The world of cryptocurrencies took another dramatic turn this week with the announcement of a bug discovered on one of the major bitcoin exchanges. As a result, the MtGox Bitcoin exchange stopped allowing withdrawals of Bitcoin from the exchange and this then caused the value of Bitcoin to drop, falling from about $US900 a week ago to the current price of around $US600.
Meanwhile, another cryptocurrency has brought a new perspective by tying itself to renewable energy. The SolarCoin has been created to promote the use of solar energy. Although SolarCoins can be earned by mining in roughly the same way that Bitcoins are, the majority will only be available in exchange for generating megawatt hours of electricity back to the grid. The plan is for consumers who generate solar-powered electricity to receive 1 SolarCoin per megawatt hour. In essence, this becomes a “proof of work” which is the basis of creation of other cryptocurrencies. The problem with proofs of work is that they are currently implemented by getting computers to perform repeated calculations. This uses a significant amount of power which is effectively wasted. Using a renewable electricity proof of work is obviously far more attractive from an energy conservation perspective.
According to Nick Gogerty, the SolarCoin Foundation spokesman, the target value for a SolarCoin is $US20-$US30. How the target will be achieved and maintained is not clear.
Like all of the cryptocurrency, the actual value depends on what people are prepared to buy the currency at. With SolarCoin, the tie in with solar power generation may prove attractive to the renewable energy sector generally and consumers who are supportive of any effort to reduce greenhouse emissions by using clean energy. As the recent surge in value of the Dogecoin has shown, even a cryptocurrency that started as a joke can become an asset with exchangable value. The Dogecoin, partly as a result of Bitcoin’s woes, currently has a market capitalisation of $US90 million.
The idea of concept-based currencies is a very new idea and one that holds enormous potential. Taking a concept, in the case of SolarCoin, renewable energy, coupled with the idea of using a “proof-of-work” as the basis for the creation of the currency means that these currencies could be tied to any type of work, especially one related to the concept. Imagine, for example, a UniCoin which is awarded for every course a student completes at University. The coins could be used to pay for books or food on campus or even offset their eventual student loan.
If you are having trouble conceptualising the idea of these types of cryptocurrencies, it is worth remembering that they are not that different from currencies like the US dollar that are no longer backed by gold. Currencies like the US dollar are are a “fiat currency” which only works because collectively we have chosen to believe that a dollar has value.
In the meantime, if you want to get SolarCoins, you will be able to exchange Renewable Energy Certificates for them. A REC usually represents a certificate for the generation of a megawatt hour of electricity. In Australia, RECs are usually given to the consumer based on an estimation of the amount of electricity the installed panels will generate over a 15-year period. They are usually handled by the solar panel installation company who discounts the installation costs and claims the RECs on your behalf. This does mean that it would be difficult to be able to use RECs in Australia to get SolarCoins unless you handled them yourself. It would be possible however for electricity companies to become involved with distributing SolarCoins in addition to providing the usual feed-in-tarrifs that they give to people contributing electricity to the grid.
Whatever the fate of the SolarCoin, there are undoubtedly going to be many more concept currencies that will follow.
David Glance is director for the Centre of Software Practice at the University of Western Australia.
David Glance does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.