Bitcoin Forum

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.

the rise of LTC and other alts is just a bubble. People wantto buy "more than 1 expensive coin" and buy 25 LTC instead.
It is just a psychological thing...

We saw in in april too: BTC/LTC went up very fast and then crashed t the "new mean".
This will happen again... (already sold 40% of my LTC this night)

I've seen this argument a few times by now, but I'm not convinced. The exact same can be applied to bitcoin vs. gold or bitcoin vs. fiat. In the end valuation is subjective, and the nature of cryptocurrencies (open source so easy to replicate) entirely levels the playing field.

Taking it a step further: If all the exchanges accepted both bitcoin and litecoin, their price in USD would have been a lot closer. Mtgox and bitstamp and others essentially act as gatekeepers.

That's just an opinion and nothing is stopping the Chinese or anyone else buying whatever coin they want.  In general it does show that bitcoin isn't as scarce as one might think.  LTC has a billion market cap which is where bitcoin was a few months ago.  If that doesn't at least give someone pause well good luck to them.

Litecoin is out of the bag, ratio should settle at .02 though IMO. The correction will either be BTC taking off further, LTC crashing, or both crashing. Who knows.

Litecoin doesn't yet have hedge funds buying into it, as far as I know. Much of the current growth of Bitcoin is being caused by institutional buyers and funds such as the Bitcoin Investment Trust on Second Market. If LTC can attract those kind of investors, then it could get a lot closer to parity with BTC. Until then, I suspect LTC is simply in a bubble. BTC's price increase can be sustained by continued institutional buying, whereas LTC doesn't have that type of buying to sustain its current rally.

Well,

(1) it would be incredibly stupid for either of them to start using Litecoin, because if alt-coins start eating at Bitcoin's share and causing crashes & instability, all of crypto loses. Since they'd basically start competing with themselves if they started accepting Litecoin, they may as well continue with only Bitcoin.

(2) Everyone knows that Bitcoin is the only crypto I can actually buy things with. The rest are like Bitcoin in that their speculation is high, but unlike Bitcoin there's nothing at all behind it. Bitcoin is like fractional reserve with 5% "reserve": The other 95% of the value is based on the "loans" (or in this case, hope for future acceptance of Bitcoin) will pay off. Litecoin on the other hand is pure money-from-nowhere, 0% "reserve". Lots of the value in each is due to speculation but Litecoin is like speculation on speculation.

(3) Litecoin was developed hugely unprofessionally and uses the BS known as scrypt, making it hugely more vulnerable than Bitcoin.

It is possible that Alt-coins will kill Bitcoin though, I'll give you that. In fact, the number 1 most likely way that crypto may die is too many altcoins.

I doubt it. If bitcoin survives to become something truly major, it will be because huge institutional players get in. I doubt they will care much about altcoins. There could be hundreds of altcoins that will be simply ignored by the big money. They will be considered like penny stocks. Some people will play around with them, but the big money will stick to the "conservative" investment, bitcoin.

True, but smart money moves before institutions do. One may be able to cut short Winklevoss' ETF plans by starting a cryptocurrency index fund.

That seems to be completely at odds with my own analysis.  Could you elaborate?  Thanks.

The alts add a huge extra pool of liquidity to btc which makes it more stable imo.

So you're agreeing with me that part of bitcoin's high valuation is due to the (currently existing) friction to convert to altcoins? What if those barriers disappear?


From a technical point of view it is trivial for payment processors such as Bitpay to start accepting altcoins.

Another thought: By decentralizing away from one hashing algorithm (SHA256 which was designed by the NSA), less confidence in the security one algorithm is needed.

A very good point. ;)

+1

In addition, LTC are being introduced at 4 times the rate of BTC.

I wonder what that institutional investor thinks now when they "invested" into BTC when cap was under 1 billion and LTC is the same now cap.  Also how does anyone know who's buying what and at what amounts?

Bitcoin vs cash is a comparison of apples and oranges. Some people see bitcoin and litecoin as essentially the same thing with one be way cheaper or undervalued over the other :P

The OP is overlooking the power of the mining network. 5,000 Thash and ramping up further means the Bitcoin blockchain is very secure. This will keep a floor under the BTC value. It would not be surprising to see some major firms get into ASIC production now that $1000 is breached.

Most alt-coins use scrypt, so they compete with LTC directly. LTC also has a major test coming up as an ASIC is in development. Whoever gets there first might have a real window to take over 50% of the LTC hashpower. This will make people nervous for a while.

During the last bubble in March I bought LTC and PPC just to diversify and hedge my BTC a little bit. The Bitcoin price was so high that I was not comfortable buying at such a high price but I did not want my money in dollars.

deflation is not a "problem" its a desirable charachteristic designed into btc. Altcoins are to me a group of young boys playing with themselves!. the so called advantages of some of these coins are mostly pre mining on equipment still just affordable from their pocket money-none are durable and will mostly fade away. reg. 

The market caps of alt-ledgers will ultimately reflect their utility - primarily their utility to Bitcoin, thanks to frictionless conversion.

There will be little if any utility in an endless supply of blockchains for merchant adoption (Bitcoin, Litecoin, or another will hit the sweet spot), so in terms of inflation issues we are talking about store of value here. Why on earth would you store your value in any but the most scrutinized, monitored, long-running, stress-tested, brilliant dev-backed blockchain? I could see diversifying into a few alt-ledgers, but not more than a few, and only in proportion to their excellence in terms of dev team and track record. The rest would be speculation based on future promise, but that is even more limited. The marginal utility of each additional alt-ledger very quickly drops off.

All this amounts to very, very little inflation in the grand scheme of things. Even 200% total inflation would be negligible from a present-day perspective. Do you really care if 1 BTC ends up being worth $1,000,000 or $3,000,000? Even if LTC magically kept rising to equal the BTC market cap (which would be insane since it doesn't have nearly the dev support or track record), it would only slow down the average yearly tenfold growth of Bitcoin's price by 3-4 months.


Deflation is not a problem. At all. Endless inflation would be, but that can't happen for reasons explained above.

I do grant that if, say, LTC rises high enough it could create the perception that altcoins could proliferate endlessly, and that could cause a short-term crash, but long-term not at all. People would soon figure out that it's all about where the development talent, the mining support, and the track record is. The first two gravitate toward the biggest or most useful ledger, and the final one is a permanent advantage Bitcoin has unless a catastrophe happens (and if it survives that, it's track record might be better than ever, with no other ledgers having weathered such a catastrophe).

I think bitcoin might end up like a savings account, that can easily be withdrawn into alts, which can then be spent.
The limitation of bitcoin being a bit on the slow side is then less important, and it means that alts will compliment Bitcoins rise and vice versa.

The speed thing is a total myth. Bitcoin is far and away the fastest at achieving a given level of secure confirmation. Not only does it enjoy vastly more mining power, it also is way more closely monitored and has a tremendously stronger dev team. "Faster" confirmations are only a matter of granularity anyway, so only the first confirmation is faster in, say, Litecoin. Except it's only 1/4 as secure as the first Bitcoin confirmation...at best! In reality it's way less than that because Bitcoin is far more secure fundamentally because it has almost all the talent monitoring it for irregularities, as well as almost all the mining power.

Now assuming a scenario where Litecoin were to take over as #1 and attract all the talent and mining power, it might be superior because of the faster first confirmation, but this also means more orphan blocks. Whether this trade-off makes Litecoin slightly better on balance is unknown. It may make it disastrously less secure for all anyone knows; it's never been stress tested anything like Bitcoin has.

Litecoin has a huge amount of catching up to do in terms of its track record, and the rest of the alt-ledgers are even farther behind. It will be a long time before the smart money puts its faith in Litecoin as a store of value; it's truly all speculative at this point, in the truest sense of the word. With Bitcoin there is actually store of value functionality created by its track record, much like gold. The alt-ledgers are sorely lacking there, and moreover additional stores of value aren't very helpful when the only difference in that aspect is volatility (whoever you believe on the confirmation speed issue, it's largely irrelevant when it comes to store of value).

Any coin is valuable only as much as its infrastructure is developed (user base, hashing speed, merchant support).

There should be something analogous to the P/E ratio. Basically:

MarketCap/(Infrastructure+Devteam+TrackRecord+Userbase+MerchantAdoption+Advantages-Disadvantages)

All else is speculation in the purest sense: merely speculating that this particular alt-ledger with its particular trade-offs will gain the infrastructure, dev team, track record, userbase, and merchant adoption to warrant a given market cap or given ratio to Bitcoin's market cap. Moreover, that it will do so at the speed of crypto. This leaves prospective alt-ledgers with a tough choice: just be a minor tweak of Bitcoin and ride on the coattails of its dev team as much as possible, or do something really innovative that Bitcoin can't ever do and find yourself so far behind that the world moves to the Bitcoin Standard long before your alt-ledger can really get out of the gate.

The altcoins had better get cracking if they want a chance at the table to divvy up Bitcoin's crumbs. Litecoin is positioned well due to getting in early, Namecoin has neat potential, and Peercoin might have something to it, but besides a few novelties there's so far very little to be impressed by in the alt-ledger world. Time is running out.

The fundamental value in parallel blockchains each having a different hashing algorithm is that it mitigates some of the risk of one of the hashing algorithms getting broken. Altcoin software with such trivial tweaks can be effortlessly kept in sync with the latest bitcoin developments through build scripts, so I disagree with your dev-team and track record argument. I do however agree with the computation power argument, it is hard to bootstramp a new altcoin into existence without a powerful enough community of miners, and I guess that's where part of the value of bitcoin (and litecoin) stems from. This might be a clue on how to value new altcoins: Is the hashing algorithm different enough from the existing ones?

By the way, as we're getting closer and closer to the (artificial) limit of 7 transactions per second on the bitcoin blockchain, spreading transactions over several blockchains can be a partial solution to the scalability issue. So at least they serve the (short-term) purpose of being a fallback mechanism.

this sounds like a good idea that i may buy

This could be how the altcoin bootstrapping cycle will work (as observed from litecoin):

1) CPU/GPU miners move on to a new altcoin due to miner saturation of their current favourite altcoin (possibly due to ASICs)
2) security of new altcoin increases due to computation power
3) valuation of new altcoin rises and warrants the development of ASICs
4) repeat

So the trick would be to follow the CPU/GPU miners.

The logic of litecoin advocates is self-defeating: for litecoin to prosper, it must wrest its market share from bitcoin (remember it is almost a carbon copy with minimal changes).

• If this is not possible, then litecoin is worthless.
• If, on the other hand, this is possible, then litecoin is also worthless (along with all other cryptocurrencies), because hundreds of new altcoins will appear every year, diluting the market share of bitcoins, litecoins and all other altcoins.

In other words, Litecoin is an interesting experiment on indirectly bypassing the Bitcoin emission limits. If this experiment succeeds, this means that emission cannot be meaningfully controlled in a decentralized way and all cryptocurrencies are therefore worthless.

Since there is a fundamental demand for virtual currencies, I think the second point is not likely. I believe that the truth is somewhere in the middle, as I tried to explain in my first post.

Bitcoin is the only one with truly intrinsic value (sorry alt coin lovers).
They all have a "little something something" neat about them, I do admit.
But the money will pour in for one reason, and one reason alone:   People are starting to see the alt coin market as a way to get rich.  Multiple times over.
And that's fine.  I plan to ride the roller coaster myself.
These coins don't have much to offer the world as far as utility. 
Most of them are novelties (again no offense).
But Namecoin going to $25 is for one reason:  People are pumpuing up the price, getting a quick $50,000 and cashing out.
And this cycle will continue (i hope) through all the alt coins, one by one, as the smart people get in early, make a killing, and get out.

If any of the alt coins ends up making a difference in the world, well, now they'll have funds to do so.
Disclaimer:  I dont intend to sound vicious or condescending towards alt coins.  But I do believe this is going to be a new gambling market.
And one that everyone should get in early on.

btc, ltc......

Watch Deutsche e Mark  DEM !!
 8) 8) 8) 8) 8) 8)

i agree.

only ONE thing where i differ. why do you suggest that the altcoin-rise could spark a crash like 2011/2012/April?

i mean those were more corrections in terms a longterm approach not crashes.

but given your thought process altcoins could possibly KILL the value of bitcoin completly and not just a correction.

Didnt LTC fall just as hard as bitcoin in april?

merchant support isnt needed.

imagine a service/website/whatever that exchanges innert milliseconds every cryto into another crypto for near zero fees. not likely? oh yes it is very likely to happen.

that would lead to the situation that a webshop would have to accept only ONE cryptocurrency and would therefore equally accept ALL cryptocurrencies.

why? pretty simple. the user with currency B comes to the webshop that uses currency A. his browser could automatically show him prices in crypto B and when he pays the merchant gets instantly currency A . just like at the moment the merchant gets instantly dollars instead of bitcoins.

so you dont need a merchant to accept your cryto. ist enough if he accepts one of hundreds.

I am ok with clonecoins as long as they don't come close to the bitcoin market cap for a prolonged period of time, because that would be destructive for the scarcity argument.  I am hoping most people realize this and psychological/social responses will be adequate to mediate the problem.

If an altcoin gets developed that provides a serious advantage over bitcoin, then bring it on (although a lot of switches cryptocurrency space fast after each other would hurt cryptos in general too I think).

These are very cool economical / psychological experiments we are watching in real time.

i see alts like btc: both as an insurance and as weapons of mass speculation.
insurance against any btc shtf first of all. And the biggest threats to btc imho are an high and probably increasing concentration in mining power, and an increasing attention/interest by TPTB.
What i like most of alt.coins is that their mining is way more decentralized, until there are no asics for them.  

Good point, I should have been more careful using the terms correction (e.g. April) and crash (e.g. 2011). I'm speculating that both scenarios are possible at this point. If it becomes widely accepted that bitcoin is losing value to litecoin, then this will have a reinforcing effect, and a crash is definitely in the cards and might kill the speculative appeal of cryptocurrencies for a long time. At that point we can hopefully start actually using them as money instead of an investment.

Except of course that the teams/infrastructure/systems behind the alt-coins pale in comparison to that behind bitcoin. For example- Facebook is the dominate social network- by an enormous margin. But there are other social networks out there as well. Does facebook have to stay nimble to stay ahead? Of course it does- and so will Bitcoin. But that doesn't mean the alt-coins won't be valuable in their own right.

This is exactly the argument that is often used which I'm arguing against, this comparison with facebook. My point is that moving value from altcoin to altcoin will be nearly frictionless in the future, whereas moving your personal profile and friends between social networks is of course not.

All cryptos are early stage.  LTC hasn't even halfed 1st time.  It's a bit bubbly investment now but nothing wrong with that.  LTC or alt cryptos can't kill all of BTC value but it's certainly an effect.  The only way an alt kills of BTC is if they provide something that BTC doesn't.

BTC can be upgraded, while still keeping the most secure network.
LTC can be taken over by a 51% attack if a huge botnet is suddently created.

as far as i can tell the bitcoin-network is far more centralized than the litecoin-gpu network.

Do you remember 486/Pentium overdrive cpus?

I totally agree with you. It isn't bad that any altcoin is in an early stage. I think investing in altcoins is more violate indeed, but hey, that means there's profit in it for daytraders.     Altcoins offering an unique thing is indeed something that can harm Bitcoin. But, as weird as it sounds, I think the Bitcoin is quite solid now.

I'd like to think of bitcoin as the new global currency, and altcoins as the new global stock market.

Yes, ultimately it's about store of value. You only store with the best, unless your risk appetite is quite high.

Best is a relative term.  Just like fiat forex markets different crypto features will impact the exchange rate between them.

This argument is self-contradictory. If the tweaks are trivial, there's only trivial value (and unknown risk of harm) in using them. If they aren't trivial, dev team and track record matter. If the tweaks are useless or of unknown value/harm, there is no reason to switch no matter how easy it is (just puts your wealth at risk needlessly). If the tweaks are useful, known to be harmless, and can be effortlessly kept in sync with Bitcoin, they will soon be incorporated into Bitcoin. Also scrutiny and stress-testing and overall moment-to-moment monitoring will naturally gravitate toward the main blockchain.  

If it were not the case, why not just re-release Bitcoin 2 - exactly the same as Bitcoin, but launched today? Then you could really instantly incorporate all development changes from Bitcoin. And people would have a chance to be an early adopter all over again. That's all most of the altcoins are. They just offer a trivial tweak as a gimmick to get people to switch, since "there's a chance!" it might prove superior and become king.

In the end, when switching costs are trivial, even invisible to the end user like in the case of fully incorporated decentralized exchanges, it comes down to who's maintaining your blockchain. If Bitcoin 2 has fewer people watching for slow orphan blocks and it's exactly the same as Bitcoin, only an idiot would have their money there (or speculators preying on idiots). And the more an altcoin gets away from being an exact clone of Bitcoin, incentivizing a possible switch, the less automatic dev support it can get.

The economics of blockchain maintenance/monitoring dictate that talent will gravitate toward the most important one with the largest market cap, as that has the most people's money on the line. Everything else follows from there.

Yes but there's a limited number of dimensions to be the best in. Reliability, first confirmation time, anonymity, monitoring, mining power, etc. One might choose to spend a few minutes in a more anonymous altchain for tumbling purposes but leave ASAP because reliability and monitoring are low. That will give such an altcoin a nominal value. But then any additional altcoin will have to provide something more than better anonymity.

Therefore any inflation due to altcoins is very limited in the grand scheme of things.

That assumes bitcoin is the one and only crypto solution.  A bit too religious.  Bitcoin is an idea.  Who knows where and how all implementation ends up.

Actually it stabilizes the price of bitcoin. Imagine only btc....we would be at mars by now with epic bubbles. I have heard some intelligent comments that defend ltc.  If the alts can be integrated with btc somehow, they can serve a purpose. Ltc has yet to bubble crash the way btc has, if ltc sees a large correction the RACE to btc will be massive creating an unbelievable bull run. Be VERY careful with ltc.

Perhaps my use of the word trivial is confusing. By a trivial tweak I mean for example replacing SHA256 by SCrypt as in litecoin, because bitcoin's design is modular in the actual hashing algorithm, i.e. it will work no matter what hashing algorithm is being used. The method in the source code that calculates the hash can be directly replaced by another without affecting anything else in the code. It is undeniable by now that there is some form of value in such tweaks as witnessed by the litecoin price, which is not equal to 0.


To me this is actually not unreasonable at all. As long as the scalability issue with bitcoin is not addressed and the network keeps growing at its current pace, transaction fees will have to go up (and I've seen a bit of complaining about transaction fees already here and there). This creates incentive for an alternative blockchains with cheaper fees. Add to this the early adaptor dream and it might actually gain a foothold (again, I'm thinking of litecoin). On the other hand, bitcoin miners have an incentive to kill off new chains, and so the market will have to find a balance.

If bitcoin-only payment processors will not accept the most popular altcoins, I foresee the creation of portals that will do the exchange from altcoin XYZ into bitcoin under the hood for a commission, just like we can buy Amazon giftcards now with bitcoin to enable us to spend out bitcoins at Amazon. So the merchant adoption argument is also moot. Eventually payment processors will be forced to adopt altcoins, because these exchange portals eat their potential profit.

I would like to make clear that I have no stake in any altcoin whatsoever, I'm merely speculating about the future of the cryptocurrencies space, and I'm extremely excited about the next chapter of it. It's rather ironic that decentralization is a bitcoin keyword yet people find it very difficult to accept that we may have to decentralize away from one blockchain. Is it because their beloved currency won't become worth millions because of it?

Since the conversion between different coins are frictionless, LTC bought will be used to buy BTC. I have been scamed by some litecoin pools, the infrastructure for altcoins are very poor, never want to touch them again

Buying LTC is not hedging. If BTC collapses LTC will collapse 2 secs later. You should be happy now with your choise but it was speculation not hedging.

In dollar terms, yes LTC will fall.  However, traditionally LTC has risen in BTC terms when BTCUSD falls.  This means LTC falls slower in dollar terms.

That might not hold going forward though since LTCBTC has risen quite dramatically already recently.

if alt.coins kill btc, so be it. it's the market baby.
but i would not bet a bitcent on that.
at the moment:


but their market jumps and mining with vgas like it's 2010 again is quite some fun.
http://www.cryptocoincharts.info/v2/main/smallCharts (http://www.cryptocoincharts.info/v2/main/smallCharts)

moreover they will probably act as entrypoints like monopoly cryptocoins for noobs before they invest in the serious coin.
all in all, there is space for all in the crypto-wild west.