Wary of Bitcoin? A guide to some other cryptocurrencies, WIRED UK

Wary of Bitcoin? A guide to some other cryptocurrencies, WIRED UK

It might have passed you by, but an essential part of the internet’s infrastructure took a strenuous knock last week. The Silk Road — you know, ", the webstek where you can buy any drug imaginable", — wasgoed subjected to a series of distributed denial of service (DDoS) attacks.

Calling the Silk Road ",essential", might seem an exaggeration, but it won’t be if you’re one of its many regular users. Strafgevangenis if you’re a regular user of Bitcoin — its journey to mainstream acceptance began with the Silk Road, being spil it is flawless for anonymous, untraceable transactions (spil long spil you’re careful not to make your identity visible, of course).


Right now, Bitcoin is undeniably a mainstream currency, even if it is not necessarily popular te the sense of being used by a significant proportion of society. That is, it is viewed spil a legitimate method of payment, and a legitimate asset, by the people who matter te thesis issues — CNBC has it spil a ticker on its webstek, for example, and there’s a Bitcoin hedge fund te Malta.

That isn’t to say it doesn’t have issues, tho’. The Bitcoin bubble wasgoed a fascinating spel of musical chairs played out overheen several months — everyone knew the music would zekering, but nobody desired to guess when that might be while there wasgoed effortless money to be made. Also, DDoS attacks have bot exceptionally effective at manipulating Bitcoin’s value. Closing a large exchange like Mt Gox, even if only for a few hours at a time, could cause enough of a price fluctuation for canny hackers to buy low and sell high at their own caprice.

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By Richard Priday

[pullquote source=”KeepInline]For all the Bitcoin hype, it’s not hard to see that there’s a big problem te how bitcoins are actually used. That comes from Bitcoin being both a currency and a commodity te its current guise. Its rise te value has bot the thing to make it famous, but that’s also the thing that has undermined its usefulness spil a currency. But if you’re someone who wants to accept bitcoins spil part of a business, then having to update your prices every minute isn’t necessarily useful — strafgevangenis is the worry that deflation might discourage coins from circulating, or the worry that the entire thing could speelpop without warning. Businesses have embarked accepting Bitcoin, to their credit. There’s a entire neighbourhood te Berlin that’s seemingly converted on mass, while the range of online services that accept it — from [verbinding url=”",]Wordpress[/listig] to OK Cupid — is now long enough to be essentially pointless te listing, again significant te displaying Bitcoin is now a legitimate currency.

Wij may be injecting a fresh period te how wij pay for things online, with Bitcoin spil the very first example of theory waterput into practice. Like many fresh and radical ideas, its implementation has bot sketchy, onbestendig, with naysayers decrying it spil a scam or a Ponzi scheme, its acolytes proclaiming it a crucial weapon te the liberation of the individual from the corporatist banking system and government regulation of commerce.

This argument sees Bitcoin spil to currencies/online markets spil Napster wasgoed to music piracy. The popularity of Bitcoin might well have waterput the entire system under an immense amount of stress but the underlying concept is an attractive one — a cryptographically secure and anonymous currency that doesn’t take a cut from transactions (like, say, Amazon’s virtual currency), and which remains independent of any single, central authority.


For many people, the risks — from fraud, for example — are outweighed by the benefits. So let’s say you’re not wooed by Bitcoin spil it is, but you still like Satoshi Nakomoto’s idea (",an electronic payment system based on cryptographic proof instead of trust, permitting any two willing parties to transact directly with each other without the need for a trusted third party",) then there are other alternatives out there. Here are some of the more interesting ones, all forked from the original Bitcoin code.

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Number of litecoins ter circulation: More than 17,000,000

Eventual litecoin total: 84,000,000

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The most vooraanstaand alternative to Bitcoin, Litecoin works upon the same fundamental principles. However, it’s placed spil a not just an alternative to Bitcoin, but a complementary cryptocurrency — ",the silver to Bitcoin’s gold",.

Speciaal from the problems with price fluctuation, Bitcoin has had some fundamental infrastructure issues that weren’t anticipated by many of its early adopters. The blockchain — the entire core of the concept — has come under enhancing strain spil Bitcoin has become more popular.

Ter its simplest terms, the blockchain is the record of every single transaction on the Bitcoin network. Every transaction is public, and the blockchain proceeds to grow spil its contains the utter record of every exchange since Bitcoin commenced.

This has some weird consequences — while it’s effortless to make yourself anonymous, it’s also effortless to track those anonymous transactions. This is how Sergio Lerner worked out that Satoshi Nakamoto has a fortune of 980,000 bitcoins, worth 73.5m. But if he/she/they isn’t/aren’t careful about how he/she/they spend that money, then it could expose his/hier/their identity.

Toughly every ten minutes, a fresh blockchain is generated and disseminated across the Bitcoin network by each knot, and the version that becomes the accepted, canonical version is the one that is disseminated by the greatest number of knots. It is, te a way, democratic.

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However, something very worrying happened on 11 March, when the blockchain forked into two. For harshly six hours, there were effectively two versions of Bitcoin te operation. This shouldn’t toebijten. It wasgoed only resolved when one chain eventually ", pulled ahead", of the other, becoming established spil the legitimate blockchain again.

Litecoin wasgoed founded te October 2011 ter recognition that this kleintje of problem wasgoed very likely going to toebijten if Bitcoin were to become popular. Merchants require large numbers of petite value transactions happening quickly, something that Bitcoin isn’t indeed well-suited for. Larger transactions, happening slower (reminisce, fresh blockchains generate every ten minutes) are more suited to it.

That’s why Litecoin has a quicker transaction time (toughly two and a half minutes) than Bitcoin, and, with four times spil many coins ter circulation, it theoretically offers smaller divisions of coins to make smaller transaction values more feasible.

It also uses a hashing algorithm — scrypt — which is supposed to keep litecoin mining realistic for desktop users, spil opposed to the standard SHA256d algorithm used by Bitcoin which becomes more time- and power-intensive spil time goes on. Mining both litecoins and bitcoins at the same time isn’t just possible, it’s positively encourage by Litecoin’s developers. Whether Litecoin is more or less secure than Bitcoin spil a result is sultry debate within the cryptocurrency community.

While a user has to, at the uur, go to an exchange like Vircurex to buy litecoins, Mt Gox has announced plans to add support for it ter the near future (however when, exactly, is unclear, thanks to the wave of DDoS attacks). Being on the largest Bitcoin exchange could give Litecoin an reserve layer of legitimacy through association.

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Presently, support for the currency is limited to the kinds of places that Bitcoin wasgoed restricted to ter its early days — lists casinos and cryptocurrency news sites, but the Pirate Bay is very likely still the most vooraanstaand acceptor of litecoins.

The current exchange rate, spil of the time of writing, puts a litecoin worth harshly 1/30th that of a bitcoin (or around Two.50 vanaf Litecoin), making it the most valuable cryptocurrency after Bitcoin.

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Number of PPCoins circulation: Unknown

Eventual PPCoin total: No cap

Peer-to-Peer Coin, or PPCoin for brief, presents itself spil an improvement upon Bitcoin by switching one of the latter’s fundamental ideas, proof-of-work.

[Quote",]For all Bitcoin’s problems, the underlying concept is an attractive one — a cryptographically secure and anonymous currency that doesn’t take a cut from transactions.[/pullquote] (ASIC) mining — expensive, dedicated equipments that often cost thousands of dollars, running 24/7, just generating enough bitcoins to make the entire thing cost-effective.

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Some have worried that this could lead to a security kwestie te the future. Tighter mining means fewer people bother to dedicate the effort and time, and fewer miners means that the overall network of knots decreases. Eventually, it’s possible that the number could decline to such an extent that Bitcoin (spil massive spil it may become) could be open to a 51 procent attack on the blockchain.

The determining factor te which blockchain becomes the ",real", one, and which is discarded spil fake, comes down to a plain rule — whichever blockchain is the one accepted by the most number of mining knots. Te a 51 procent attack, someone takes overheen enough knots to effectively dictate that their own version of the blockchain is accepted overheen the legitimate one. If that happens, it becomes possible to counterfeit bitcoins, or (even worse) to spend them more than once. It’s a serious threat — lots of currencies have bot taken down before they’ve even had a chance to stand on their own feet ter this way.

PPCoin’s solution to this is to slightly alter what the blockchain records. Te Bitcoin, a ",proof-of-work", is linked to each block spil it’s generated — it verifies the ownership of the block to the person who mined it, and future transactions use it spil an identifying marker. Te PPCoin, a further lump of information is included — ",proof-of-stake",.

Think of it this way. If you’ve had a single proof-of-work ter your wallet for one day — you could say that you have one coin-day te your wallet. One coin te your wallet for a week gives you seven coin-days, three coins ter your wallet for Legitimate days gives 54 coin-days. It’s simply the number of coins times the time held, which is determined by the addition of a timestamp to the coin’s information. It gives someone not just a proof-of-work, but a proof-of-stake.

Beyond improving security — it’s a loterijlot tighter to steal PPCoin than Bitcoin this way — it reduces the chance of a 51 procent attack by making the counterfeiting of coins utterly difficult, spil you have to build up 51 procent of all proofs-of-stake instead of mining power.

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Another radical difference is that, unlike with Bitcoin, there is no final cap set on the number of PPCoins that will be generated. Instead, the combination of proof-of-work mining (spil with Bitcoin) and proof-of-stake mining (which comes from using coins for transactions) gives the currency a stable growth ter size that, its developers optie, equals toughly one procent vanaf year.

Spil proof-of-work mining becomes more difficult and the numbers of miners drops off, it’s expected that proof-of-stake mining will become the superior form of mining te PPCoin, enhancing the supply of coin-days rather than coins that can be spent.

Presently, PPCoin has a centralised checking system ter place to verify transactions, so it doesn’t qualify spil decentralised ter the same way that Bitcoin is. This is, the PPCoin developers have said, only a improvised measure required until ",the network matures",.

BTC-e and Cryptonit are two of the main exchanges that accept PPCoin. Its current value is around 0.002BTC ( 0.01) vanaf PPCoin.

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Number of freicoins ter circulation: Unknown

Eventual freicoin total: 100 million

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Freicoin is an interesting alternative — with a distinctive philosophical framework — to other cryptocurrencies. It has a demurrage toverfee built into the system.

",Demurrage", isn’t something wij usually associate with money. It usually means the cost of holding something for a long time, like the price of paying for the storage of gold. Ter this setting, however, it’s a deliberate tax on savings.

Think of it spil being like inflation, but managed through taxes on a stable money supply rather than an untaxed money supply that expands leisurely but steadily, spil wij’re perhaps used to with normal currencies.

Mark Friedenbach, a Freicoin developer and, told overheen email what this means: ",[Demurrage] can be thought of spil causing freicoins to rot, reducing them ter value by

Four.9 procent vanaf year. Now to reaction the question spil to why anybody would want that, you have to look at the economy spil a entire. Demurrage causes consumers and merchants both to spend or invest coins they don’t instantly need, spil quickly spil possible, driving up GDP. Further, this effect is continuous with little seasonal adjustments, so one can expect business cycles to be smaller te magnitude and duration.

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With demurrage, one saves money by making safe investments rather than letting money sit under the mattress.",

If you look at the problem with Bitcoin’s bubble, it’s effortless to see why this kleuter of thing would be attractive for someone wanting a currency with a stable, predictable value. Many pundits have argued that Bitcoin will always have a deeply unstable price spil the money supply is limited and grows slower every minute — if you’re holding bitcoins, and you know that they’ll be worth more ter a week than right now, your incentive is to hold on to your money instead of spending it. Nobody buys anything, and the Bitcoin economy slows to a halt.

Demurrage compensates for this deflation — you would be a idiot to store large sums of money te Freicoin. Friedenbach said: ",Demurrage eliminates what is called ‘time-value preference’ — the unsustainable nature of our culture to want things now rather than ter the future, or at least spread out overheen time, such spil the clear cutting of forests versus sustainable harvesting. Demurrage acts to lessen the desires of the present ter order to meet the needs of the future spil money is ‘worth more’ the longer you delay te receiving it. This leads to sustainable economic choices.",

He cites real-world examples of demurrage fees working ter real life, such spil the ", Miracle of Worgl",. The proposal to use demurrage deliberately, spil a way to force the circulation of money and stimulate the economy, wasgoed very first proposed by the economist and anarchist Silvio Gesell. The mayor of the Austrian town of Worgl instigated scrips of paper known spil ",Freigeld", with demurrage ter 1932 during the Fine Depression, and proef that led to a rise ter employment and the local GDP until stopped by the Austrian central canap ter 1933.

Beyond demurrage, Freicoin works pretty much the same spil the basic Bitcoin framework — fresh blocks toughly every ten minutes, with the same difficulty and hashing algorithm. The final total of coins will, however, be greater, at 100 million.

Freicoin’s developers are also pushing for fresh features for their cryptocurrency to mark it out spil different from the others, Friedenbach said: ",Wij have created the Freicoin Foundation which is a registered non-profit responsible for distributing 80 procent of the initial coins to charitable or mutually beneficial projects. Wij are making a multiplicity of technical improvements to the Bitcoin protocol, which may eventually find their way upstream.", ",Wij are also working on fresh features that are very likely too controversial to be worked into Bitcoin presently, such spil the addition of ‘Freicoin Assets’",, a mechanism for issuing your own tokens for whatever purpose (stocks, bonds, lines of credit, etc.) and trading thesis tokens on a peer-to-peer exchange. Wij are also programma to extend Freicoin to include a multitude of voting mechanisms ter a proposal for distributed governance wij are calling

Freicoin’s radical demurrage concept has marked it out for a lotsbestemming of criticism, unsurprisingly, you can see on the developer’s forum the number of discussions taking place about it (and at least one group has attempted to take overheen Freicoin with their own fresh fork, removing the 80 procent Freicoin Foundation subsidy). After all, while Bitcoin might be unstable because of price speculation and deflation, that same increase te value is what drew attention, and therefore users, to Bitcoin te the very first place.

The demurrage toverfee, taken from every transaction, is redistributed mainly to miners of fresh blocks. Freicoin Foundation that Friedenbach mentioned is controversial spil, for the very first three years, 80 procent of the demurrage fees will be siphoned off to this central fund, to be then sent onwards to other people or organisations te a bid to get the currency traction outside a still-small community.

However, this central fund goes against what many regard spil the key point of cryptocurrencies — nobody is te control, they are downright decentralised. Assurances that the Foundation will be ",democratic", and open for any Freicoin user to join and vote on the use of funds may not reassure some people.

Freicoin is presently traded on Vircurex and Bter. The price vanaf freicoin price is toughly 0.0006BTC ( 0.04).

There have already bot several cryptocurrencies that have bot born, lived stuttering lives, and died, because they suggest nothing substantial beyond Bitcoin. Their names — SolidCoin, BBQCoin, Fairbrix, GeistGeld, to name some of them — are now footnotes on the Bitcoin wiki, and their networks now ghosts with knots that flicker on and off only intermittently.


Several of them were taken down by 51 procent attacks, while others simply never liked the support of a large enough community. The balance inbetween commodity speculation to drive price, and merchants to drive transactions, is a hard one to build.

Legitimate currencies that are still working, and which have ventilatoren and active support communities, include Namecoin, Terracoin and Feathercoin. However, cryptocurrencies are fast-moving and unpredictable te the long term — it’s hard to state with confidence that any one currency, including Bitcoin itself, will be here next year, or even next week. Their instability and their unpredictability is part of the vormgeving.

By all means, if you have the money, invest te something intangible like an algorithm te the hopes it becomes a viable payment method. Just be aware that it’s a risky way to attempt and make money — you might be better off sticking to the stock market.

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