31 - Freicoin

Bitcoin is currently all the rage. The last few weeks saw an incredible rise in “value” (as seen by the exchange rate), a rise in problems (DDos against MtGox and Security Breaches at Instawallet and Bitcoin-Central) and loads of good and bad articles. Currently, the most important problem though, is another one.

Hyperdeflation. The constant rise of the value of BTC vs “normal” currencies like EUR or USD makes it highly improbable, that people do anything else than hoard their coins. The reasoning is totally clear: The value of the BTC will be higher tomorrow than today, so it doesn’t make sense to use the BTC to actually buy anything. A currency that is not used to actually buy stuff is kind of useless (and not healthy for the whole ecosystem)

There are alternative digital currencies that are based on the Bitcoin protocol. One such alternative currency is Freicoin. Freicoin has a built in, 5% per year loss of value, called demurrage. This measure should guarantee, that the coins are spent and not hoarded. I think this is an excellent idea, but it remains to be seen if Freicoin can establish itself as an alternative Cryptocurrency. Currently, there are few miners, no exchanges and hardly anybody that accepts freicoin as value for purchases. But the consolidated hashrate on Coinotron has risen at least 10 fold over the last few days. There is a sudden interest in Freicoin. It will be interesting to see if that continues and off there suddenly is a market for Freicoins.

Still - interesting to see different ways of new approaches to currencies. I am sure, that we haven’t seen the end of alternatives, but it remains to be seen, which (if any) will actually be used widely. My money so far is on Bitcoin, but I can absolutely see that something like Freicoin can have a much more profound economical impact.