Alternative currencies: Bitcoin and beyond

Learn about global, local and private digital alternative currencies, including cryptocurrencies such as Bitcoin and Litecoins.

Key points

  • Alternative currencies are becoming more familiar - they can offer freedom from the regular banking system and from international trade restrictions
  • They're unregulated, meaning that users are vulnerable to fraud
  • Currency value can be volatile in the extreme, making them risky

Alternative currencies are forms of exchange that individuals and organisations may use instead of regular currencies such as pounds, dollars and euros, or alongside them.

They can be created by almost anyone, including individuals, corporations and nation states.

The key point is that a wider community needs to see a value in the currency, meaning it'll acquire a value.

Such currencies have developed for a wide variety of reasons, including in response to financial crises, to facilitate crime and as solutions to local, social and/or ecological issues.

Although they're still a somewhat niche consideration, certain currencies such as Bitcoin are well known and accepted by businesses around the world.Savings and Isas: Piggy bank and coins

If the freedoms associated with these currencies may seem attractive, consumers should also be aware that a scheme is likely to be unregulated - leaving them vulnerable to loss and fraud - and that the value attributed to an alternative currency is likely to be extremely volatile.

Global alternative currencies

Bitcoin is probably the best known alternative currency, but there are many others including Litecoins and Linden Dollars.

Parliament information

Bitcoin and Litecoins are examples of what are known as cryptocurrencies, which are designed to allow payments without financial intermediaries.

Linden Dollars, Amazon Coins and Starbuck Stars are examples of private digital currencies, which are exchange mechanisms typically issued by a company or a social network.

All such global alternative currencies offer international exchange that can bypass the banking system.

Hyper-local currencies

There are also currencies that have been called 'hyper-local' because they're only used in specific localities.

Examples include Ithaca Hours and BerkShares or, in the UK, the Bristol Pound, the Stroud Pound, the Totnes Pound, the Brixton Pound and the Lewes Pound.

Local community options may be used to help reward 'unpaid' work, regenerate local areas and tackle social exclusion.

In the UK, people are free to accept any currency they want and such schemes have included the following types of exchange mechanisms:

Transition Town Pounds

Transition Town Pounds are paper notes with the legal status of a retail voucher, although unlike vouchers they are subject to tax.A piggy bank wearing a pair of sunglasses

Time Banks

An example of how this would typically work is that someone would give an hour of their time performing a certain task, which could then be redeemed for an hour of the time of another member of the time bank.

Local Exchange Trading Systems (LETS)

A LETS exchange is similar to a time bank exchange, but someone's time would buy them a number of LETS units and this 'currency' could then be exchanged for a service from another member of the scheme.

By Sean Davies

 


APPENDIX:

Are cryptocurrencies anonymous?

    The growth of alternative currencies that may be difficult to trace has led to concerns about their potential to be used for crime.

    There are ways to associate bitcoins with users, though, meaning they're not totally anonymous - they've been called 'pseudonymous'.

    There have been attempts to develop totally anonymous cryptocurrencies, examples of which include Darkcoin, Anoncoin and Zerocoin.

Bitcoin

As Bitcoin is the most well-known alternative currency, let's take a closer look at it…

Bitcoin came to prominence as the go-to currency for hackers and drug dealers operating on the so-called 'deep web', but now big, legitimate business operations like Microsoft and Dell accept it as payment.

Bitcoin is going overground in a big way - you can even buy pizza with it now.

So, how can you get hold of bitcoins? And what can you do once you've got them? And should you even bother in the first place?

How do I get bitcoins?

It's really easy to get your hands on bitcoins.

Sites like Bitbargain put buyers and sellers in touch and you can be in possession of some digital coins to use at your leisure within minutes.

It's reasonably safe to buy from sites like these - they're pretty rigorous with regards to who they allow to sell.

According to Bitbargain, "it's virtually impossible to scam buyers without getting noticed and removed from the system immediately".Laptop

However, caution should still be exercised. You should always check the seller's ratings and it's probably not wise to buy many more bitcoins than you'd be comfortable losing at one time.

You could try 'mining' for them as well. This doesn't have to be complicated, but you will require a lot of raw computing power to do it.

Try this beginners' guide to mining for bitcoins to find out more.

Where do I store bitcoins?

As with regular money, you'll need somewhere to keep your bitcoins once you have them.

From Covered mag:

Bitbargain offers a digital wallet to temporarily store coins you've just bought, but you should think about transferring them immediately to somewhere like Blockchain.info.

Online wallets are susceptible to hacks, so for more security, you could use an offline hardware wallet like Trezor.

Whatever you do, don't follow the example of Welsh IT worker James Howells, who absent-mindedly threw away a hard drive stuffed to the gills with bitcoins he'd mined years ago.

Volatility of Bitcoin value

The value of Bitcoin fluctuates wildly. It peaked in early 2014, when just one bitcoin was worth 951 US dollars (USD).

However, by the end of the year it had fallen by a huge amount and ended the year worth just 319.70 USD.

By Kristian Dando