Mentioning the term ‘bitcoins’ in company would have drawn blank stares just a few years ago. Bring up Bitcoin in conversation today, however, and chances are most people will have heard something about the currency. What is less widely known is that a huge range of Bitcoin competitors are also streaming on to the market. Though some of these ‘alternative bitcoins’, or ‘altcoins’, are pale imitations of the original system, a few emerging cryptocurrencies are sufficiently distinct to warrant further attention.
Altcoins and bitcoins can be very similar, or very different. Dash, formerly known as Darkcoin, markets itself as an ultra-anonymous currency and operates via Darksend, a special protocol that adds extra layers of encryption to transaction data. Uno, another promising upstart, is built for fair 'mining' using cryptographic proofs: while other digital tenders are launched secretly to give selected users a head start in currency acquisition, Uno made sure its first coins were worth very little to give the public time to configure hardware and start on an equal playing field.
There are literally hundreds of new altcoins springing up every few years, but there's no question which is the most popular: Litecoin. This variant, which is itself one of the original virtual currencies, is specially designed to be higher volume than its Bitcoin counterpart. While the latter tender will be limited to 21 million coins, Litecoin users will eventually mine 84 million units. Commentators disagree as to whether this difference has any practical significance, but some observers think having a weaker currency may offer psychological benefits by allowing users to trade in whole units rather than fractions of single coins.
Most altcoins are easier to get than bitcoins, and some can even be obtained using a home computer's Central Processing Unit (CPU) or Graphics Processing Unit (GPU). As with all cryptocurrencies, acquisition via 'mining' involves using computer hardware to perform calculations that underpin mathematical proofs. These mathematical proofs are used to convert blocks of data into strings of characters called 'hash values' that form the backbone of a virtual coin. Mining can be carried out alone, or in communal 'pools' that increase the odds of cracking the sums needed to acquire coins.
Users who don't want the hassle (and electricity costs) of mining can opt to trade altcoins via services such as Altquick. These systems allow users to buy coins with 'real' money in as little as 3 hours, though the need to present photo ID at many exchanges will put off users who prioritise privacy. As with bitcoins, 'wallet' systems are usually needed to keep altcoin addresses secure –cryptocurrency transactions are, after all, irreversible. The easiest way to find these wallets is to search for altcoin home sites and download the clients recommended by designers, however security-conscious users may wish to opt for a hardware wallet option such as Ledger.
Yes and No. Altcoin variants often suffer from being 'the flavour of the week', meaning that they're released to a great deal of price-inflating hype and subsequently plummet in value when a new variant hits the scene. These 'boom and bust' cycles can make altcoins a risky investment in monetary terms. There's also the issue of 'scamcoins', altcoins that are set up with extremely unfair 'pre-mining' arrangements that make it nearly impossible for those outside an inner circle to acquire currency – it's important to do plenty of research on the specifics of new coins before dedicating any hardware to the cause.
It's important to realise that the allure of cryptocurrencies for many users is a distinct lack of rules and red tape. This may change in the future, as European and American lawyers are working hard to clarify the status of virtual denominations as 'vehicles of money transmission' and bring them (kicking and screaming) into the existing financial system. It's also the case that the security of altcoins depends on which wallets and exchanges users choose; though the digital ledgers used to record virtual currency transactions should be difficult to corrupt in theory, security can be compromised by Denial of Service (Dos) attacks and hacking against web-based storage mediums.
Given that Bitcoin is newish and most altcoins are newer still, it isn't surprising that there are still several unknowns on the road ahead. What is certain, however, is that cryptocurrencies are having a profound effect on world banking systems: the combined worth of all virtual tenders amounts to billions upon billions of pounds.