eBay Inc (EBAY), Visa Inc (V), Facebook Inc (FB) & Bitcoin

Therein lies the difference between Bitcoin and other virtual currencies.  Bitcoin is based on open source mathematical algorithms. In other words, that means it is very hard to cheat the Bitcoin system, and this is why a lot of folks in technology believe that it might be the future of money. Math-based currency likely has future as a monetary instrument, but it probably is not going to be Bitcoins.

The fact that Bitcoin has gotten this far, and has value as a social construct, proves that there is a place for an electronic currency that is hard to counterfeit. But because the number of Bitcoins that will be created is small, at around 21 million, that makes it hard to envision it becoming more than just a store of value.

Fortunately, there are new competing efforts to take Bitcoin’s ideals and make them more mainstream. One of them is OpenTransactions, which is quite technically oriented, making it very attractive to software developers or those who want to use a payment system with some degree of anonymity. Then there is Ripple, which is attempting to make the digitization of money an easier shift for the masses by being compatible with existing fiat currencies.

Although banks make a lot of money with the way that financial transactions operate today, it’s clear that Bitcoin is a harbinger of things to come. Of course, there’s nothing stopping companies in the banking system from developing their own Bitcoin-style currency. And this digital shift is probably going to happen whether the financial industry likes it or not. It will be interesting to see how they eventually react to this new technology that could cause major changes to how money is transacted.

The article Why Digital Money’s Future Will Involve Something Like Bitcoin originally appeared on Fool.com and is written by Daniel Cawrey.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.