitcoin’s dizzying sprint to record highs has thrust the virtual currency into the spotlight, with interest ranging from high-profile investors to the owner of a pizza shop in Brooklyn.
But the world of virtual currencies isn’t limited to bitcoin, and regulators and government officials have been careful to focus on all virtual currencies in hearings and statements.
Bitcoin is a virtual currency that doesn’t fall under the domain of a central bank.
The virtual currency is created through a process called mining, in which a computer solves a cryptographic problem, and the difficulty of that problem increases over time. The supply of bitcoins is capped at 21 million.
Several virtual currencies are offshoots of bitcoin and are referred to as altcoins, said Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University.
They sprung up as users aimed to fix inefficiencies in the bitcoin code, he said. “These are all forks off the bitcoin code,” said Brito.
“Other people, because it’s an open-source project, are free to take the [bitcoin] code and alter it and launch their own,” he said.
Read on to find out about five more virtual currencies, including some altcoins. Litecoin
Litecoin is the altcoin with the biggest market capitalization, according to the website coinmarketcap.com. The market cap of litecoin was recently $201.8 million at a price of $8.73, compared to bitcoin’s market cap of $7.38 billion at a price of $614.20, the website showed.
“Altcoins basically take the same bitcoin software and just change the economic parameters,” said Jeff Garzik, a bitcoin core developer. In particular, the litecoin code changed the bitcoin protocol so that it could be efficiently mined by computers owned by regular consumers, as opposed to the computer chips created specifically for cracking these cryptographic problems that are now prevalent in bitcoin mining. Another change has to do with the speed at which the currency is created. The litecoin protocol is designed to create litecoins every 2.5 minutes on average, compared to the 10 minutes on average for bitcoin, said Charlie Lee, the creator of litecoin.
“When I created it, the idea was to create silver to bitcoin’s gold,” said Lee, who now works at the bitcoin company Coinbase. “I wanted to create something that was a bit cheaper in value and easier to transact.” Peercoin
Peercoin is the second-biggest altcoin with a market cap of $21.2 million at a price of $1.02, according to coinmarketcap.com. While the difference between peercoin and bitcoin gets quite wonky, it has to do with the way in which the system validates the generation of the currency, said Greg Schvey, head of research at the Genesis Block, a bitcoin research firm. “Peercoin is an experiment in distributing the money supply in a different way,” said Garzik. “It’s mined in a different way than bitcoin is mined.” Freicoin
Freicoin falls much farther down the list of altcoins with a market cap of about $218,828 at a price of 0.68 U.S. cents. One of the issues brought up with bitcoin is the incentive to hoard because of its fixed supply. Freicoin implements a demurrage fee that encourages continued circulation of the currency, according to its website. “Freicoin’s goal as an economic experiment is to encourage you to spend as opposed to hoard your coins,” said Garzik. Ripple
Ripple is a distinct protocol, as opposed to altcoins. Ripple bills itself as a payment system as well as a currency and distributed currency exchange. The currency units within the Ripple protocol are called ripples. “What ripple is trying to do is to be a protocol like SMTP for moving money,” said Chris Larsen, founder and chief executive of Ripple Labs, referring to the protocol that makes it possible to send emails. “More significant than the idea of a virtual currency is the idea of a value web,” he said. Linden Dollar
Another distinct virtual currency is the Linden dollar, which first cropped up in 2003 as the currency for the 3-D virtual world Second Life. Linden dollars are used within the virtual world to buy goods and services such as clothes, art and pets. However, Linden Lab, the maker of Second Life, controls how much currency is issued, which ultimately gives the game’s creators the power to manipulate the exchange rate. “This exposed ‘residents’ holding currency to a good deal of political risk,” said Robert Bloomfield, professor at Cornell University’s Johnson Graduate School of Management, who has incorporated the use of Second Life into his curriculum.
But perhaps bitcoin learned from Second Life’s mistake. The creation of bitcoins through mining dilutes the concentration of power, in contrast to the Linden dollar’s reliance on an “autocratic decision maker,” said Bloomfield. A U.S. dollar bought $248 Linden dollars on Sunday, according to Second Life’s LindeX Exchange. — Ben Eisen