Bitcoin and Other Competing Alternative Currencies
We’ll tell you what they are, where they come from, when they’re useful, and what you should know before you use or invest in these cyber-currencies.
Bitcoin is probably the best known of all the alternative currencies (also known as altcoins), but it is hardly alone. Bankrate lists twelve alternatives to Bitcoin; the Huffington Post claims there are hundreds.
Developed as a substitute for government-backed currencies or the precious metals like gold and silver that have traditionally been used as money, cyber-currencies promise the anonymity of cash combined with the convenience of online buying and trading. Because altcoins aren’t typically linked to a credit card, bank account, or any other identifying marker (unlike, say, Paypal), altcoins promise to keep purchases private. And because they aren’t linked to a specific country, they should help spur global commerce because there won’t be any of the ordinary friction caused by currency exchanges. But despite the opportunities that these new currencies offer, critics note that it can be a bit hard to find merchants that accept them.
For now most of the action surrounding altcoins is confined to producing and investing in them. While alternative currencies are generally defined as anything that provides an alternative to the dominant national or multinational currency systems, including both barter and private currencies (like, say, trading stamps), cyber-currencies are generally understood to be completely digital and decentralized in in their creation, trading, and control.
Since the barrier to entry in the altcoin world is low, the key is to convince users that your currency has integrity in both its creation (so units maintain their value) and its ledger system (so units can’t easily be stolen). Bitcoin has convinced many investors that it has mastered these two critical elements, and so in the years since it was first developed, Bitcoin has increased in value, relative to other indexes. But there continues to be a sense of overall distrust of Bitcoin and other altcoins among many in the financial world, as well as by many economists and those in positions of power in governments across the globe.
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