Before exploring the particulars of the answer, it may be proper to more fully explicate the question. ‘What if someone creates a better digital currency other than Bitcoin?’ forces us to ask a number of follow-up questions, to agree on definitions.

How hard is it to create a new form of digital currency? Was Bitcoin made particularly well, or was it simply at the right place, at the right time to takes its position of prominence among digital currencies? Is a digital currency necessarily a good one, and if not, what makes it so? Put another away: What is a good digital currency?

As a short aside, let’s make clear a question of spelling convention. When speaking of the entire transactional network is spoken of, it is often capitalized as Bitcoin. When talking about the currency itself, the term is usually left lowercase as bitcoin.
Firstly, let’s review the advantages of any digital currency, which are not specific to Bitcoin. A digital currency does not operate under a centralized, national or supranational authority. While this language may sound dense or technical, it simply means that no country’s central bank backs the value of the currency. This makes the currency more ‘democratic’ than other national currencies like the dollar or the yen, or supranational currencies like the euro. The ‘value’ of the currency is decided in nearly real-time by the people who use and trade it, rather than by a small number of high-ranking bankers in a handful of financial capitals around the world.

The other primary benefit of a digital currency is its potential for anonymity. When you use a credit card, check or bank transfer, the transaction is traceable, in some way, to you, through the uniqueness of the card, check or account number and its being associated with you. This means that to buy and sell without invasive governmental oversight, one must transact in cash. However, transacting in cash is next to impossible over the internet, so online sales – before the creation of digital currencies – lacked this kind of privacy safeguard. With digital currencies, because of the distributed nature of the transaction list, there is a ‘shield of anonymity’ – or at least the potential for one – that exists over the exchanges.
Of course, these digital currencies come with disadvantages which can be seen as the flip side of the advantages. With no national or supranational bank backing digital currencies, some people are hesitant to put their faith in them, and so they don’t aren’t widely accepted as forms of payment. The security and stability of the United States is one of the reasons why it is the premier international reserve currency; people believe the United States will survive into the future and pay its bills, and so its currency can be trusted and highly valued. A digital currency is like any paper currency in this respect, and so the more trustworthy it is, the more people will trust it.
So, what if someone makes a better digital currency than Bitcoin? As Bitcoin was the world’s first premier digital currency, there will assuredly be a second. If someone makes a better digital currency, the fact is that there are two possibilities. First, if the total market space for digital currencies is fixed, then this better version will start to squeeze Bitcoin out of it. This means that if the number of people using all digital currencies and the number of businesses accepting them does not change, then a better digital currency will start to take the place of Bitcoin. However, if the total market space for digital currencies is elastic, then the better version will gain acceptance as broad if not broader than Bitcoin’s without Bitcoin necessarily losing users or accepting businesses. This simply means that if the total users and businesses accepting all types of digital currencies can grow, then Bitcoin may not necessarily lose prominence or acceptance as the most popular form.
This brings us to a final question: how elastic is the digital currencies market? Well, within the last few years the number of businesses accepting bitcoins has grown almost exponentially, as the global dialogue about their existence has increased. As more and more people become aware that digital currencies are even available, and therefore want to use them, more businesses become willing to accept them. In short, it seems digital currencies are, at this point in time at least, very elastic indeed.
To sum, if someone invents a better digital currency than Bitcoin, it will simply mean one more choice in an almost ever-growing array of choices. And more choice is only rarely a problem. It should not be suspected, even moderately, that a ‘better’ digital currency will necessarily be bad for Bitcoin or for those that do their business with and in bitcoins.