June 1st, 2013
Via The Wall Street Journal, a quick primer on virtual currencies:
Virtual currencies are becoming more pervasive, thanks largely to the increased popularity of bitcoin, which is being used by online merchants and some traditional retailers. But the wider acceptance is attracting law-enforcement scrutiny.
But, some virtual-money firms have been mired in controversy over their lack of compliance with U.S. financial laws and allegations some are involved in illegal activities.
On Monday, federal prosecutors filed criminal charges against seven men for their alleged involvement in money-transfer service Liberty Exchange, which law-enforcement officials said was set up exclusively to aid people engaging in credit-card fraud, identity theft, investment fraud and other illegal activity.
Yesterday, the world’s biggest bitcoin exchange said it is beefing up its identification procedures for users who deposit or withdraw traditional currencies, amid increased scrutiny of the virtual money by U.S. authorities.
Mt. Gox, a Tokyo-based exchange that says it handles 80% of all bitcoin trading, said, starting Thursday, all user accounts must be verified in order to perform any fiat currency deposits or withdrawals.
While most people have heard of bitcoin, there are other virtual currencies. Here are the various virtual currencies gaining attention.
Bitcoin
Bitcoin has become the best known virtual currencies since its release in 2009. The currency was created by a person or group known as Satoshi Nakamoto (whose true identity is unknown) and is primarily used by online merchants, though some mostly smaller brick-and-mortar retailers have recently begun to accept bitcoins for payment. People can “mine” bitcoins using complex algorithms that require intensive computing power, though they can also buy the currency on exchanges and through services like BitInstant and Coinbase. The total number of bitcoins that can be created is capped at 21 million, and currently more than 11 million have been mined, according to various websites. Bitcoin has attracted attention from companies like Western Union , MoneyGram and eBay’s Paypal, which have said they are evaluating whether it makes sense to allow their customers to use the currency on their platforms.
Litecoin
Litecoin is based on the bitcoin protocol but enables transactions to be confirmed more quickly. Overall, the system is set up so that 84 million litecoins can be mined, about 20% of which has been created so far, according to a Litecoin discussion site. Currently the total value of litecoins in circulation is about $50 million, according to Charles Lee, who created the virtual currency. Mr. Lee isn’t aware of any physical merchants who accept litecoins today but some online merchants, such as web-hosting services, do.
Freicoin
Like Litecoin, Freicoin is also based on the bitcoin protocol but remains in its early stages. The system is set up to allow for the creation of 100 million freicoins, about 20% of which have been mined so far, according to Mark Friedenbach, one of the currency’s creators. At any one time there are about 100 people using the Freicoin network, he said, though the currency’s creators are looking for ways to expand its utility beyond the handful of mostly niche online merchants that accept it.
Ripple
One of newest virtual currencies to hit the scene, Ripple is a both a payments network and a currency. OpenCoin, the Silicon Valley company that is developing the Ripple protocol, says its goal is to get the currency in the hands of as many users as possible to drive usage. There are about 100 billion Ripples that have been created, the majority of which OpenCoin holds. The company will soon begin giving away 2,000 Ripples each to about 40,000 people, and plans to distribute about 50 billion units of the digital currency over the next several years, according to Chris Larsen, co-founder and chief executive of OpenCoin. Currently consumers can sign up for a Ripple wallet at ripple.com, and can use a third-party service called Bitstamp to wire money from their bank accounts for use in a Ripple wallet, Mr. Larsen said.
Amazon Coins
Amazon.com is among a handful of technology companies that have created their own virtual currencies of sorts, though in most cases such options are confined to use for goods on the companies’ websites. Amazon.com entered the fray in May when it released Amazon Coins, which can be used to purchase games, apps and other digital content on company’s Kindle Fire devices, as well as its app store and website. One dollar equals 100 Amazon Coins, which can be purchased in bulk at a discount. A thousand Amazon Coins, for example, costs $9.50.
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