David Sterry has been a bitcoin believer for years. He even founded a bitcoin startup. But when he heard that miner demand was causing monthlong backlogs on certain computer components, he realized it was a big, big moment – not for bitcoin, but for litecoin.
The alternative cryptocurrency, created in October 2011 with a few tweaks to the Bitcoin protocol, has seen its value rise and fall in lockstep with bitcoin’s. As bitcoin has risen in prominence and in price and become more difficult to mine, new miners have rushed into litecoin as the next best thing – and purchased just about every available AMD Radeon graphics card, the most efficient way to mine litecoin.
“It’s kind of capped by how fast AMD can create video cards,” said Sterry, founder of the nonprofit Litecoin Association. The rush on AMD’s product has been so pronounced, Sterry said, that “Litecoin could be the first math-based currency to have an impact on a Fortune 500 company’s bottom line.”
Litecoin now has a market cap of $410.8m, making it the second biggest cryptocurrency after bitcoin’s $7.7bn – but far from the only alternative math-based currency out there. Cryptocurrency watchers estimate there are as many as hundreds of others.
“You can take Bitcoin open source code and make a couple tweaks, and you have an altcoin,” said Greg Schvey, head of research for The Genesis Block, a New York research firm specializing in bitcoin. “I could make a new alternative currency by the end of this conversation.”
Many of the alternative coins were created as “intellectual experiments,” Schvey said, ways to test out ideas for optimizing bitcoin. As bitcoin’s value grew, profit has probably also become a motivator for some currency developers.
Other cryptocoins were created to accomplish goals never dreamed of in the Bitcoin protocol – primecoin has miners’ computers search for valuable new prime numbers as proof of work, and namecoin is designed as a domain name registration and exchange system.
Although many of the other cryptocurrencies are based on the Bitcoin protocol, not all are; the protocol for nxt, the cryptocurrency with the fourth-largest market cap, was written from scratch in Java.
Then there are coin systems built to work on top of bitcoin, such as mastercoin, which would allow people to assign to a bitcoin the value of any asset, such as gold or a company stock, and colored coins, which would allow one bitcoin to be distinguishable from other bitcoins.
Each new cryptocurrency that comes forward benefits from the groundwork that bitcoin advocates have already done, said Mastercoin Foundation executive director Ron Gross, speaking at the Future of Money and Technology Summit in San Francisco.
“We’re building on bitcoin’s success – on a lot of infrastructure that has already been laid in the last five years. The infrastructure is technological, its social – all these gatherings of people – and it’s regulatory,” Gross said.
It’s still far from clear which, if any, of these coins might survive to gain popularity, and if they did, whether they would supplant bitcoin or be used alongside it. Bitcoin already has a significant head start, with so many merchants accepting it and a number of marketplaces trading it.
Some of the altcoins have attributes that might turn out to be improvements over bitcoin, like litecoin’s faster transaction speed; but Schvey pointed out that nothing would stop Bitcoin developers from incorporating such improvements or similar ideas into the Bitcoin protocol.