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I don't understand why people need to create alternatives to Bitcoin such as litecoin. Why were these created? What's the point? You can't answer those questions using the same arguments for why Bitcoin was created.

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I just feel like some people are trying to make money by mining. These alternative coins are strongly seeded. I mean they get mentioned in the most irrelevant forum threads. –  AntonAnsgar Mar 4 '13 at 14:59
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8 Answers

In addition to Lohoris's answer, the reason that litecoin was created was to be as resistant to custom built hardware just for mining the coins, it uses scrypt as its cryptographic function. Scrypt was specifically designed to make it as expensive as possible to create hardware that is specifically good at doing that hash function. I personally like this because I do not like the idea of buying hardware that can only do SHA-256 to mine cryptocoins.

There is also ppcoin (pdf warning) which is aimed at not relying on constantly using electricity to keep the network secure. In this way it is very distinct from bitcoin.

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Litecoin falls exactly under my definition of kid-coin, precisely for the reason you cited: designed expressly to have bad performances. –  Lohoris Mar 5 '13 at 17:33
Have you read the scrypt white paper? It was specifically designed to make creating machines that can crack it as fast as possible as expensive as possible. I don't see why that is a bad idea; As a idealogical issue I don't like the idea of buying a machine that can literally only do SHA-256. What do you even mean by 'have bad performances'? Do you mean hard to compute? because that is pretty important in a cryptographic hash function. –  Peter Micheal Lacey-Bordeaux Mar 5 '13 at 19:15
To me, Bitcoin represents far more than using your nerdy computers to make money. It's about freedom and efficiency in trading, ending financial tyranny. Just because you can no longer make money from Bitcoin mining does not in any way mean that the world needs another digital currency. –  AntonAnsgar Mar 6 '13 at 9:28
@Lohoris I think actually on the contrary, litecoin addresses the issue of custom hardware being designed to mine, preventing the further creation of BitCoin-like currencies, resulting in one currency (i.e. no need for several currencies based on the BitCoin principle). –  deed02392 Mar 6 '13 at 14:28
@AntonAnsgar Yes I totally understand that. I like the idea of litecoin, not because I can still mine it (I am actually still mining bitcoins, I don't think quite enough ASIC have hit to really need to switch to litecoin), but I just don't like the idea of there being huge amounts of money being sunk into electronics that can only do SHA-256, any custom built hardware just to mine scrypt will be general enough to still be useful on a ton of stuff. –  Peter Micheal Lacey-Bordeaux Mar 6 '13 at 17:31
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The reason many people are trying different types of currencies is that Bitcoin not just a generic coin. It has certain properties built in such as only 21,000,000 ever existing, the 10 minutes taken to confirm a transaction, halving the production rate and importantly the initial distribution been given to miners. Many people like the concept of Bitcoin but disagree with one or more of the above properties and the only way to get around those properties is to create a new currency (or at least fork Bitcoin).

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You're forgetting that Bitcoin is open source and open to changes. If people think Bitcoin has flaws or disadvantages then work on enhancements to Bitcoin. I think people are trying to justify their greed by attributing the weaknesses of Bitcoin -assuming it has any compared to these phony alternatives. –  AntonAnsgar Mar 6 '13 at 9:33
@AntonAnsgar There is no universal agreement on what these properties should be. For example I think a constant mining rate is better than an exponentially dropping one, but there is pretty much no chance that bitcoin will change is minting policy that much. –  CodesInChaos Mar 6 '13 at 20:26
@AntonAnsgar The properties are contained within the source code and secured by majority vote. If you want to change them you'd need to get more nodes adopting your properties than not. Good luck. –  q99ujacw Mar 7 '13 at 2:54
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Everyone doesn't have to accept the same principle (philosophies) as of Bitcoin. Alternate coins (or even, Ripple) in a more simplified way, just Bitcoin with various parameters (philosophies) adjusted. like it or not, bitcoin does reward early-adopters unfairly(?). may be Bitcoin did that for survival / evolution purpose. After all it is open market, and always there is an opportunity for new financial services.

For example, when a government wants to adopt it then it could simply start bitcoin-like public ledger, sign and log all (?) the transactions, take mining out of equation, etc. there are various parameters, so many options and preferences vary.

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why downvotes?! –  vi.su. Mar 5 '13 at 3:20
+1 for the government use case. The Bitcoin protocol is a sound form of digital money that governments would benefit from. At present inflation is useful to promote spending, in the future with more constrained resources deflation may be seen as a better choice. –  Gary Rowe Mar 5 '13 at 11:22
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Bitcoin's very different things to different people, and obviously can't be everything to everyone. A lot of people really like a subset of its properties whilst disliking others. Some aspects of bitcoin are modifiable by comunity vote, some others not, and implementing yet others may require too much changes to the core code.

By allowing forks to be created, different ideas of what a crypto-currency can and maybe should be are competing directly against one another, in a Darwinian-like evolution.

Litecoin, for instance, tried to address 3 perceived problems with Bitcoin (others don't perceive them as problems or may even regard them as features): transactions taking too much to confirm, a "small" ceiling as to the max. number of currency to be mined, and a hash function that gives a very unfair advantage to users with GPUs and ASICs - theoretically this last one could mean mining will end-up, in the long term, concentrated in very few hands, besides making it potentially easy for governments with deep-pockets to mount a 51% attack by deploying large clusters of ASICs.

By producing blocks every 2-3 minutes, having a top of 80 million litecoins and using a CPU-friendly (and GPU-unfriendly!) algorithm, these perceived problems are avoided.

PPCoin addresses the perceived high-electricity consumption of the bitcoin network by having a radically new way to distribute newly created coins: appart from "classic mining", the amount of coins you already have serves as a "proof-of-stake" which is rewarded as well with even more coins, randomly. This way, new coins are produced without the need of lots of miners, potentially reducing the net electric consumption of the PPCoin network by 1 or 2 orders of magnitude as compared to Bitcoin. Since this proof-of-stake would encourage hoarding (and possibly high deflation!), a new built-in, inflation-like parameter is introduced so that each transaction destroys a number of your coins - supposedly this compensates the former effect.

And finally Freicoin is an attempt to apply the ideas of Austrian-Argentine economist Silvio Gessell to a crypto-currency. Here, your coins are slowly "eroded" in value by a pre-fixed percentage every year. This has a number of very interesting economic effects: Disencourages hoarding, encourages fast circulation of coins, interest rates drop to near zero (since banks would lose money by storing it idly in their valves, they need to invest it as fast as possible), inflation gets stopped in its tracks(since instead of prices going up, money's value goes down, so to speak), etc.

I'm sure there's space in the market of ideas for even more different approaches than vanilla Bitcoin, or combining 2 or more of them (Novacoin, for instance, basically takes PPcoin and mixes it with Litecoin). I can think of: unlimited max. number of coins, somehow increasing the amount of nodes controlled to mount a fatal attack (so instead of 51% you'd need 75% or the like), disencouraging miners to produce empty blocks, encouraging them to pick up transactions for small amounts, or rather highly discorage these transactions...

Let one hundred flowers blossom!!!

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Incorporate these advantages of alternatives to Bitcoin. It is open source. It can be changed. –  AntonAnsgar Jun 7 '13 at 7:56
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Namecoin had a reason to be created: it is not intended as a currency, it is intended as an alternative DNS system. Here you find the explaination about why they had to create a separate currency instead of "just using Bitcoin's blockchain".

It failed due to their foolish choice to have the domains be basically free.

Nextcoin (NXT) uses a proof-of-stake instead of the Bitcoin's proof-of-work. This is much more eco-friendly, so that's definitely a good reason to create it. It also has many other features, being a completely different codebase.

As @jtimon correctly points out, some coins (such as Freicoin) were created to experiment with different economic models, so, despite having extremely small chances of success, at least they were/are worthy experiments.

All of the other Bitcoin-like currencies are either scams (Solidcoin) or the product of kids who desperately wanted to "play miner" and were disappointed they couldn't do it anymore with their hardware: they created special coins with the goal of being optimised for their current hardware, instead of the goal of being as secure as possible.

Not only this is (obviously) a very poor design choice, but it was also doomed to fail in the long run: if those currencies were to have success (not that they had any real chance), custom hardware would have been built anyway, spawning in future more kids who weren't able to "play miner" with that currency either.

Sorry for being harsh but speaking out the truth is what is needed in such a question.

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That is exactly how I feel about it. It seems like these are being artificially promoted. I can't see any reason why they should exist other than this. Given that Bitcoin is already here and is capable of doing everything these alternatives do. If Bitcoin had a fundamental flaw and if another one came that does not have the flaw then I understand but it's not the case. –  AntonAnsgar Mar 4 '13 at 15:33
Apart from namecoin, there were many other proposals to provide more services on top of a proof of work chain. Here are some examples: bitcointalk.org/index.php?topic=7500 Other chains like Freicoin are designed according to the theories of other economic schools different from the Austrian (in this case, it is based on the theory on interest developed by Silvio Gesell). You can adapt your answer to reflect that is also about different economic approaches or I'll create another one. –  jtimon Mar 5 '13 at 15:30
@jtimon true, Freicoin should be listed, I'll fix that. –  Lohoris Mar 5 '13 at 15:36
-1 because of the out-of-hand dismissal of litecoin being created just to 'play miner'. It was created because scrypt has very different properties than SHA-256. scrypt was not created to be "optimised for their current hardware" it was made to be hard to make a machine that is optimized to only do scrypt. –  Peter Micheal Lacey-Bordeaux Mar 5 '13 at 19:14
-1 for cavalierly dismissing the idea behind scrypt as simply "kids wanting to play miner" –  Joe Pineda Jun 7 '13 at 1:36
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Bitcoin has certain properties that could be replaced with some other. Most altcoins to just that. Popular properties that altcoins change are:

  • replace PoW with something else

Some altcoins do not use a PoW mechanism or use a hybrid mechanism. PeerCoin (originally named PPCoin) was the first altcoin to use the Proof-of-Stake mechanism, which basically requires miners to hold a certain amount of currency in order to mine new. PeerCoin uses a hybrid of PoS and PoW. Nxt is an altcoin that uses pure PoS.

  • the PoW algorithm

Bitcoin uses SHA-256, which is a hash algorithms that almost entirely requires CPU cycles to calculate. This means that it is easy to create custom hardware to perform this calculations. There are many altcoins that use Scrypt as the PoW algorithm. Scrypt is more memory-intensive and therefore harder to implement in custom hardware. The first altcoin to implement Scrypt is Litecoin. Primecoin requires miners to calculate large prime numbers as a PoW mechanism.

  • the total amount of coins that can be mined

Bitcoin has a 21 million coin limit. Some altcoins raise this limit, such as Dogecoin, others lower it, such as 42.

  • the rate at which new blocks are created

Bitcoin blocks are mined at an average rate of one block every 10 minutes. Many merchants require that a transaction has been confirmed by several blocks before they accept it. With a confirmation time of 10 minutes (in fact, the recommended amount of confirmations to wait for is 6) can be quite cumbersome in certain use cases. Litecoin has a confirmation time of 2.5 minutes.

  • the time it takes before the maximum amount of coins is created

Block rewards usually have a halving time. Every halving time the block reward halves until it is too low to represent using the maximum precision and it becomes zero. With Bitcoin it will take until 2140 until the block reward becomes zero. Some coins shorten this period. Sometimes they shorten it so much that the creator (who mines first, of course) is accused of pre-mining because he can mine very fast and easy in the beginning of the existence of the coin.

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The question is why. We all know which alt coins are different in which way. But why do we need an alt coin that increases the total amount of coins for instance? Why do we need another coin with a different block discovery rate? –  AntonAnsgar Jan 25 at 19:40
Well, the reason people create and use altcoins is because they think their properties are more useful or convenient that those Bitcoin has. So the answer to "Why?" is just because an altcoin's feature X might be better than Bitcoin's Y. Whether or not it is in fact better is up to the people using it, right? –  Steven Roose Jan 26 at 20:19
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Bitcoin is open source and one can add new features. Some do this by contributing to the Bitcoin client, some by creating alternate clients with different features while still operating on the same block chain and protocol.

However one cannot add apposing features such as apposing economic theories (an inflationary currency vs a deflationary currency) or apposing security incentives (stake holders vs resource holders), regardless of the accessibility of the source code. Also, Bitcoin has an additional hurdle to contribution above the bar of commit rights on the source code; the entire (read 50+%) community of users must agree with your alterations and adopt your changes if they alter the protocol.

For this reason other cryptocurrencies are being created to provide alternative technical or economic solutions. One of these my prove to be a better solution, or we may end up with a selection of different digital currency 'instruments' with usefully different properties like stocks vs options vs bonds.

Although some alternatives have been developed to make smaller changes to perceived technical limitations of Bitcoin such as number of total coins, distribution rate, confirmation rate, etc. these are probably only of academic or research interest. If any of these types of changes proved to be useful they could easily be incorporated into the Bitcoin protocol itself rendering the alternate superfluous.

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This is the same reason Burger King exists when there is a Mcdonalds on every corner.

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This analogy would make sense if bitcoin had central control. –  Nick ODell Mar 6 '13 at 0:05
Or if the source code belonged to a private enteprise –  AntonAnsgar Mar 6 '13 at 9:22
Or if the 2 were really equivalent. To my taste-buds at least, Burger King's burgers are "decent" whereas McDonald's, quite simply, suck :-P –  Joe Pineda Jun 7 '13 at 1:32
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