Last updated on July 27th, 2016 at 08:44 pm
Bitcoin was indeed the world’s first peer-to-peer currency, however it was not the world’s first digital currency, nor will it be the last p2p currency. Bitcoin was proceeded by numerous attempts of various companies to establish electronic currencies and has since been followed by numerous digital currencies that claim to be better. Understanding all of these different currencies will help potential Bitcoin investors understand the larger market for digital currencies. As such, we have written a brief history of past digital currencies, and outlined some of up-and-coming currency that could some day give Bitcoin a run for its money, so to speak.
A Brief History of Digital Currencies
One of the earliest predecessors to Bitcoin was “ecash”, which was launched all the way back in 1997. Ecash aimed to revolutionize currencies in many of the same ways as Bitcoin. Like Bitcoin, it would be anonymous and would rely on cryptology. Unlike Bitcoin, however, ecash was designed to rely on a central clearing house which would control, distribute, and monitor the currency system. Ecash failed within a few years after being launched, however, its influence is still felt today and may have even inspired Bitcoin founder Satoshi Nakamoto.
Another very interesting electronic currency was e-gold. E-gold relied on a gold backing and was a very popular and relatively stable currency that lasted from 1996 to 2009, before being shut down by the United States government. E-gold essentially facilitated transactions with gold and kept its own gold vaults. During its heyday it was accepted by numerous websites and had millions of users. E-gold was eventually prosecuted for money laundering and other charges, though many people maintain that these actions were politically motivated. The Department of Justice even tried to seize e-gold’s vast deposits of gold so that they could be liquidated and added to the department’s operating budgets. Luckily, a Federal judge stopped this effort and deemed that proceeds from gold liquidation should be returned to investors.
Both of these currencies, and numerous others would lead to the rise of Bitcoin. So far, Bitcoin has proven to contain many of the benefits of its predecessors. As an all-digital currency it can quickly be traded around the world. It is anonymous and so far has proven to be resilient. What Bitcoin did different was relying on the combined power of the online community, instead of the value of a commodity or the guidance of a central clearing house.
Bitcoin’s Modern Competitors
Bitcoin is the king on the playground, but that doesn’t mean that the currency isn’t being challenged. Several important competitors have emerged with the aim of dethroning Bitcoin. Some investors now believe that while the world may need and want a digital currency, flaws in Bitcoin’s design will ultimately prove the be the currency’s undoing. These investors are now giving competing all-digital currencies a close look.
The most important Bitcoin alternative so far is probably Litecoin, which is very similar to Bitcoin in code and function. It is anonymous, features a limited supply, and must be mined through cryptology. Litecoin is different, however, in that it’s total supply of coins is 84 million, or about 4 times as many as Bitcoin. Not only that, but blocks are meant to be mined every 2.5 minutes. Litecoin also uses an advanced proof-of-work system called scrypt, which some believe will prove to be more reliable and functional than Bitcoin’s system. Since Litecoin is so similar to Bitcoin, it is often referred to as Bitcoin’s “little brother.”
Another increasingly popular alternative digital currency is PPcoin. PPcoin is unique because it has a proof-of-stake system in addition to the proof-of-work system found in Bitcoin and Litecoin. While the full explanation is complex, issues could arise if companies come to create a monopoly (i.e. 51% or greater stake) in Bitcoin holdings or mining operations. In fact, the BTC mining guild recently came close to accomplishing this feat. PPcoin’s proof-of-stake system will help prevent this risk. Additionally, PPcoin is more energy efficient than Bitcoin, reducing the currency’s impact on the environment, which has become a major concern in recent months.
Namecoin is another unique Bitcoin competitor. Unlike Bitcoin and the previously mentioned currencies, the actual aim of Namecoin isn’t necessarily to be a currency. Instead, Namecoin is meant to act as a decentralized Domain Name System to create a new set of website domains that cannot be attacked or censored. Namecoin’s main aim is to reduce internet censorship. Like Bitcoin, there are 21 million Namecoins that can be created.
In Conclusion: Can Bitcoin Remain On Top?
So will Bitcoin remain the world’s premier currency? Only the future will tell, but for now Bitcoin has a huge and seemingly insurmountable lead. In a sense, the digital currency market is Bitcoin’s to lose. Unless Bitcoin collapses or suffers a serious set back it will be very difficult, if not impossible, for a competitor to overcome the digital currency. So far investors, traders, and miners have all proven to be very faithful to Bitcoin and unless Bitcoin gives them a reason to act otherwi