Although there are several different peer-to-peer currencies, bitcoin currently stands head and shoulders above the rest in terms of public understanding and use … a bit like Betamax video did before VHS took over the world’s living rooms.
There is litecoin – based on bitcoin protocols – which aims to provide faster processing times and easier mining. It hopes to produce a total of 84 million coins.
There is opencoin, which is still in the process of developing client software.
There are LETS — Local Exchange Trading Systems — and other pegged currencies like Brixton pounds, which are spendable only within one community. So the world has continued to turn for many years with alternative or parallel currencies.
The difference for the likes of bitcoin is the scale and anonymity, and — of course — distributed computing, provided by the internet.
We can also say that bitcoin at the moment has an actual value. In fact, it has two values. There is the price that an exchange will give you — about £60 or $92 dollars at the time of writing. And there is the cost of computing power required to mine a bitcoin, which depends on electricity, computing hardware and other variables.
Until all the coins are mined — for a total of 21 million units (expected around the year 2140) — there is no way of saying how, or even if, the currency will stand up against dollars or euros. Digital currencies might retain a high perceived value or they might go the way of Beenz or cowrie shells – although, to be fair, cowrie shells remained a solid currency in some parts of the world for several thousand years.
Banks are already starting to kick back against bitcoin-based businesses. Banks in Canada have closed accounts of bitcoin-related businesses, citing “terms of service”. Polish authorities have closed bitcoin exchanges (see our story on Bitcoin-24).
These closures could be straightforward fraud prevention actions. But if any of these currencies gain any kind of serious foothold, both governments and central banks are going to take aggressive defensive action. The more investors there are in related businesses and the more currencies there are, the more likely it will be that any one of them might survive.
A spokeswoman for the UK’s Financial Conduct Authority, previously part of the Financial Services Authority, told CoinDesk: “This would only come under our remit if a UK company was offering some kind of collective investment based on an asset which held bitcoins or was based on their value. Although we deal with thousands of companies, as far as I know we have not been approached by any such UK firm.”
That’s the Catch 22: for alternative currencies to be truly accepted, people must want to invest in them. At that point, if not before, financial regulators — with their cozy relationships with existing banks — will start to take an interest. That’s when we might get half a clue what the future holds for alternative currencies.