Bitcoin Forum

Well worth reading and pulls no punches.  Similar in spirit to Gavin's recent blog post, but much more formal, lengthy, and detailed.


http://themisescircle.org/blog/2013/08/22/the-problem-with-altcoins/

The author makes the mistake of thinking that because nobody has stumbled upon a currency better than bitcoin, none exists.

Lets take a look at history of the light bulb. Thomas Edison did not invent the light bulb. The light bulb was invented 70 years prior to Edison's light bulb. Over that 70 years many people tried to improve the light bulb to make it viable. It was Edison that finally succeeded. Since his bulb was the first truly commercially viable bulb, and because of its rapid adoption and revolutionary nature, we can think of it as the bitcoin of lighting -- the bit-bulb.

Now, if the author were writing about light bulbs, he would write, "why are people developing alt-bulbs? None will ever be as successful as Edison's bit-bulb." Of course, he would be terribly wrong. Now, after 100 years of trying to improve on the bit-bulb, complete replacement of the bit-bulb by the fluorescent alt-bulb (and followed by the LED alt-bulb) looks imminent.

The purpose of alt-coins are lies not in the coins that have been developed, but in the coins that will be developed.

No he doesn't. You don't seem to have read it very well.

He clearly states that it would have to be orders of magnitude better than bitcoin on its' best day to even get a start against the momentum bitcoin currently enjoys. He's right, too. Can you even begin to estimate how many man-hours of 'selling' the bitcoin concept we coiners have done to merchants to get them to start accepting bitcoins?

Now Imagine doing that all again to get them to change to the next coin, but with more resistance because they would now see it could be replaced often... We'd likely kill digital currency altogether that way!

But nobody is trying to develop a new Bulb.

To stay by your analogy all that is being done is to take the existing light bulb and change the socket in which it fits.

Also the Author says that an altcoin that offers similar advantage over Bitcoin as Bitcoin does over Fiat would have a chance of success. But so far none does or even tries to.

As for using them for experimenting, there is this: https://en.bitcoin.it/wiki/Hardfork_Wishlist

So far no altcoin has even dared to tried one of those, because that could backfire, better to just copy the existing design and only change the "socket". --> Profit!

Any Mises followers are unlikely to appreciate Freicoin, which is the only novel alt coin to interest me that much. I still own zero Freicoins, though. It's not impossible that some alt coin idea will catch on, but none of the others have, even Litecoin has an acceptance struggle. I think it's ok to have them around, they don't really threaten Bitcoin at all, as they haven't crossed the threshold from "live experiment" to being actively used. The free market principles seem to be working pretty well here; Bitcoin wins 99% market share as it overwhelmingly has the best properties, as we currently perceive it anyway.

I appreciate Freicoin because it shows that critical mass of the network effect of media of exchange can empirically be very low and does not require any particular economic theory. I must admit that I was myself surprised.

Nobody is really inventing a new "lightbulb".

They're just changing the filament color and the socket sizes/voltages and calling it "new".

If any altcoin had any innovations that were truly worthwhile, the main bitcoin client would fork to include it, therefore invalidating the existence of the alt-coin in the first place.

The only alt-coin that has any purpose beyond outright bamboozlery is Namecoin, and it won't flourish until the ISPs come under attack from governments desperate to control citizenry.

Forgot Namecoin, I have an appreciation for that alt too.

I'm keen on this specific purpose coin concept, as the blockchain has a secondary purpose. Makes sense with web domains, but I'd like to see the CA system done like this.

Maybe the SCIP Proof-of-Execution cryptography could address a distributed Certificate Verification service? Sounds sort of possible... but I still haven't wrapped my head around the details.

I used to think like the author, that alt-coins are useless. That was before BBQcoin cured my cancer.

But seriously, great article. To replace bitcoin, and alt-coin would have to have an advantage compelling enough to overcome the network effect of bitcoin.  It may happen eventually, but I doubt it. Bitcoin's problems can be fixed without the need to start over with something else.

I don't think trying to replace Bitcoin is the right way of doing an alt-coin, Namecoin kind of proves that (kind of). Complementary purposing is the only worthwhile design decision for an alt-coin IMO

I like litecoins because so far anyway, I've never had to wait an hour for confirmations, like I have had to with bitcoin.

Instant gratification doesn't mean it will scale. But go ahead, risk your own money.

I'm sorry, but that metaphor was terrible. In no way is anything you said applicable. Pulling out a name like Thomas Edison doesn't help your argument.

Has nothing to do with "instant" gratification, as neither coin is "instant".

What becomes a problem is when I am trying to do an exchange with someone at a coffeeshop, and we're both on a schedule, and we're both waiting for over an hour for just 3 confirmations.

Waiting an hour for confirmations is no big deal for online shopping where you're gonna wait for shipping anyway, or if you're buying something big, but who's wants to wait that long to buy something small and on the go?

If I wanted to really risk my money, I'd put all my eggs in one basket.

The same people who wait that long while the cashier checks that the five-dollar note they paid with isn't counterfeit. Counterfeiters put a lot of effort into making their five-dollar notes look exactly like the real thing, you know; that's why you have to spend so much time checking. Oh wait, they don't. Nobody worries about counterfeit five-dollar notes because it's so much effort for such a small-time scam, and nobody worries about double-spends for low-value Bitcoin transactions for the same reason. Especially if it happens in a public place where there are witnesses and CCTV cameras everywhere making it more likely the guy will be identified and arrested.

And If I wanted to really risk my money, I'd "diversify" by putting half my eggs my eggs in a second basket which is identical to the first one in almost all respects, except this one is full of holes.

The ones that succeed will bring something different to the table that has not already been seen before.
They include non-altcoin ideas that can be developed to work in connection with bitcoin

An alternative that I have noticed is the Mastercoin Project which aims to create a compliment to the bitcoin architecture.

A protocol layer on top of bitcoin (like how HTTP runs on top of TCP/IP). The coins of the new layer have:
•   Additional security features to make your money much harder to steal
•   Built-in support for distributed betting (no need to trust a website to coordinate bets)
•   Capability to hold a stable user-defined value, such as an ounce of gold or U.S. Dollar, with no need to trust a person promising to back up that value.

I advise that you have a look in their main thread https://bitcointalk.org/index.php?topic=265488.0 to know more about it, because it looks very promising and seems that getting in early has a lot of advantages too.

+1

Its still a lightbulb. Bitcoin will evolve just like lightbulbs.

Not to burst your lightbulb but these damn things will pollute our landfills later and may be more damaging than the incandescent :)
http://www.ec.gc.ca/mercure-mercury/default.asp?lang=En&n=2486B388-1
http://www.scientificamerican.com/article.cfm?id=can-compact-fluorescent-lightbulbs-damage-skin

(Used Allusion)

Bitcoin is an incandescent but it can become a fancier CFL with extensions added to it such as mastercoin.

You have obviously never reported a "crime" to the police...
And probably think cops look for lost dogs.

And the article...
Besides being the anti-thesis of entrepreneurial thinking...
It touts the "network effect" for tiny, tiny, tiny BTC...
While simply ignoring the "network effect" for 10,000 times larger USD.

It's probably single worst piece I've read in 2013 = Cults Fry Your Mind.

^this

Also, what about a 1~2 bitcoin transaction? I really don't want to wait over an hour for that to happen either, but I also don't want to be ripped off for $100-$200 either. In my case, I was selling 2 bitcoins, and the guy didn't just want to hand me $200 and trust that the coins were going to be in his account.

Seems like there are some people on here who are hell-bent on slamming alt-coins.

This thread would be a lot more interesting if the posters who don't like the conclusions of this author could actually form a coherent rebuttal to any of his arguments.

I'd be more optimistic about alt-coins if they actually had something interesting to offer, beyond twiddling the existing Bitcoin magic numbers and calling it "new" and in some misguided cases, "better".

Satoshi wasn't an idiot, and clearly thought a long time about the implications of setting confirms faster/slower, etc -- but no, the source code is out there and some muppet thinks that they've suddenly rediscovered the magic way to make Bitcoin II - The Betterer Bestest Version.

And don't get me started on potential cancerous pustules like Mastercoin, which can't be bothered to maintain their own blockchain, because hey, that takes effort -- so lets just stuff a funnel down the already bloated body of the Bitcoin blockchain and push torrents of greasy Mastercoin ravioli down its throat -- you know, because they can.

And furthermore, when someone has the audacity to even suggest that their brainchild isn't "the one" or perhaps it is exploiting a resource best left to its own devices, then they get severe backlash from their muppet followers who have already invested in the idea, and can't afford anyone to say anything contrary.

So yeah, that is my problem with the "community" of idiots who think they've got it all solved, and in some cases - actually manage to magnify the blockchain bloat problem via their shortsighted greed.

Clear enough for you?

If they were capable of forming coherent arguments, they would be capable of avoiding junkcoins.

There's no "magic" in bitcoin numbers. What I like better about litecoin is the faster transaction times - that's a clear advantage.

I don't see a future with only one cryptocoin. That's very old-world-type thinking <insert all seeing eye here>.

While this is true, this action is largely unnecessary as the cost of newer bulbs is dropping fast and the benefits are great even if you just look at financial reasons.  I have switched a lot my lights over not at the end of a gun but because it made sense.  It didn't make sense until recently ($60 bulb vs. $10 bulb that I never have to change for my entire life).

What about having faster confirmation times is actually an advantage?  Do you just like seeing numbers going up? Or do you actually think its somehow more secure?

So, you like it because you like it - great circular reasoning. You also collectively ignored everything else I said, good job.

I do see a future with other coins that have something to contribute, not these dial-twiddling crap-coins. But you would've realized that if you had read my fucking post.

Nooo..I like it because of faster confirmation times. How hard is that to understand?

How fast are those faster confirmation times if you have to start from square one with those who have no knowledge of cryptocoins at all (those who will come across more bitcoin results on Google), or square 2, on convincing people/shops who have already gone to the trouble of being able to accept BTC? Minutes turn into hours, days, weeks, months, never?, judging from first contact to time of acceptance, according to all the wannabe BTC customers' stories I've read.

Why do you like faster confirmation times?

Faster confirmation times are more likely to appeal to noobs with no technical understanding than those who actually know what they are doing. If anything, it's the opposite, noobs love fast confirmation times because OOOOH FAST! without understanding it isn't even helpful.

The Bitcoin system was definitely thought out carefully, but the settings were made for maximum security reasons. Starting out something new and knowing that there could be a slight chance of it screwing up on the network side of things definitely demands caution, better settings for alt-coins could be implemented to enhance proven features. A sub 10 minute confirmation time is acceptably secure, most forks in the system never go beyond two blocks before being abandoned... so at what point do the forks start to get bigger with smaller confirmation times?

To think that Bitcoin can be the only successful & viable crypto currency is flawed. That is equivalent to saying that competition will never exist.

In any market there is always going to have competition emerge. Even fiat currencies have competition, hence: USD, JPY, EUR, GBP etc.

Not the same. The different governments want their cut.

remember namecoin? I think merged mining is a very quick way to establish equal security. add that plus truly innovative features and a great distribution system and presto you have a succesful alt-coin. It is simply finding the correct values, ideologies etc that really resonate not just with it's users but with ecosystem around it(it does great things for the internet and society)

Though the article is correct with the obvious point that everyone can't create an alt-coin and strike it rich, the problem with that part of the article is that network effects empirically don't ensure that one currency dominates others. Even if you ignore the non-US currencies doing rather well because you think fiat currencies aren't relevant to the discussion, the 'competition' between gold and silver didn't have a victor either. Even fully-electronic payment systems have big competitors like Visa and Mastercard. That's not to say that network effects won't possibly make one currency dominant or eliminate a huge number of contenders. It's just to say that there's probably going to be room for Litecoin and some others.

The flawed reasoning comes because he wants to support a certain flawed conclusion:
This leads to him saying such things as:
Since the conclusion puts people into collectives, the reasoning will as well. That flaw appears throughout the article:
This isn't just a semantic point. He repeatedly implies that he divines the unified motives of entire collectives:
Since the conclusion of the article is that the nonbelievers have sinned so badly that we should punish them to the extent that we literally scorn and shun them, apparently the market leads to really, really bad and horribly immoral things. You know, like supporting alt-coins.

Transaction costs (logistics + regulation + accounting laws + tax laws + ...).

Transaction costs.

Both Visa and Mastercard are merely payment systems built on top of currencies, which somewhat diminishes the network effect. Furthermore, they are not an open protocol, and using them requires contractual relationship with service providers (probably several: bank, credit card company, payment processor if you're a merchant). This creates, surprise, transaction costs.

With cryptocurrencies, these transaction costs are dramatically lower and this increases the proportion of the network effect on demand. It is more likely that the market composition will be a single dominant one and a bunch of smaller ones.