The digital currency Bitcoin is all over the news. It has made fortunes, and then destroyed some. It has been called an anarchist threat to the government-issued dollar, and also condemned as a means of control hatched in the dark recesses of the NSA compound. It has attracted hordes of ardent investors, and also found a bitter detractor in the Nobel Prize-winning economist Paul Krugman. What is the big deal?

For those still not in the loop, Bitcoin is a digital peer-to-peer currency (that means it “exists on your computer” and trades over the internet) that was invented by an unknown individual or individuals using the alias of Satoshi Nakamoto. You could get several hundred Bitcoins for a dollar and initial interest was only shown by cyber geeks. Over the next few years, Bitcoin appreciated in value and became the de facto currency of the Internet black markets, with its value rising to over 1000 dollars per Bitcoin in late 2013. This several hundred thousand per cent return on investment brought it fame and attracted speculators.

Since then, Bitcoin has received several major blows, and its price has dwindled down to 600 dollars per Bitcoin. The first of these shocks was the early 2014 ban enacted by China and Russia whereby Bitcoin was deemed a threat to their national financial systems and barred from trading. Speculation arose whether the United States government would follow suit and the price dropped from an all time high of 1,200 dollars to the sub-500 range in a matter of days. After it was certain that the US government was not going to take any such a steps, the value appreciated back to 900 dollars.

The more serious shock came just last month in the form of the Mt. Gox fiasco. The Tokyo-based Mt. Gox was the biggest Bitcoin exchange in the world, handling over 70 per cent of the Bitcoin trade in 2013. In February 2014, Mt. Gox suspended all trading activities and closed its website and exchange service after 850,000 (valued at more than 500 million dollars) coins were allegedly stolen through a hack. Customers’ deposits were locked and people lost millions in Bitcoin investment. In the wake of an ongoing investigation, the resulting crash had the value of Bitcoin drop precipitously to 634 dollars (as of March 12, 2014) per Bitcoin.

In the wake of this volatility, several alternatives to Bitcoin have sprung up. These digital currencies, most of them based on enhancements to the existing Bitcoin protocol, already have multi-million dollar market capitalisations and are fast gaining traction. In this article, we will examine four major alternative digital currencies that may make its investors very rich if Bitcoin fails: Litecoin, Ripple, Dogecoin, and Auroracoin.

Litecoin

With market capitalisation of more than a billion dollars and an average value of 17 dollars per coin, Litecoin is often marketed as the silver to Bitcoin’s gold. Litecoin was released as an open-source client in 2011 by Charles Lee, a former Google employee. From a value of one dollar at the start of 2013, Litecoin shot up in value to almost 50 dollars by December 2013. After Bitcoin crashed, Litecoin followed and has been at sub-20 dollar levels ever since.

Litecoin offers several technical benefits over Bitcoin; the chief among these is shorter transaction confirmation times: Litecoin confirms a transaction every two and a half minutes versus the 10 minutes wait for Bitcoin. Although this makes the blockchain (the ledger containing all transactions) longer, it makes the currency more suitable for use as a medium of exchange. Litecoin also has a greater maximum number of coins (84 million, which is four times the amount of Bitcoins), and a more generous mining system, which tolerates CPU miners over ASIC miners.

Will Litecoin ever take over Bitcoin? This is only possible if Bitcoin fails due to a fault not inherent to digital currencies themselves. However, if Bitcoin loses traction due to a hack or a ban, then Litecoin can easily step in and fill the void.

Dogecoin

By far the most fun currency on this list is Dogecoin. This Litecoin-derived digital currency started as a way to poke fun at the massive online interest in other digital currencies. It is based on the “doge” internet meme: a picture of a devastatingly cute Shiba Inu muttering in broken English in what is assumed to be the internal monologue of the dog when encountering a thing of complexity.

The currency that started as a joke now has a market capitalisation of 50 million dollars and trades at 0.001 dollar per Dogecoin. Courtesy a huge internet following, Dogecoin was the only currency that did not depreciate in value during the Bitcoin price shocks. Just recently, a US-resident listed his 135,000 dollar house for sale in Dogecoin and several marketplaces for the currency have sprung up.

The baffling success of Dogecoin highlights the laissez-faire values of the entire digital currency movement. As long as people are interested and willing to pay, the market will sustain a currency regardless of how outlandish it may seem. Will Dogecoin ever take over? It is cute, secure, and cheap. Much wow, such currency, very stable.

Auroracoin

Launched this February, Auroracoin has already become the third largest digital currency by market capitalisation. Developed by a programmer called Baldur Friggjar Odinsson, it’s set to be the digital currency for Iceland. Odinsson cites the massive government interference in Iceland’s financial system as his inspiration for developing Auroracoin, and says that he wants it to eventually replace the national currency. For this reason, he announced that 31.8 Auroracoins will be “airdropped” to every citizen of Iceland on March 25, 2014.

It is clear this is a very ambitious move. It has attracted a load of investors and one Auroracoin currently trades at 15 dollars. However, experts suggest that soon after the airdrop there will be a massive reduction in price because people will want to convert their windfall to a more stable currency. There is no telling how the people of Iceland will receive this idea. This month and the months to follow will be the first major tussle between a government and digital currency proponents, and the results will be very interesting to watch.

There are several other digital currencies out there as well: Namecoin, Peercoin, and Mastercoin to name a few. These typically have a much smaller market capitalization compared to the major digital currencies. In a sense, the existence of so many digital currencies highlights the strength of the system: everyone is free to choose whatever currency they like, and the market decides the winner. This is in stark contrast to government-backed monopolistic currencies. Each of the smaller alternative digital currencies offers its own set of advantages and disadvantages, but none of these are likely to dethrone Bitcoin.

Where, then, is a person to invest if he wants to gamble on digital currencies? Not even experts agree. What we do know is that digital currencies are the riskiest investments on the market today. Alternatives to Bitcoin may succeed, but it is also likely that if Bitcoin is wiped out then so will all faith in the entire digital currency landscape. The outcome, as we will know in a few years time, will depend on whether governments allow digital currencies to exist, whether another Mt.Gox-like incident can be avoided, and whether the public is willing to trade in something intangible. Pessimistically, Bitcoin is the next pets.com of the dotcom bubble. Optimistically, it is as transformative as the Internet itself.

Ripple

Ripple is the only currency on this list not based on the Bitcoin protocol. It was launched by Chris Larsen’s OpenCoin Company in 2012, which is now backed by major investors such as Google Ventures, Andressen Horowitz, and FF Angel LLC.

Ripple is more than merely a currency: it is also a payment system. Ripple has “coins” called “ripples” that perform much the same function as a Bitcoin. However, integrated with the protocol is a payment system, which connects to people to send and receive Ripple payments. The software also works as an exchange where one can transfer or convert any type of currency (Bitcoin to British Pounds, for example) directly through the Ripple protocol.

With all these obvious advantages, what’s the downside? The major criticism for Ripple is that it is backed by a for-profit firm, and this goes against the libertarian ethos of digital currencies. Ripple is also “pre-mined” with 25 per cent held exclusively by Ripple Labs. Can a for-profit organisation be trusted to not manipulate a market it controls? If the answer for you is “yes”, one ripple costs 0.015 dollars and the currency has a market capitalisation of over two billion dollars. With major financial backing, it just might succeed.