As a matter of theory many current monetary thinkers, especially in the Austrian school of economics or those involved in the bleeding edge of technology including Bitcoin, have long anticipated competition to Bitcoin. We see the competition as good and healthy in the long term because competition usually fosters quality over time. This article will not analyze current Bitcoin alternatives in-depth, but it will list and briefly summarize those alternatives, noting some advantages and drawbacks.
1) Traditional currency – You already know about that, so…Ya…
2) Ripple. “Ripple” is the payment network, “ripples,” XRP in shorthand, are the currency. To further complicate things “Ripple” is based on, but separate from, the slightly older “Ripplepay,” which is unfortunately sometimes also referred to as just, “Ripple.” Ripple is essentially a decentralized version of the same extended trust network IOU technology implemented in Ripplepay. That technology is described in the video below:
Ripple can be used as a compliment to Bitcoin or as an alternative. Benefits include faster transactions, distributed currency exchanges, no 51% network-control attack threat and an extensive intrinsic credit system that can even work with non-monetary contracts or credit arrangements. Drawbacks include the fact that the currency is originated and distributed initially from a single source.
3) Freicoin. Freicoin is like BTC with built-in “demurrage.” Demurrage means there is a cost of holding the money and the makers of the coin claim that the fee is to the tune of 5% per year. They accomplish this by forcing the mining incentive on top of transaction fees to hold at 5%. In Bitcoin the mining incentive above transaction fees eventually drops to 0, meaning that miners are paid entirely by transaction fees. This feature will simultaneously help insure that there are plenty of miners to carry out the Proof of Work. However I am curious whether they have implemented the feature properly because their How It Works page claims that the coin base stabilizes at 100 M coins. I would have assumed the 5% demurrage comes from a 5% hard-coded inflation, except that they make the stabilization claim. Therefore either they made a bad claim or there is some sort of hard-coded coin destruction mechanism which destroys the same number the miners are mining, creating basically a hard-coded redistribution. They say it is a beneficial system because it encourages economic activity and long-term investment. I’m skeptical to say the least. It seems to be based on Neokeynesian economics imho.
4) Colored Coins. Colored Coins are actually Bitcoins. However, because of the nature of the Bitcoin software, “special Bitcoins” can be appointed and used as if they are completely different coins. These coins can even be used as non-monetary instruments or “smart property” such as deeds or other property. These coins maintain all the value of a BTC as well as the ability to instantly convert into BTC. Furthermore these coins allow distributed exchanges. On the downside Colored Coins will further bloat and slow the Bitcoin Block Chain and will be exposed to a 51% network-control attack just like BTC.
5) PPCoin. A largely abandoned project which was poorly done but a great idea. The idea is to copy Bitcoin but replace the Proof of Work system Bitcoin does with a Proof of Stake system. Proof of Stake can do the same essential job of Proof of Work with only a sliver of the time and energy required by an intense Proof of Work. In this forum post Sunny King, one of the PPCoin makers, says that Ripple could accomplish the same essential advantage of PPCoin.
6) Litecoin. Litecoin is a piece of junk and no one should ever use it. It is essentially a copy of BTC with confirmations that take half as long. It was supposed to be written in such a way as to prevent GPU mining but it didn’t work. Terracoin, Devcoin, Liquidcoin, Solidcoin, lxcoin and many others are also just absolute junk. I will not be commenting on this crap just don’t use it.
7) Namecoin. Namecoins can be used as currency but that is not the main point. The real point of Namecoin is to act as a Domain Name System. It can attach information, even in the form of words or names, to a coin and that information is recorded in the distributed blockchain. In other words, it acts like a Colored Coin system.
That’s all of them!