Digital currency is a form of electronic money, considered to be a type of alternative currency. These currencies are not supported by any bank in the world.

Even so, digital currency can be used to purchase real goods and services, over a strictly peer-to-peer network. They can be purchased with real money, and are seen as an investment to many.

You can also “mine” digital currency, by using your computer to help decode “blocks.” This process can take long periods of time, and many have questioned its worth.

Lost yet?

The world of digital currency can be confusing. The easiest way to explain it is as an investment, like purchasing a stock or commodity.

There are many different types of digital currencies, but the two main ones are Bitcoin and Litecoin.

Bitcoin

No one knows for certain who created Bitcoins. The name Satoshi Nakamoto is used when talking about whoever did create the digital currency, even though it is not linked to one single person.

Even with such a shady background, Bitcoins have become very popular. Owning them does have both positives and negatives, however.

Pros:

Bitcoins can be a great investment. For those who invested in the early days of Bitcoins, they were able to cash out with ridiculous profits. They started out valued at less than $10, even worth only a few cents at one point.

At times, Bitcoins have now been valued over $200. Some who invested early and often have been able to cash out as millionaires. Not bad for some invisible currency.

The supply of Bitcoins is also limited. The founder set up the algorithm to stop the “production” of Bitcoins once it hits 21 million. This limited supply ensures the value of bitcoins will remain high.

Cons:

As rewarding as they can be as an investment, they can be just as risky. There have been times where Bitcoins value has changed $100 in a single day. Bitcoin value has also gone from dollars to pennies in seconds. So investing in this alternative currency isn’t exactly for the faint of heart.

Governments may start cracking down on underground currency, which could potentially cripple its value.

Another issue? Bitcoins aren’t exactly accepted like your Visa card. There are a very limited number of businesses that take Bitcoins. So unless the item you want can be purchased with Bitcoins, you may not find much use for them.

Litecoin

Litecoin is very similar to Bitcoin. Google Software Engineer Charles Lee created Litecoin based on the same principles as Bitcoin. He created it because he, “wanted to create something that is kind of silver to Bitcoin’s gold.”

Even though Litecoin is similar to Bitcoin, it has its own pros and cons.

Pros:

Released towards the end of 2011, Litecoin has seen its value steadily increase, but still remains at a low risk price.

It opened 2013 with a value of $0.07, and as of August, Litecoins are now worth $2.40 a piece. That’s over a 3000% return for early investors. If Litecoin can keep growing steadily, it can become the next big thing in digital currency.

Litecoin is also a more stable alternative currency compared to many other Bitcoin impersonators. Other alternative currencies have been labeled as scams, just taking peoples money and shutting down. Litecoin, however, has a trustworthy creator, and a solid foundation.

Cons:

While Bitcoins aren’t redeemable in a lot of places, Litecoin has even fewer options. So while it may look like a good investment, it may never be as popular as Bitcoins. That will hurt its value overall.

Litecoin also admittedly will never be worth more than Bitcoins. Charles Lee has said 84 million Litecoins will be produced. That is 63 million more than Bitcoins, which will decrease its value in the long run. So if people are looking to invest in Litecoins, they have to understand it probably will not take off quite as well as Bitcoins.

The Rest

Most digital currencies have been developed to mimic Bitcoin. Since Bitcoin’s release, 42 other cryptocurrencies have been created, all hoping to ride the success Bitcoin has created.

While they follow the same principles, none of these other currencies have seen the popularity that Bitcoin has received. The next most popular digital currencies after Bitcoin and Litecoin are Namecoin and PPcoin. Neither comes close to rival the top two currencies.


While the road ahead for digital currency is still shaky, there is no doubt that is has caught the attention of many.

But will the bubble continue to grow, or will it burst? Only time will tell.


Photo by BTC Keychain