Competing crypto-currencies: The good, the bad, and the ugly.
The emerging world of digital currencies has created a mad rush of innovation, some good, and some outright shameful. I will be treading lighting on this subject, because there is an emotional aspect for early adopters of any crypto-currency. This is not unwarranted, as a passionate group of individuals can bring obscure ideas to light, much like Satoshi Nakamoto did with bitcoin in 2009. These dedicated, and passionate supporters & visionaries help to create what could be most revolutionary technology in over a century.
Consider that bitcoin is still in its infancy. it's remarkable that viable competitors are able to gain traction at all. There have been a long line of crypto-currencies spring up in the wake of bitcoin. All of these coins adopted Satoshis core bitcoin framework; although, some minor adjustments may have been made to the code base, to offer a small distinction. Typically these newly created crypto-currencies were nothing more than a knock-off of bitcoin, trying to gain notoriety, and monetary gains. Regardless of how little systemic change was made to their coins, people would invariably adopt them, and a newly formed group of dedicated & passionate supporters would spring up along side.
I feel competing currencies are a fantastic thing; however, there are a handful of items early adopters need to be aware of. The cypto-currency world is a true free market, and additional scrutiny is needed when spending your time, and money on new competitors. There are many examples of successful, and failed crypto-currencies. Here are a few.
Litecoin is at the top of the list, because it has incorporated distinct differences to bitcoin. The core development team is proactive in keeping the needed features & fixes into the litecoin framework. Litecoin is a good example of how a digital currency can compete in this dynamic, and emerging field.
Litecoin was created by former Google employee, Charles Lee in 2011. Although, litecoin is based on the core bitcoin framework, the hashing algorithm is based on a newer cryptography called Scrypt. Systemically, this is a critical distinction between litecoin, and bitcoin. Scrypt is memory intensive, and helps to create a natural barrier to the flood of ASIC mining equipment, that has taken over the bitcoin network. By using the Scrypt algorithm, litecoin achieves a higher level of security over bitcoin's SHA256, and reduces the ASIC mining advantage, by a factor of 10.
In addition to litecoin's Scrypt algorithm, the transaction time is reduced to approximately 2.5 minutes, and the total coins mined will be 84 million. All other inherent features that bitcoin provides are included into litecoin. As you can see, there is a significant systemic difference with litecoin. It is also the number one competitor to bitcoin in terms of technology, and market capitalization. Which currently sits at around $200 million dollars.
Namecoin is the one of the most interesting coins. It was designed to decentralize DNS services, keeping them online regardless of government censorship. It is listed in the bad category because it never really took off. This is mainly due to namecoin being in a niche that is much smaller, as it's not used as a standard currency. I still have great hopes for namecoin, it can be used in a number of exciting ways.
Namecoin was created in April of 2011. It was designed to provide a decentralized DNS (Domain Name Service) for websites. It is based on the bitcoin framework, and uses the SHA256 algorithm. The coins are mined the in the same manner as bitcoin, and once namecoins are created, you can then purchase a top level domain name signified by a ".bit".
Another exciting use for namecoin, is a potential decentralized & provable voting system. This could have a huge impact on how voting is carried out, especially with rampant voter fraud abound. Namecoin still remains relevant, because of the advent of pooled merge mining, where bitcoin miners can mine for namecoin at the same time. This will keep namecoin partially alive until its benefits can be used on a larger scale.
From it's inception, feathercoin has been plagued with problems, and not just minor, but full systemic problems. Feathercoin is a perfect example of a "Cautionary tale" when a new crypto-currency comes onto the scene.
Fueled by the bitcoin buzz in the spring of 2013, feathercoin was created as a direct clone of litecoin. The creator unfortunately, could not implement the fork properly to get feathercoin off to a good start. The genesis block needs to be unique to feathercoin; however, the genesis block was copied directly from litecoin. As feathercoin was then announced to the public, it was then promptly "Insta-mined" by insiders, locking out most average miners. By the end of the first day of mining, nearly 3 million coins had been created.
Feathercoin continued to be plagued with engineering problems, exposing their users to unneeded risk. The beginning of June 2013, they sustained a massive attack that took over the feathercoin network, which resulted in approximately 16,000 coins being diverted to the attacker(s). At the same time, feathercoin prices were skyrocketing on the exchanges, which left people speculating who was actually benefiting from the prolonged attack, as prices should have collapsed.
After many months, and many changes to the development team. Feathercoin has centralized their blockchain, with what they call "advanced check pointing". This is to help stave off future attacks, but it centralizes control to a group of handpicked pools. The unfortunate aspect is feathercoin still attracts new users, yet provides a substandard coin riddled with problems. There have been plenty of "buyer beware" notices regarding feathercoin; however, not all users scour the internet exercising due diligence.
Famed Nobel prize winning economist, Friedrich Hayek, advocated for competing currencies. We get to see firsthand, this experiment take place with crypto-currencies. In general, open competition is a good thing for consumers; however, having too many competitors that do not offer tangible differences, will result in an extraordinary loss of money, and confidence. Inside the crypto-currency world we can witness these new competitors being created for strictly monetary gain, yet provide no additional utility. These coins are then listed on various exchanges, and pumped & dumped to the latest users that don't know better.
Crypto-currency exchanges need to provide better safeguards against these types of failed coins, and look beyond making a few percentage points on their unsuspecting customers. BTC-E recently moved to de-list feathercoin, yet miraculously reversed their decision, leading people to further speculate that exchanges are colluding with failed crypto-currencies. It doesn't require much investigation to determine which currencies are legitimate, and which ones defunct.
I hope to see more innovation with crypto-currencies. Whether these coins can fill a gap, or enter a niche like namecoin, these new innovative coins can be wildly successful.