I don’t see it. The merchant is still going to have to pay an exchange fee for the dollars or rubles or whatever currency they need to pay their suppliers. Even if the supplier will accept bitcoins, somebody somewhere along the chain won’t.
They intend to fix some of the problems with Bitcoin. Litecoin, as I understand it, has faster transaction times than Bitcoin and the network is set so more coins will be produced than in the Bitcoin network. Other cryptocurrencies use different “proof of work” methods, or experiment with other things like “proof of stake” instead of “proof of work”. Others have small amounts of in-built inflation to counter the hoarding seen with Bitcoin.
Dogecoin started as a joke on 4Chan/Reddit (can’t remember which) and is basically a copy of Litecoin.
Meanwhile the UK removes VAT from Bitcoins completely in an effort to grow the cryptocurrency industry in the UK.
What possible interest could HM’s government have in promoting a competing exchange medium?
The UK has for the past few decades been the financial center of Europe and has been competing heavily with the US as the world financial center. They are a large part of the reason we have had a race to the bottom in the taxation of financial products and institutions. They basically jump on any new financial innovation and try to become the marketplace for that new product.
Ha! As if New York can seriously compete with London for World Financial Capital 
They can tax transactions in it, as well as the business, exchanges, and so on that pop up to service the currency. How is it any different to e.g. London trading currencies, many of which are direct competitors to Sterling? As long as Sterling remains the currency people must pay taxes in, what’s the problem?
Meanwhile, a UK local authority has launched its own digital currency to pay jobless volunteers in.
Bitcoin threatens Sterling in a way that most other currencies don’t, and that means it could eat away at Sterling’s value as a reserve currency. AIUI, that would make it harder for the government to borrow money.
I know this could potentially change in the future, but doesn’t the volatility of Bitcoin make it difficult to use as a reserve currency right now?
For sure, but it’s success can affect value of other reserve currencies, without threatening their status as reserve currencies, through lateral inflation.
A lot of people are interested in mining for bitcoins but it is near impossible to do it without a huge outlay of money anymore. These other methods are so people can be cart of the cryptocoin community
I suspected that had a lot to do with it.
I kind of nodded at this answer when I first read it, but then I realized that I really didn’t have any idea how lateral inflation might work. Google seems to be no help on the matter. Do you have a place where I can find an answer?
I can see how it might be deflationary by people hoarding Bitcoins instead of Dollars or Pounds, but I can’t see it actually affecting those currencies until it becomes larger and more stable than it currently is. It’s value has change by more than 50% in the last six months, I think. I know it’s done near that in the last month. Reserve currency shouldn’t do that. I can’t imagine calling a currency that changed that much even stable, much less a good place to hold value long-term.
ETA: wow, no, way more than 50%: http://bitcoincharts.com/charts/bitstampUSD#rg180zczsg2013-10-05zeg2014-04-03ztgSzm1g10zm2g25zv
There is probably a better term for it that I am unaware of.
Bitcoin does not have to become stable to have an effect on the value of reserve currencies. It can reduce the value of a currency by replacing demand for the reserve currency with demand for Bitcoin. Gold and real estate are not stable investments either, but the opportunity people have to hold them drives down the demand for reserve currencies, and thus the currency’s value, to some extent.
If Bitcoin continues to be successful then it’s rise in value will be limited by the same sort of lateral inflation, as some of the value that would otherwise be attached to Bitcoin gets attached to second and third generation cryptocurrencies.
The most common definition of “inflation” is “general price increase”. The fixed-money-supply zealots call any increase in money inflation, but they’re the lunatic fringe.
So, by my definition and the intent of your post, the best inflation is no inflation. Now, I suspect that the best inflation is actually a small amount (say, 1 to 2%) that’s enough to encourage investing rather than hoarding. That is, we get the most economic growth with a bit of inflation. But that’s just a guess.