Cryptocurrency: Not Just Bitcoin (Part II)

Even though Bitcoin thoroughly dominates media coverage and public discussion of cryptocurrency. It is the oldest crypto-currency and does by far have the largest market capitalization—all Bitcoins are together estimated to be worth US$5.5 billion. More than sixty peer-to-peer currencies existed as of November 2013, and that number has dramatically risen since. As of April 8th, coinmarketcap.com lists market capitalization values for over 200 cryptocurrencies.  Market capitalizations range from Litecoin’s US$300 million, much a smaller than Bitcoin but still substantial, to LiteBar’s $384. The sheer number of similar-sounding names (well more more than half include the word “coin”) raises the question… Why? Last week, I began a series of posts on Bitcoin-alternatives discussing hyper-local applications for cryptocurrency. This week, I’ll address technical improvements and changes made in Bitcoin alternatives. Next week, I’ll conclude the series by writing about two more motivations between the exploding diversity of cryptocurrencies.

 

{For a primer on Bitcoin, consider reading Holly’s interview with Emily Neville about her thesis on the currency.}

 

Although many Bitcoin-holders and computer science experts appear confident in Bitcoin, the verdict is still out on the system’s long-term technical viability. Even though a catastrophic security breach or other technical failure has not yet occurred, some hiccups have appeared in the system. March 11th, 2014 saw a six hour long split in the Bitcoin “blockchain.” The blockchain is a dynamic public ledger that records and verifies Bitcoin transactions to prevent users from spending the same coin twice. Vitalik Buterin, writing for Bitcoin Magazine, said that because of the forking event “there were effectively two Bitcoin networks operating at the same time, each with its own version of the transaction history.” Eventually, the Bitcoin network decisively settled on one blockchain and the network “returned to normal” with no known persisting anomalies. Privacy is also a potential issue for the currency; the public nature of the blockchain allowed one blogger to estimate the Bitcoin fortune amassed by its creator(s)—around $100 million USD. Further, some commentators speculate that Bitcoin could be vulnerable to a “51% attack”, where a majority stakeholder in the currency could hijack the blockchain and control the currency.

 

Currencies such as Litecoin and Feathercoin aim to improve on the infrastructure underlying Bitcoin. Although they do borrow heavily Bitcoin’s technical underpinnings, they add features or fixes of their own. Overall, improvements by secondary currencies seem focused primarily on two issues: “mining” the coin (how the currency is initially distributed) and the “blockchain”. Engineers of rival currencies hope to make mining more accessible and more egalitarian. In terms of the blockchain, “alt-coins” address issues such as privacy (hiding the list of anonymous transactions), streamlining the process to prevent delays from large volumes of trading, and prevent the possibility of a catastrophic split in the blockchain. Feathercoin, unlike many other cybercurrency systems, features a system for updates and patches into its software. As we learned in biology class, diversity engenders robustness in a population. If a technical flaw or security breach takes down one digital currency, other well-established systems will already be in place to step in to take its place. Beyond resilience to catastrophe, the exploding field of cryptocurrencies offer a of unique features—enhanced privacy, faster transaction times, or demurrage (with the hope that constant and predictable “rot” in currency will force users to quickly spend and invest). This allows users to choose a system that works best for them.