What Are Digital Currencies Like Bitcoin And How Do They Work?

Digital currencies are electronic money that aren’t denominated by any national
currency, nor are produced by any government-endorsed central banks. These
currencies are known as “alternative currencies,” and thus are sometimes called
“altcoins.”

Many digital currencies are cryptocurrencies, a type of digital currency that relies
on cryptography, as well as a proof-of-work scheme. Essentially, it involves a
mathematical process to create the currency at a reasonable rate so that the
currency doesn’t become too numerous, and thus, lose its value. Bitcoin was the
first cryptocurrency, while many others have followed.
The second-most valuable “altcoin” is known as “litecoin.” It shares many similar
features to bitcoin, but it has a shorter block rate (litecoin’s block rate is 2.5
minutes versus bitcoin’s 10 minutes). This means that the litecoin can be
processed and put into people’s digital wallets faster than the bitcoin can. Even
though litecoin is cheaper than bitcoin, it is not as popular as Bitcoin, and thus,
litecoin is used in fewer places than bitcoin.
The third-most valuable “altcoin” is known as “peercoin.” It too is modeled after
Bitcoin, but unlike Bitcoin, peercoin has no hard limit on how many peercoins will
be mined. The only certainty is that peercoin is designed to eventually hit a target
of one percent inflation. That could help the peercoin to last long term as a digital
currency.
“Namecoin” is the fourth-most valuable “altcoin.” It is very interesting because it
is the first prominent iteration of the Bitcoin model to serve a function beyond
payments. It is designed to manage information access, as it utilizes all of the
same Bitcoin principles to serve as a distributed Domain Name System (DNS). With
this unique feature, it may survive on its own even if Bitcoin fails. There may be
further variations of this type of model as well in the future.
“Primecoin” is interesting in its own right because the mining of this digital currency
actually contributes to society by implementing scientific proof-of-work. As a
result, new blocks of this digital currency are generated every minute, which results
in smoother difficulty adjustments and faster transaction times.