With the lasting economic crisis, in Europe and the rest of the world, the focus on alternative currencies seems to have increased. For example the Wall Street Journal has covered extensively the development of such currencies in Spain:
Another famous example is the Brixton pound.
At the same the dramatic reduction in IT development and infrastructure costs powered by open source technology and cloud services has allowed an explosion of alternative digital currencies. From Time Banks to Reputation Currencies to new currency systems such as Bitcoin, via other solutions like Clearbon, Kurrenci. The lowering base cost of the digital economy is affecting digital currencies as well.
To give an insight into the technicality that such currencies can reach, I have inserted under the original white paper of Satoshi Nakamoto, “creator” of Bitcoin.
In parallel, there has been an ongoing push to expand the scope of existing alternative currencies such as miles, points and prepaid amounts into interchangeable currencies.
But most of this value is captive and very lucrative as such for their creators. In reality, there are no functioning exchange platforms for miles and points, most of them are structured in tightly controlled silos. For example Points.com exchange rates (as dictated by its partners I would guess) prevents it from growing significantly.
In my view, for any alternative currency to expand, it needs conversion with other currencies, including “traditional” currencies. The incentive of exchanging in the alternative currency should be embedded in its characteristics instead of being defined by its siloed nature.
Critics of alternative currencies are quick to point out the many failures in them. Facebook Credits, once held in high hope has been shut down. Most local currencies such as Brixton Pounds never grow beyond a small size. One key argument is that counterfeiting inside the currency quickly becomes the main trust issue.
But with Bitcoin notably we are seeing a change of this paradigm. Counterfeiting Bitcoin is by nature close to impossible, trust of the currency in itself is established.
However the technical advancement that have made this possible are also the underlying drivers of the weakening of the contact points into bitcoins. Digital Exchanges, with their volumes and velocity constitutes easier target for fraud.
For example, the two latest scandals in the Bitcoin economy:
Bitcoin Exchange Bitfloor Suspends Operations Following $250K Hacker Heist
Bitcoinica users sue for $460k in lost Bitcoins
While these stories do harm the Bitcoin economy, I think this is actually very good for alternative currencies. In my view building trusted exchanges is easier in the long-term. I think this is the underlying assumptions that mainstream investors and players make with the Bitcoin ecosystem. Y Combinator investing in Coinbase, teams like Paymium made of payment specialists are signs that more people understand this and are familiar with the challenges of building these entry points. This is good for a future of multiple currencies.
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