Get ready for the Bitcoin copycats

If 2013 was the year of Bitcoin -- and judging from the digital currency's stratospheric rise, that's a fair assumption -- then 2014 is shaping up to be the year of the Bitcoin wannabe.

The newest Bitcoin copycat is perhaps the most unusual. Coinye West, as it is called, is named after hip-hop musician Kanye West, and it launches Jan. 11. Coinye joins Litecoin, Peercoin, Anoncoin and a number of other aspiring Bitcoin knockoffs.

Web developers aren't the only ones trying to cash in on the Bitcoin phenomenon. Large companies also are moving in on the digital currency in exactly the ways you would expect from major corporations: filing patents, getting legal reviews and hoping to make an alternative that is legitimate enough to mint them some real cash.

Enter eBay (EBAY), which has turned its PayPal division into a financial powerhouse that pulled in $1.6 billion in revenue in its last reported quarter. Moving into digital currency is perhaps a natural for PayPal, and eBay has applied for a patent for its "Gift Tokens" idea.

The patent application describes how a Paypal user might give a gift token of money to someone else, and the recipient could use that token to buy something online. Sounds easy enough, but here's the key: Whoever gets that token doesn't have to create their own Paypal account in order to spend it. In other words, they can spend online nearly anonymously. No credit cards or online accounts needed.

JPMorgan Chase (JPM) had a similar idea and filed a patent application in August describing a way to anonymously pay someone using a mobile device. The person making the payment wouldn't have to supply an account number or a name.

Asset-management firm M-Cam says JPMorgan's patent claims have all been canceled or rejected. It's unclear why the claims were rejected, but M-Cam suggests it's because JPMorgan's idea is simply too similar to Bitcoin, which is already well established. 

"Obviously, large financial institutions want in on the online alternative currency action," M-Cam wrote in its analysis of the situation. "But they would be well advised to pursue novel and non-obvious approaches that do not duplicate existing commercial options."

For now, it looks like financial companies will flounder around a little more until they hit on the right idea. And this is proving a tough nut to crack because it introduces a completely novel concept: anonymity. It's easy as pie to come up with a fancy new way to pay somebody.

But making the transaction anonymous? Bitcoin's got that nailed better than anyone, yet even Bitcoin can't offer complete anonymity, and it has other flaws that would make most people hesitate. The virtual currency has been relentlessly hacked, for example, and its daily price has been extremely volatile.

It will take some time before someone creates a safe, secure and yet totally anonymous way to pay someone online. Until then, your best bet might be something that people have happily used for centuries: cold, hard cash.

  • Kim Peterson

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