Bitcoin Isn’t the Only Cryptocurrency in Town

Eugen Leitl eugen at leitl.org
Thu Apr 18 06:08:51 PDT 2013


http://www.technologyreview.com/news/513661/bitcoin-isnt-the-only-cryptocurrency-in-town/

Bitcoin Isnbt the Only Cryptocurrency in Town

Currencies designed to fix perceived flaws in Bitcoin could lead to
competition that makes the idea of digital bcryptocurrencyb stick.

By Tom Simonite on April 15, 2013

WHY IT MATTERS

Even if interest in Bitcoin fades, it could still have a lasting legacy as an
inspiration to better-designed forms of digital money.

In recent weeks, the digital currency Bitcoin has soared and then dipped in
value, along the way attracting more public attention than ever before and
speculation as to whether it could become an established and widely accepted
way to pay for goods and services.

But Bitcoin isnbt the only cryptocurrency out there. Several others are also
surging in popularity and value, and they claim to offer technical
improvements that make them better suited to mainstream use.

Some of these competing currencies already represent significant stores of
value. The value of a single bitcoin on the most popular exchange was $93.70
at time of publication, and the total value of all bitcoins in circulation
just over $1 billion (it was over $2 billion at the marketbs high point last
week). The largest alternative cryptocurrency, litecoins, were worth $2.31
each and $38 million in total; the next largest, PPCoin, were worth $0.22
each adding up to a total value of $4 million.

Bitcoin is based on mathematical techniques that control the production of
new bitcoins, make it possible for a person to verify money sent to them is
genuine, rule out counterfeiting, and limit the maximum number that can ever
exist (to 21 million) (see bWhat Bitcoin Is, and Why It Mattersb).

The Bitcoin alternatives are inspired by that design, which is published
openly, and try to offer improvements.

One of Litecoinbs most significant claimed improvements over Bitcoin is that
it allows transactions to be confirmed as legitimate much more quickly, says
Charles Lee, who designed the currency, which is now maintained by him and a
small group of other enthusiasts.

Bitcoin transactions are verified by the work of software run by other people
using the currency, a process that takes on average 10 minutes and can be
much longer, an hour in the case of many exchange sites. Lee says that
hinders operators of online stores from using the currency. bWith Bitcoin,
sometimes merchants are forced to accept unconfirmed transactions because
confirmations are way too slow,b he says. bFaster confirmations lead to a
more useful currency.b Litecoin transactions are confirmed on average every
2.5 minutes, which Litecoinbs developers say is more practical for
businesses.

Both Litecoin and the third most-popular cryptocurrency, PPCoin, also
generate new coins in a way intended to be more practical than Bitcoinbs
design. New bitcoins are created through a process known as mining, in which
people run software that competes to solve a computational puzzle. Each time
a puzzle is cracked, new coins are awarded and a new challenge is set. In a
neat twist, the process of solving a puzzle also confirms the validity of
recent transactions made with bitcoins.

However, because more powerful computers are more likely to solve these
puzzles, an arms race between bitcoin miners has resulted. Today only those
with very powerful, customized machines have a chance of profitably mining
bitcoins and miners are still racing to build ever more powerful bmining
rigsb.

Litecoin uses a mathematical puzzle that cannot be solved using custom mining
chips like those appearing for Bitcoin, which are expected to dramatically
shrink the number of people able to mine the currency (see bCustom Chips
Could Be the Shovels in a Bitcoin Gold Rushb). Lee says that will make
Litecoin less dependent on the activity of a small number of dedicated miners
with expensive equipment, allowing a larger pool of miners to compete.

PPCoinbs design is intended to gradually phase out conventional mining
altogether. Instead of new PPCoins being handed out to those with the most
computational muscle, they are awarded in a kind of lottery in which a
minerbs chance of winning is determined by how many PPCoins they have.

That has the effect of decoupling mining and the confirmation of transactions
from the cost of electricity and computer power, which King says would be a
problem for Bitcoin if it were to become very widely used. bWe designed
PPCoin with this new concept to achieve long-term energy efficiency,b says
Sunny King, one of the founders of PPCoin. bThis will not only provide
environmental benefit, but also allow us to be more cost-competitive in
payment processing.b

George Selgin, an economics professor at University of Georgia who recently
published a paper on Bitcoinbs properties, believes that Bitcoinbs design
does indeed leave room for competition. bIn the long run, its rigid supply is
hardly likely to make it a relatively stableblet alone idealbmoney, so
therebs room for new rivals that can ultimately outstrip it.b

Some Bitcoin devotees worry that alternative currencies could hinder efforts
to make the leading cryptocurrency mainstream, but Selgin says that
competition could simply increase the odds that any one cryptocurrency
succeeds.

bIt could, in the long run, give rise to one or several very robust
currencies,b he says. bThatbs how competition works generally, with winners
and losers, but with quality generally improving as the struggle goes on.b
The fact that established currencies such as the dollar will exist alongside
as a (relatively) safe haven should cushion very severe shocks to individuals
as competing currencies duke it out, says Selgin.

The creators of Litecoin and PPCoin donbt talk much about how their efforts
may devalue or destabilize Bitcoin but, unsurprisingly, also see a future
with multiple cryptocurrencies in widespread use. bLitecoin was designed to
be silver to Bitcoinbs gold, it gives people an alternative cryptocurrency in
case anything happens to Bitcoin,b says Litecoinbs Lee. bA complete monopoly
in the cryptocurrency world is unlikely,b says King, of PPCoin, bI am
optimistic that payment processing in cryptocurrency will take over a
significant portion of Internet commerce.b





More information about the cypherpunks-legacy mailing list