*Important* How to identify a troublesome alt coin

[Whoisthelorax]

Look, I know there are a plethora of new members to this forum everyday and this forum in particular is flooded with topics. So its quite possible this will be buried within ten minutes. Nonetheless, i feel it is important enough to start a topic that attempts to develop a system by which someone can learn about a new cryptocurrency and decide if it is worth supporting by buying a few (or a lot) of coins and begin using them.

There are a lot of people divided on this issue. Should we support only bitcoin? should we support alt coins? In my opinion, either way we should have a system of evaluating each coin as they appear. If you are only for bitcoin, the evaluation system (hopefully) exposes the flaws and potential scamminess of the coin. If a supporter of multiple cryptocurrencies, the system will help newbies quickly identify the really good alt coins, the iffy, speculative alt coins, and the straight up I'm-coming-for-your-wallet coins. It doesn't matter which side of the fence you fall on, a system to evaluate a new coin is necessary to both sides.

I don't pretend to have the answers, but maybe if many people post here we can set up a stickied topic with tons of useful information?

Here is my 2 millibits on the topic.

PREMINING

This is a phrase that is used frequently when people talk about a new cryptocurrency. I see it in two slightly different contexts. On one hand, a "premine" can mean that the coin was created and official mining had begun but only insiders were allowed to begin mining at the easiest levels. This means the coin was not announced properly to the public and only friends of the developers gobbled up much of the first coins. The other context is in the nature of the amount of coins allowed to be mined in the very outset of the coin. Let's jump right into an example using a very useful (if incomplete) website called www.cryptometer.org

Take CloudCoin. Go to the above website and click on the CloudCoin link for the first 96 hours the coin ever existed. scroll down to the graphs labeled "minted currency" and total supply. Notice that within the first three hours, almost 1,000,000 coins were minted. Now notice in the next three days, the average minting of coins drops at least ten times the amount to 100,000 or even less. If you go back on your browser and click the "rest of days" CloudCoin link, you can see that it was averaging closer to 10,000 newly minted coins a day. That means coins were made in 100 times higher frequency in the first few hours then in the rest of its life.

Looking at the total supply (albeit this graph is not up to date), those one million coins minted by day 1 account for more than 33% of total coins. This is a major red flag. What is tells you is that whomever mined the first few hours of this coin got a significant percentage of total coins minted. A small number of people potentially own the currency. Now, does this make the coin a scam? Not necessarily. But it DOES SUGGEST tha a few people could sell their stake and conceivably crash the currency's value. It is also worth noting that SOMEONE CAN CREATE A COIN WITH THIS INTENTION. They can mine up as much as they can in the beginning, make a bunch of PR on the net about how cool their new coin is, and as millions come in, they (not so) quietly sell ten percent of their coins every milestone their coin reaches. That should be a concern if you are considering investing.

Look at Bitcoin's cryptometer charts for comparison. Thankfully, millions of bit coins were not mined at the first few days. Primecoin is another sexy graph for anti-premining folks. In fact, take a look at a dozen of them and you'll be surprised at the number of coins that had a mining similar to Cloudcoin. Millions mined the few day or so, and then the amount of mined daily drops significantly, making the first miners (probably developer buddies) hella rich.


So there you have it. Cryptometer doesn't cover all the coins out there, but maybe someone can post another link of someone who does? Check out your coin, do some digging.

People can post another genre of study for an altcoin and if it gets enough QFT (Quoted for truths) I will copy and paste it into my first post. Then we can have a nice study guide to begin your alt coin quest!

[Whoisthelorax]

here is the original thread for cryptometer...

https://bitcointalk.org/index.php?topic=226281.0

[infinitybo]

We support BTC but sometimes there is still a new altcoin because that's so fun to have some Catcoin

[PeterVenter]

Crypto currencies are spring up like mushrooms on the back of bitcoin's success. It is going to become even more important to be able to identify troubled alt coins as time goes on. 

[almightyruler]

Isn't the 1,000,000 CDC showing for the first couple of hours on cryptometer simply the massive premine? It's right there in the client code:

Code:

    if(nHeight == 1)
    {
        nSubsidy = 1000000 * COIN;
    }

First block? Grant a million CDC to the miner.

[munkeefonix]

Isn't the 1,000,000 CDC showing for the first couple of hours on cryptometer simply the massive premine? It's right there in the client code:

Code:

    if(nHeight == 1)
    {
        nSubsidy = 1000000 * COIN;
    }

First block? Grant a million CDC to the miner.

almightyruler, Guess I need to post in the noob forum first.  Been following what you've posted on the main CDC thread and have also been curious about the issues with this coin.

The way the chain trust is calculated on CDC is the issue.  It puts a very high trust on the stake blocks relative to the work blocks. 

Code:

(IsProofOfStake()? (CBigNum(1)<<256) / (bnTarget+1) : 1)

No other POS+POW coin that I looked at calculates block trust this way. The value generated for a proof of stake block is weighted far higher than a work block. Each work block increments the block trust value by 1, each stake block is trusted by over a million. 

The first generated stake block in the log for example.

Code:

SetBestChain: new best=00000002d220876cda59  height=12409  trust=12410  date=08/02/13 12:30:41
SetBestChain: new best=000000014a6b9e2a2cce  height=12410  trust=12411  date=08/02/13 12:31:02
SetBestChain: new best=e7616b332a619fc2099e  height=12411  trust=1060988  date=08/02/13 12:33:07

This alone wouldn't necessarily cause the clipping to occur.  Each client should still receive the mined blocks and place its POS blocks at the end of the chain.  Either it was a client on the network that excessively slow at receiving new blocks or a modified client that only will accept POS blocks and reject POW blocks.  I'm assuming the later.  If a "good client" submitted a POS block, the POW blocks mined since the last POS would be accepted and the "bad client" would accept the longer chain.  Someone with a lot of coins, maybe a million premine, would possibly do this .  I was going to test this with some CDC that should generate a stake in a couple days, but mining has now become impossible. 

Also mining the coin recently locked due to a miner setting their clock back by over 700 seconds from the previous mined block.  That set the target for the next block to be below zero. The client will reject any block with a target of zero or less in the CheckProofOfWork call.  It's a simple fix and I was able to mine a few blocks. Since it affects the method of calculating difficulty, blocks I generate are rejected by the network.  Unfortunately it would require a client update.  Also this could also be an issue for any coin that retargets its difficulty every mined block.