Bitcoin has recently passed the $1000 mark, raising another round of speculation on the crypto-currency’s future legitimacy, but it’s not the only digital currency in circulation, and Samuel Gibbs at Business Insider goes over a few that are trying to supplant Bitcoin as the future of online payments. Even if most of them are destined to fade away, past technological shifts tell us that Bitcoin’s position as the top digital currency is far from guaranteed.
Conceptually, bitcoin works because transactions and the creation of new currency are both handled by solving hard mathematical problems. In order to cheat the system you would need about as much computational power as the rest of the network, which already has 100 times more capacity than the world’s 500 largest supercomputers, according to a recent Economist report. The underlying details (what algorithm to use, how to transmit information securely and anonymously) can be handled in different ways using this same initial concept.
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While Bitcoin is certainly the most popular digital currency, most people aren’t really qualified to say which one has the best implementation from a cryptographic point of view, and no one can say which digital currency if any will be in widespread use ten years from now. Napster brought file sharing to the masses and Friendster was arguably the first successful social network, and both are long gone now. Bitcoin could easily be the digital currency that popularizes the idea, only to be replaced by something more useful.
Bitcoin’s block chain
As the Economist article points out, participating in bitcoin currently requires you to store an 11 GB block chain containing all previous transactions (yes, every user keeps a record of every bitcoin transaction ever conducted, not just their own transactions), and as the currency grows in popularity the block chain will grow rapidly.
But the swell of digital currencies also raises regulatory questions. Just like unregulated credit could potentially tank financial markets, unregulated digital currencies with varying degrees of security and reliability could expose the economy to poorly understood risk. Bitcoin is up about 6000% so far this year, but those gains could disappear just as quickly if Litecoin, Megacoin, or one of the other would-be usurpers manages to capture people’s interest.