Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Why Virtual Currency Is Here to Stay – Bitcoin or No Bitcoin

You'd better start getting used to the idea of virtual currency.

While the much talked about Bitcoin is the most prominent and widely used virtual currency, it is not the only one.

Bitcoin is not even the first, as the earliest digital currencies emerged as far back as the early 1990s (most of them are long gone).

Today there are more than 80 kinds of virtual currency, with an array of odd names like feathercoin, bbqcoin, fireflycoin, and zeuscoin.

They're called virtual currency because they don't exist in the physical world as coins or paper bills. They only exist in cyberspace.

But the fact that there are so many types of virtual currency shows that this is a concept that is not going away.

And while critics like to point out that a virtual currency is backed by nothing, like gold or a national government, and has no intrinsic value, they can serve an important purpose.

A successful virtual currency enables the transfer of money between parties anywhere in the world without the need for intermediaries like banks or payment processors or the fees they like to charge.

And a decentralized digital currency like Bitcoin is also outside the control of any central bank or government.

Virtual Currency Still in its Infancy

Still, the era of virtual currency is just getting started and is littered with the bones of its pioneers. Many early efforts from the 1990s, such as Beenz and Flooz, fell victim to fatal flaws in their design.

More recently, in May of this year, the U.S. government shut down the virtual currency Liberty Reserve after an investigation showed it was used almost exclusively by criminals around the world to launder money.

And yet the digital currencies continue to grow in popularity, a testament to the power of the concept.

Bitcoin itself is a great example of the resiliency of the ideas driving virtual currency. Over its five-year history, it has endured several crashes in the Bitcoin prices, but has recovered in each instance to reach new highs.

And while Bitcoin has the advantage of being the dominant virtual currency right now, that by no means guarantees it will win out as the digital money of the future.

A lot of very smart, innovative programmers continue to work to improve upon the virtual currency concept, building on existing currencies and seeking to correct what they see as flaws.

In fact, quite a few of the new digital currencies that have emerged in the past couple of years are based on Bitcoin, but with significant tweaks.

But the world does not need or want 80 digital currencies. Consolidation is inevitable, and nearly all of them will eventually fall away. Only a handful will survive.

So the only question is, which ones?

Here are the top candidates…

Join the conversation. Click here to jump to comments…

  1. Randy Savage | November 23, 2013

    Peercoin should be on this list. It is more secure and energy efficient than bitcoin.

    • David Zeiler | November 24, 2013

      Peercoin was on the bubble when I put this list together. It definitely has a chance in the unsettled world of altcurrencies.

  2. Yeo CH | November 25, 2013

    I have been with an intermediary system where EP is convertible to 18 local currencies (inclusive of US$, Euro, Pound, Yen, …). We the participants certainly look forward to the day when our EP could be converted to the virtual currency, be in Bitcoin or Ripple or Litecoin.

    For any virtual concept to work, there must be some strong fundamentals in the backing. The fundamental could be good sense (in executing, managing, sustaining, etc.) and the masses must like the virtual stuff/concept.

    The world don't need so many local currencies. There should be a consolidation of world currencies at the same time as with the rise of a few digital currencies.

  3. Noja Hemas | November 26, 2013

    I had not heard about Peercoin but will look into that.
    Ripple was also new so I did some research.
    Lots of "good news", but here is a well written document to consider:

  4. steve | December 20, 2013

    Virtual currencies actively tracked today Dec 20 2013

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK