The era of cryptocurrencies is here and it looks like they’re eventually going to make a significant dent in the marketplace. Because of the high public attention drawn towards it, Bitcoin has become a favorite among many people who choose to go the peer-to-peer route with money. However, the crowd might not be aware of Bitcoin alternatives that may or may not compare well with what they’re currently using. There currently is no comprehensive resource on alternatives, so I’m stepping in to fill that gap.
A List Of Alternatives
There are currently several alternatives to Bitcoin, but not all of them pit very well against it. I will be comparing only the most popular currencies to Bitcoin, but I will show you a list below of every currently active alternative, in descending order of popularity (currencies that will be compared are written in bold):
Known for its strong similarity to Bitcoin, Litecoin addresses issues that Bitcoin did not anticipate when it was created. Because of its popularity, Litecoin is almost on-par with Bitcoin, making it a very good choice as a backup currency.
With Litecoin, its users will expect shorter waiting times for transactions to finish. The whole mechanism lies in the blockchain, an accounting of every transaction made on the currency’s infrastructure network. When it refreshes, a new blockchain appears, updated to show more current transactions. The blockchain gets bigger each time, showing every transaction that happened since the inception of the currency. Bitcoin updates the blockchain every 10 minutes whereas Litecoin cuts this time to within two and a half minutes. That makes things easier as the currency gets more popular.
Also, as opposed to Bitcoin with a limit of 21 million units of its own currency, Litecoin has a limit of 84 million – quadruple the amount that Bitcoin has. This will facilitate smaller transactions in the future. As an added bonus, Litecoin uses scrypt encryption, which is very comparable to Bitcoin’s SHA-256.
PPCoin is a totally different beast. It completely changes the concept of currency infrastructure and corrects some flaws in Bitcoin-esque currencies (Bitcoin, Litecoin, Namecoin, etc.). One of these flaws is the proof of work concept. When Bitcoin updates its blockchain, it attaches proof that a Bitcoin belongs to one particular wallet holder. The problem with this is that one person could take over more than 50 percent of all Bitcoin exchanges and update its own blockchain into the system, effectively cancelling out the one generated by the other decentralized nodes. This means that it will take over the process of dictating which Bitcoins belong to whom. Essentially, it would enable an entity to steal many coins from other people’s wallets. The vulnerability is real and inherent in Bitcoin-like currencies.
PPCoin uses a proof-of-stake concept much different to the status quo. When you buy PPCoins, you bought a stake in the currency. If you own a 1% stake of all the currency’s existence, you would end up “mining” 1% of it. This means that all you have to do is buy currency to mine it into existence, essentially. It’s much less costly than consuming electricity to mine Bitcoins, and therefore requires smaller transaction fees.
Here’s another advantage: There’s no limit to how many PPCoins can be in circulation. The whole proof-of-stake concept creates the inflation necessary to grow the amount of units in circulation. PPCoin states that inflation will be limited to a healthy one percent. At the moment, there’s a limit of 2 billion units, but that can be lifted at any point when it’s necessary.
At this point, transaction verification is centralized in the PPCoin network. Developers state that this is only temporary and will be lifted when the network matures. If you invest in it, you must understand that there’s a risk they won’t hold up with their promise. The makers of PPCoin have taken away the necessity for a central verification system as of version 0.2, so things are going in the right direction.
NovaCoin has some potential to rock the cryptocurrency market, particularly due to its similarity to PPCoin. Like Litecoin, it uses scrypt hashing. It shares similarities with PPCoin due to the whole proof-of-stake concept and the fact that it doesn’t have a hard limit on how many units can circulate. Most importantly, it’s a fork of the whole PPCoin project.
The NovaCoin currency emission system uses both proof-of-work and proof-of-stake concepts. This allows for a raised level of security, which can prevent exchange takeovers or large purchases of currency from destabilizing its capacity to respect the property rights of its currency holders. Like PPCoin, NovaCoin has the intention of decentralizing as its network matures. It plans to have an infrastructure similar to Bitcoin’s.
The 2 billion cap seen in PPCoin is also present in NovaCoin, but it isn’t a hard limit. NovaCoin’s developers assume that it will take a very long time for their currency pool to reach 2 billion, but they’ve still implemented a failsafe that lifts the cap when the time comes.
Freicoin is an extremely interesting currency, to the point that many will find it strange. Freicoin charges a 5% demurrage (tax on holding your currency) fee annually. This is done to make sure that you keep money circulating instead of keeping it in your wallet. Saving money is not an option in Freicoin. You need to let that money go fast!
It’s rather questionable whether keeping your wallet at an all-time zero to avoid a 5% demurrage fee is actually healthy, but the option is there if you want to try it out for yourself. Freicoin is a minor currency, but holds true to the decentralized spirit of most cryptocurrencies, making it a reliable form of money. Its value will probably also be more predictable, due to the steady increases in trade as a result of the fee.
In a way, the Freicoin demurrage concept might actually increase economic activity, but only if people are willing to participate. Aside from all that, Freicoin works almost exactly like Bitcoin in terms of infrastructure.
Which One’s The Best?
Let’s hear from you! Tell us what currency you think is the best in the comments below.