Bitcoin may have become a thing of fascination for the media very recently, but the digital currency actually celebrated its fifth birthday this month as its value hovered at around $1,000 per coin.
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Bitcoin was never intended to be the one cryptocurrency to rule them all, because anyone can make their own version of it. The code which underpins the currency is released under what’s known as an open-source licence. Anyone can use it themselves, and alter any aspect they want, in order to create a whole new currency.
A whole class of alternative crypto-currencies, based on the fundamental aspects of bitcoin, have been created over the past couple of years. The first and biggest of the “altcoins”, called Litecoin, was created in 2011 to address some perceived flaws in the Bitcoin protocol.
Litecoin is much harder to build specialised “mining” machines for, which, according to its founders, prevents it from being dominated by a few rich miners. Additionally, it clears payments faster and has a much higher cap of 84m coins.
Since November 2011, Litecoin has tracked the value of Bitcoin fairly closely, but in December last year it spiked in value. Overnight, a Litecoin was worth 10 times what it had been before, and its total market cap now stands at $623m, around 16% of that of its parent.
Measuring press attention alone, Litecoin is surely eclipsed by another altcoin with a far more compelling hook: Dogecoin.
Whereas Litecoin requires an already deep understanding of cryptocurrencies to explain the ways in which it improves on Bitcoin, Dogecoin has simpler selling point: it’s got a picture of a Shiba Inu dog on the front.
Read with a straight face, it’s a triumph of marketing. Take a field which anyone can enter, and where the average user has little or no way to distinguish between competing examples; and then whack the most popular meme of 2013, Doge, on the front of your own. (Doge, for those of you still unaware, is a meme involving pictures of a confused-looking Shiba Inu with brightly coloured comic sans text surrounding it, spelling out in idiosyncratic broken English the animal’s thoughts. Wow. Very internet. Such bafflement.)
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Except, of course, reading it with a straight face is not the point: Dogecoin was created as a joke, to appeal to the sort of person who would find it funny. And it worked – the total value of all Dogecoins in circulation is now worth almost $7m, making it the 16th most valuable alt coin in existence.
If it seemed like Dogecoin was the pinnacle of the altcoin madness Media which only tracks the ones people have actually bothered to buy and sell on exchanges, already records almost 70 – then the news from Thursday that a few coders were preparing to launch a currency based on Kanye West called, naturally, [Coinye West], proves that the idea still has legs.
So obviously I wanted a piece of the action. It was time to launch Herncoin.
It turns out, though, that cloning bitcoin is actually harder than it looks. Although the code behind the currency is open source, it’s not like the designers have just left a nice file where you can change a few lines of code to end up with a whole new currency.
It actually takes some serious programming ability to get started: Dogecoin’s technical co-founder, a software engineer from Portland, had to put in a couple of days of solid work to get the currency off the ground. Without a solid backing in C programming in the C language, I had no hope of creating Herncoin myself.
Thankfully, Matt Corallo, a veteran bitcoin developer, came to the rescue. On Friday, he opened the doors to Coingen.io, offering to create a forked version of Bitcoin for anyone with 0.01 BTC (around $10) to spare.
With Corallo’s tools, the job becomes the work of minutes.
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I couldn’t resist. A few seconds in an image editor to whip up a logo and Herncoin was born (you can download the program yourself):
Following the theme of vanity, I set the initial parameters of the coin to a series of numbers based on my name. So, for instance, the first few blocks “mined” will give 112,524 coins to the computer that mines them – that’s Alex spelled out in numbers, with 1 for A, 12 for L, and so on – and other characteristics done the same way.
Once the payment had processed, I was delivered the necessary tools to run my Herncoin.
It’s all silly, obviously, but there’s an important point behind the proliferation of altcoins. To bitcoin advocates, they represent the democratic underpinning of the currency – a democracy far fairer than the unaccountable central banks which run real-world currencies.
“Bitcoin enforces majority consensus,” says Mike Hearn, a developer of the currency. “By taking part in the economy and running the software, or by choosing which alt coins you accept, you are effectively voting on how the currency should work… We’d like Bitcoin to be perfect, of course. If lots of people started switching to an alt coin, there’d be pressure to upgrade Bitcoin to match the alt’s advantages.
“We must remember that our existing currencies are controlled entirely by private banks,” he adds. “The central bank in most countries is not a democratic institution or even a government controlled one – indeed that’s the whole point of them. The Bank of England was given independence precisely because politicians knew they could not be trusted with the power to print money.”
In this view of the world, the existence of Litecoin acts as a competitor to bitcoin, allowing uses to vote with their wallets in a very literal sense: if they would rather have Litecoin’s benefits, they can start taking that currency, and if too many people switch, bitcoin will be forced to make concessions. It’s as though, if you thought the interest rate was too low in the UK, you could start using yen instead.
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Herncoin doesn’t offer any of such improvements. Instead, it’s mostly focused around my face and my name. As a result, it seems to be having trouble taking off. I’ve been mining Herncoins on and off for a couple of days and, other than making my laptop really, really hot (we’re talking “if I didn’t quite like this laptop I would fry an egg on it for the photo opportunity” hot), not a huge amount has happened. Well, I’ve accrued a wealth of several million Herncoins, but not much else. No one else has connected to my network, which means my money may as well exist as a text file on my computer reading “Alex Hern is really quite wealthy”.
But it’s an alternative of sorts. The question for bitcoin is whether the ability to make alternatives like Litecoin (and Herncoin) lessens the responsibility on those who control the currency to take a pro-active stance in managing the bitcoin economy, like that which we require of central bankers. If the Bank of England releases data showing the quantitative easing isn’t working to boost the economy, we wouldn’t accept Mark Carney telling us that we’re free to move to France if we don’t like his style.
The sci-fi author Charlie Stross, in a piece titled “Why I want Bitcoin to die in a fire”, argues that: “Bitcoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind.” The economist Paul Krugman approvingly cited Stross’s conclusion in his own piece headlined “Bitcoin is evil”.
For Hearn, the inability of bitcoin to respond to economic events the way managed currencies do is an unambigious positive. The bitcoin model, he says, “is not only more democratic but more robust. Although central banks are undemocratic and unaccountable, they are nonetheless run by people who can be put under lots of pressure. We saw this in recent years with the euro… Politicians made a lot of very public noise about how Mario Draghi was personally responsible for destroying the euro, and he eventually folded.
“So we currently have the worst of all worlds.”
I’m not so sure. After three days of running my own currency, I’m fairly certain that a world based on Herncoin would be significantly worse.
• Is Bitcoin going to change the world?
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