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I have read that "while Bitcoin is a currency, Namecoin is not".
Isn't the capabilities offered by Namecoin a superset of Bitcoin's capabilities? If everyone in the world agreed to jointly migrate all Bitcoin to Namecoin at some instant, would we lose anything from this migration?
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The amount of NMC required in order to register a domain name is fixed by the protocol.
Having NMC and BTC be separate currencies ensures that the number of BTC needed to register a domain name is set by market pricing mechanisms, not by the hardwired protocol.
If we used NMC for buying and selling things other than BTC, it would be like denominating all of our economic activities in terms of domain name registrations ("this pizza will cost you 0.012 domain name registrations"). This is a bad idea because the demand for domain names would indirectly influence the price of everything else in the economy. It's the same reason why the precious metal with the fewest industrial uses is the best one to use as money.
This is why I think that any non-Nakamoto-blockchain currency with a significant use other than currency doesn't detract from the value or usefulness of the Nakamoto chain. The fact that they can be used as something other than a currency makes them really poor currencies. The fact that it's easier to exchange them for BTC than for fiat actually slightly increases the usefulness of the Nakamoto chain. But of course all of this applies only if the alternate chain has a credible non-currency use. So far I don't know of any other than NMC.
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Namecoins use the Nakamoto blockchain algorithm - and are very similar to Bitcoins. So much as Bitcoins are a currency, so are Namecoins.
The only major difference in concept is that Namecoins have a built in domain registry, and currently allow merged mining.
Additionally, I think Namecoins are an interesting tangent...but are a distraction in this time of growth for Bitcoin. – Alex Waters – 2011-08-31T03:14:32.190
4I'd suggest that the term "Nakamoto blockchain" by itself be reserved for the specific blockchain initiated by Nakamoto. The "Nakamoto blockchain algorithm" is something the two have in common, but the widespread adoption and investment in the specific blockchain that he started is a huge difference between the two and it is unclear why many people would want to migrate. Certainly not all at once.... – nealmcb – 2011-08-31T03:45:08.490
2edited to reflect this opinion, I agree. – Alex Waters – 2011-08-31T03:46:35.877
2One more difference from BTC - NameCoin supply isn't fixed, because coins are destroyed when registering a name. This means it is harder to predict what portion of the entire NMC economy a given amount of NMC, purchased today, will represent in twenty years. – ripper234 – 2011-10-10T23:33:38.423
5@ripper234, this is a lot like how silver has many industrial applications which destroy it (or at least make it uneconomical to recover) whereas very little of the world's gold production goes to industrial applications. See the analogy in my answer below. If BTC is "digital gold" then NMC is "digital silver" (or maybe rhodium). – eldentyrell – 2011-10-11T22:29:56.733