BITCOIN FANS like to point out that, like gold, the cryptocurrency is in limited supply. Its protocol specifies that only 21m bitcoin will ever be mined, with the last batch due in the middle of the 22nd century. A fixed supply, say bitcoiners, ensures that, unlike ordinary currencies, it will not be eroded by inflation.

But whereas the supply of bitcoin may be limited, that of cryptocurrencies is not. Bitcoin’s protocol is open-source, so there is nothing to stop others copying the idea. And they have done, with gusto. So far thousands of different cryptocurrencies have been launched. Like bitcoin, they have proved attractive to speculators. For example, XRP, issued by Ripple, a payments firm, rose from less than one cent to touch $3.46 in January this year (it has since dropped back to around $0.35). The magnitudes vary, but the price movements of cryptocurrencies tend to be correlated. When bitcoin is rising, the so-called “altcoins” tend to rise as well, and vice versa.

Some of these altcoins are shady. Several projects have actually been called PonziCoin, and one, in 2014, seems to have done exactly what it promised, advertising a 120% annual return before folding soon after enough suckers had bought in. Some are meant as jokes: Dogecoin is based on an internet meme involving a Shibu Ina dog that went viral in 2013. Even so, in 2017 its price surged along with that of all the other cryptocurrencies, from $0.0002 to $0.017, an 85-fold increase. Dogecoins currently in circulation are worth a nominal $267m.

Many crypto-currencies go nowhere

Some altcoins, though, are sincere attempts to fix some of bitcoin’s perceived problems. One of these is that bitcoin is not truly anonymous. If a pile of it can be tied to a user’s real identity, the blockchain will reveal every transaction in which he received those coins. (This was a big help to the FBI agents who in 2013 arrested Ross Ulbricht, the founder of the Silk Road, an early online black market that did much of its business in bitcoin.)

Zcash, Dash and Monero are all cryptocurrencies that aim to give users more privacy. Monero, in particular, quickly became a popular alternative to bitcoin in some of the less salubrious corners of the internet. “Stablecoins” such as Basis, Carbon and Tether, meanwhile, attempt to tame the volatility that makes cryptocurrencies attractive to speculators. Tether claims that each of its coins is backed by a US dollar. About 2.5bn Tether coins are currently in circulation. In 2017 the firm promised to hire external auditors to prove that it does, in fact, have a pile of real cash backing those coins. In March this year, still without an audit, it announced that it had parted ways with the firm it had hired.

In December 2017 the government of Venezuela, a country in deep economic trouble, announced that it had created the petro, a cryptocurrency supposedly backed by the country’s large oil reserves. It was designed in part to circumvent American sanctions. Nicolas Maduro, the country’s president, claimed that presales of the petro had raised $735m in precious foreign currency on the day it launched.

Many cryptocurrencies, though, go nowhere. Deadcoins.com, a site that keeps track of moribund ones, lists about 900 coins that have been abandoned by their creators or their users.

The best-known and most interesting twist on bitcoin’s original idea is Ethereum. The brainchild of a bitcoin enthusiast, Vitalik Buterin, it was launched in 2015. Its main innovation is to allow computer code—dubbed “smart contracts”—to reside on its blockchain. That code will be run in predefined circumstances, against a small payment in ether—the Ethereum network’s native cryptocurrency—to compensate the owner of whichever computer ends up running the program. These programs can interact with each other, which makes it possible to construct complex distributed blockchain-powered “dapps” (distributed apps).

Into the ether

That, in theory, makes Ethereum a more generalised system than bitcoin. The bitcoin blockchain is designed to do just one job: to serve as a ledger for electronic cash. An Ethereum dapp could be written to do the same thing, but other uses are possible, too. Golem, for instance, an Ethereum-powered project launched this year, is designed to create a “decentralised supercomputer”, offering users rewards for putting their computers’ spare capacity to work for other people. That has led to excited talk of Ethereum itself becoming a sort of “world computer you can’t shut down”, or even “Web 3.0”, on top of which could be built decentralised, user-controlled versions of everything from Facebook to Skype.

For a world worried about the power of big internet firms, that could be an attractive prospect. Ethereum’s smart contracts started on a modest scale, involving things like automated casinos and lotteries. Then they became grander: the Decentralised Autonomous Organisation (DAO), for instance, founded in 2016, was designed as an automated investment fund.

It ended up as a cautionary tale about the difficulty of writing bug-free code. Its smart contract took money from contributors and allocated it to projects that its 11,000 members had voted on. But after $150m of ether was invested in the DAO, a hacker found a bug in the code that allowed him to make off with $50m of that stash of cash.

These days shady dapps are flourishing. At the time of writing the second-most-popular dapp using Ethereum’s networks is a kind of lottery whose rules are hosted on a site called Exitscam.me. This may be nothing more than growing pains. Yet Ethereum also suffers from many of the same built-in limitations as bitcoin. Its transaction rate is capped at about 14 per second. As with bitcoin, there are long-running plans to ease the jam, though it is unclear whether they will succeed.

For now, popular dapps can still clog the network. In late 2017 a game called “CryptoKitties” went viral on Ethereum’s blockchain. It involves smart contracts that create unique, cryptographically protected virtual cats which can be traded between users. Traffic on Ethereum’s network rose at least sixfold and many transactions failed.

Despite such fiascos, the flexibility of its smart contracts has made Ethereum the platform of choice for all sorts of blockchain-powered experiments. It has also provided a means to pay for them, by issuing new cryptocoins which, instead of running on their own blockchains, piggyback on the Ethereum one. That has turbocharged an idea called initial coin offerings (ICOs), a form of crowdsourced fundraising that is becoming popular in the cryptocurrency world.