By Michael Patrick McSweeney (@mpmcsweeney)
We’ve been dutifully covering the Bitcoin bubble over the past few weeks as part of our new Bitcoin bubble tracker, but one thing you may not realize from our report is just how many alternatives, or “altcoins,” are building and bursting as part of their own, separate bubbles as well.
From Litecoin to Junkcoin, these coins were designed using the structural basis of Bitcoin but differ in their own unique ways.
In our latest “PYMNTS 12 Days of Christmas” feature, we take an inside look at some of the altcoins that are competing for prominence in a crowded market. While some of these may not be around in six months, it’s possible that a few could play a serious role in virtual currencies in years to come, if there are years to come.
Litecoin
Of all the alternative virtual currencies on the market, Litecoin is perhaps the most visible. Litecoin is becoming an increasingly popular choice among cryptocurrency holders.
One of the major differences is that Litecoin offers faster transaction processing times than Bitcoin. Whereas a Bitcoin confirmation (a process by which virtual currencies are transferred over the web) might take upwards of 10 to 20 minutes, Litecoin has an average confirm speed of 2.5 minutes.
There will also be more Litecoin in existence than Bitcoin when mining – the process of extracting virtual coins from a data set – has exhausted the supply. While only 21 million Bitcoin will ever be on the market, the total number of Litecoin units produced will eventually be 84 million. Litecoin mining has reportedly picked up quickly in recent months, and some electronics producers have suffered shortages due to increased interest in certain computer components required for mining.
With its high market cap and established mining community, Litecoin is one of the strongest contenders out there.
Peercoin
A major difference between this altcoin and others like it is that, while its competitors are projected to eventually hit their “hard mining cap” (each cryptocurrency has a different max level), Peercoin will eventually switch to a system by which Peercoin holders will generate interest at a rate of 1 percent per year. This makes the currency more energy efficient, its backers say.
Recently, Peercoin was announced as the “official cryptocurrency” of an upcoming Star Trek convention. Attendees can use Peercoin to buy tickets and merchandise.
Namecoin
Namecoin is unique because it is as much a crypto-currency as it is a decentralized domain name system (DNS).
This means that Namecoin can be used to disseminate information and store it securely on the Web. Additionally, users can attach value to this information and then trade it. Namecoin’s supporters say that the currency could function as a next-generation way to securely store and transmit data.
Megacoin
An interesting aspect of Megacoin is that the developers behind it have created a release plan that slowly but surely will put 42 million Megacoins into the hands of its users.
Megacoin is mined like any other altcoin, but a difference is that the “mining difficulty” – the probability modifier that a miner will discover a unit of data containing a Megacoin – does not fluctuate as it does with Bitcoin and other coins. Eventually the coin will become more scarce, and according to the official Megacoin website, the last coins will be mined sometime around 2079.
Worldcoin
Worldcoin is related to Litecoin in terms of its fundamental design elements.
Its features include 30-second average transaction times, mining reward reductions and mining difficulty readjustments. Like Bitcoin, financial companies have begun forming around the currency as a business called Scharmbeck Worldcoin Financial Services is expected to offer U.S. dollar-to-Worldcoin transfer and merchant transaction processing services in the near future.
Primecoin
A major difference between Primecoin and its competitors is the structure of its mining system. Almost every cryptocurrency uses a “proof of work” protocol that secures that information from hackers and digital thieves. Primecoin utilizes a separate system that focuses on longer chains of data known as Cunningham chains. To make a long technological story short, this approach reportedly makes Primecoin easier to mine and transfer.
Feathercoin
Feathercoin was originally produced as a variant of Litecoin.
Like its direct predecessor, Feathercoin offers quicker transaction times and mining probabilities. One of the differences between Feathercoin and other alt coins is that release rates – the amount that will enter the market within a given time – will decrease starting in 2014. At the end of its mining cycle, 336 million Feathercoin will be in existence.
Do these coins have a chance at challenging Bitcoin for supremacy? It’s too early to say. Observers should keep an eye on the PYMNTS Bitcoin Bubble Tracker to see how this virtual market evolves in 2014.
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