Digital Currencies

Innovations in Cryptocurrencies industry will likely affect broad sectors of the economy, from distributed systems science to finance, economics, currencies, central banking, and corporate governance.

Digital Currencies 101

Like paper money and gold before them, cryptocurrencies such as bitcoin allow parties to exchange value. Unlike their predecessors, they are digital and decentralized. For the first time in history, people can exchange value without intermediaries, which translates to greater control of funds and lower fees.

The decentralized network–using an innovative technology known as blockchain–allows users to transact directly, peer to peer, without a middleman to manage the exchange of funds.

Any digital asset, whether bitcoin or something else, is used like other assets in exchange for goods and services. Unlike traditional currencies and assets, digital currency is easily portable, divisible, and irreversible.

The future of cryptographic currencies overall is brighter than just the future of the better-known names such as bitcoin and ethereum.

Innovations in this space will likely affect broad sectors of the economy, from distributed systems science to finance, economics, currencies, central banking, and corporate governance. Many human activities that previously required centralized institutions or organizations to function as authoritative or trusted points of control can now be decentralized. The invention of the blockchain and consensus systems will significantly reduce the cost of organization and coordination on large-scale systems, while removing opportunities for concentration of power, corruption, and regulatory capture.

Here are a few of the innovative approaches that could become leaders in the future:

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Monetary Parameter Alternatives:
Litecoin, Dogecoin, Freicoin
Bitcoin has a few monetary parameters that give it distinctive characteristics of a deflationary fixed-issuance currency. It is limited to 21 million major currency units (or 21 quadrillion minor units), it has a geometrically declining issuance rate, and it has a 10-minute block "heartbeat," which controls the speed of transaction confirmation and currency generation. Many alt coins have tweaked the primary parameters to achieve different monetary policies.
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Consensus Innovation:
Peercoin, Myriad, Vericoin, NXT
Proof of stake is a system by which existing owners of a currency can "stake" currency as interest-bearing collateral. Somewhat like a certificate of deposit (CD), participants can reserve a portion of their currency holdings, while earning an investment return in the form of new currency (issued as interest payments) and transaction fees.
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Dual-Purpose Mining Innovation:
Curecoin, Gridcoin
Bitcoin’s proof-of-work algorithm has just one purpose: securing the bitcoin network. Compared to traditional payment system security, the cost of mining is not very high, although it has been criticized by many as being wasteful. The next generation of alt coins attempt to address this concern. Dual-purpose proof-of-work algorithms solve a specific useful problem, while producing proof of work to secure the network. The risk of adding an external use to the currency’s security is that it also adds external influence to the supply/demand curve.
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Anonymity-Focused Alt Coins:
CryptoNote, Monero, Zerocash/Zerocoin
Bitcoin is often mistakenly characterized as "anonymous" currency. In fact, it is relatively easy to connect identities to bitcoin addresses and, using big-data analytics, to connect addresses to each other to form a comprehensive picture of someone’s bitcoin spending habits. Several alt coins aim to address this issue directly by focusing on strong anonymity, including the use of stealth addresses or transaction re-mixing.