Is Bitcoin a thing of the past? Not really, but new alt-coins have been showing with different variations of bitcoin’s protocol, often aiming to provide improved confirmation times and more accessible mining. Overall though, the comparisions to bitcoin are deeper than their difference. Therefore, all of them offered almost the same product under a different brand with mining a key compenent of acquiring new coins.
Contrasting to bitcoins and its alt-coin siblings are pre-mined coins such as ripple. With pre-mined digital currencies, the entire float of coins is created on its inceptions and distributed to early adopters. As a result, in a way, pre-mined coins can be considered a digital form of fiat currencies, with their value based on an underlying asset that they are backed by. In terms of ripple, the system resembles a global IOU network, with ripples being sold by exchanges to represent dollars, euros, etc.
On its base form, without a matching IOU to back the currency, the value of pre-mined coins is related to its technological intrinsic value. A written contract between two parties for an IOU of $100 would be considered to have a value of $100. But, in addition, the pen and paper used to write the contract have their own value, albeit minimal. Similarly, pre-mined coins provide a digital form of creating, transferring, and storing IOUs with their intrinsic value tied to demand for such services. Just like the pen and paper are essential for creating the contract, the pre-mined digital currency and underlying network provide a small, but potential value to lenders and borrowers.
A new entrant to the pre-mined sector is NXT. Created in November, and launched last week, NXT has a float of nearly 1 billion units and currently is available for trade on DGEX. At a value of about 4 cents per NXT coin, it compared to ripples 2 cents value. NXT’s creators claim the source code was designed from scratch as a second generation alternative currency with many interesting new features (entire press release). Among them:
1. There is no mining. The currency uses a 100% proof of stake, which means that all the coins have already been mined and are existent today. The possibility of using ones computer to earn coins still exists, but instead of solving problems to mine coins, with NXT the computer is used as a server to “forge” for transactions fees. The new methodology implies that for every transaction that your computer processes you get the chance of getting a coin. The more coins you have the bigger the chances of scoring a bonus. The chances of succeeding are the number of coins that you have divided by the total amount of coins in existence. As a result, only people who have coins can forge.
2. Immediate transactions. Since users are rewarded for helping to transact with the currency and not for mining, transactions can be processed almost at the same rate as Visa or Mastercard process their transfers. The times when cashing a digital currency took days are over.
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3. Alias. NXT allows users to register a NXT Alias that points to a URI, which can be anything from a web address, NXT account number, email address, or even a phone number. If you have an Alias enabled web browser you can enter “nxt:[Alias]” which will take you to the specified URI, such as nxt:google takes to youhttp://www.google.com.
4. Colored coin. This new feature is meant to be a bridge between the virtual and the physical world. It is possible to “paint” a coin of a certain color, which would represent a certain property, stock or commodity and trace its transfers.
5. Decentralized trading. The developers are working in a peer to peer transaction platform that will eliminate the need of an exchange to trade the currency. Transferring the currency directly from user to user will surely lower transaction fees.
6. Environmentally friendly. Since there is no need to solve very difficult problems to mine the coin, a lot of computer power will be saved and used more efficiently.
In terms of usage, having only officially launched last week, usage is still limited. But, similar to ripple’s creators that offered free coins to increase its exposure and ownership, NXT giveaways are also taking place. Interested owners can check out the currency’s giveaway thread on Bitcointalk to receive free NXT coins.
Overall, whether its NXT, ripple, or Mastercoin (another pre-mined currency, but differs from the others as it operates on top of bitcoin’s blockchain), pre-mined coins are a growing variation of digital currencies. In terms of advantages, by being linked to assets, whether fiat currencies, commodities, shares in stocks, or real estate, they provide an understandable value for the general public. However, as their underlying value is tied to being an IOU, for such digital currencies to thrive, they will need an active exchange system for the numerous assets that they represent.