Variety Is the Spice of Global Finance
BBC NEWS Is Bitcoin the future of currency? [Source: http://www.youtube.com/watch?v=VMuN4QTp_oo]
One of the more interesting debates in the realm of digital finance is whether Bitcoin is the way of the future or a flash in the pan. To supporters, the world needs an online currency that falls out of the purview of central bankers. Their reasoning goes that if politicized central banks don't have the ability to print more paper money every time their country's economy takes a tumble, the currency will more closely resemble an inflation-proof entity more closely aligned with gold. That's because there are a pre-determined number of them and additional units cannot be minted.
Detractors say many things, not the least of which is that without central bank oversight and an existence solely in the virtual sphere, Bitcoin isn't immune from cyber-thieves who could conceivably hack into the stash on your hard drive. In fact, one of the appeals of precious metals like gold is their physical existence. Of course, if you count existence as a file on your computer, then you might have a better time accepting the basic idea behind Internet currencies.
Despite the fact that we don't know how the so-called crypto-currency fad will play out, it can be valuable to investigate, as it were, both sides of the coin. What I mean is that Bitcoin isn't immune to the forces of market disruption. Far from creating its own market, Bitcoin is simply one of a handful of financial innovations that might take the global economy by storm in the next few years.
One would-be currency to watch is Litecoin. Its value proposition revolves round its status as an opensource currency that has the potential of being more accessible than Bitcoin. That's because Litecoin reportedly uses an algorithm that allows it to be "mined" by standard computers. I'm also fascinated by Peercoin, which the press states ranks fourth in market capitalization of all the alternative digital currencies. Peercoin brings new security measures that focus on preventing "group mining" - a cause for concern among some of its rival crypto-currencies.
Then there's Novacoin, which also tries to protect its owners form group-mining schemes. It tops out at 2 billion units, which is about 20 times more than most fo the other currencies. The idea here is that inflation - a little, at least - isn't necessarily a bad thing. Another entrant to the space is Namecoin, which, I think, could have asked their marketing department to work harder on a name. In any case, Namecoin brings something interesting to the game: its own DNS protocol. That allows it to operate outside the part of the Internet governed by the Internet Corporation for Assigned Names and Numbers (ICANN).
I think Quarkcoin is a currency to watch if only for its reported nine rounds of encryption using six algorithms. It's a new entrant into the space that takes the crypto part of crypto-currency to new levels.
No doubt about it: If a new cyber currency suddenly skyrockets to over $1,000 per unit, it's likely to draw plenty of other players to the space. Many of them share basic programming fundamentals and use similar Internet protocols, which is why it's anyone's guess as to which currency will come to dominate the space. When a technology is largely the same, it's a test of entrepreneurs to focus on other parts of the value chain.
Could the current computer masterminds behind crypto-currencies be budding marketers as well? They probably don't think of themselves as such. People who excel in developing algorithms seldom think of that side of the business. But in the world of digital finance, with many entrants striving to break away from the pack, perhaps it's the cyber-marketers who will dominate the currencies of the future.