if the current Block size drama is learning us at least one thing, then it's the fact that we need a hedge for our BTC investments. It's unsafe to keep all our eggs in the same basket, so diversifying is key, but where?
Let's look at what are -in my opinion- the desirable properties of a hedge in the cryptocurrency space:
* Not "the same" as bitcoin, so no copycoins with the same codebase.
Why?
Because these coins have the same problems as BTC, in the long run.
Remember: we are looking for a hedge, so something for the long term. We aren't gambling. Riding an LTC pump is fine, but by "investing" in LTC, you aren't hedging, you are speculating.
This rules out a lot of coins, for example LTC and DOGE (and 90% of the other altcoins).
I know, most of these coins use
scrypt, but that is about the only difference. And you should note that there are already ASICs for scrypt, so not much diffrerence between BTC and these scrypt coins.
*the hedge needs features that can't be implemented in BTC, in the long run.
Why?
Because bitcoin has undoubtedly the first mover advantage. If a coin has a good feature, but that feature can be copied and just added to BTC, then it's not a good hedge. I would avoid "appcoins".
Also, when bitcoin becomes larger and larger, it will become harder and harder to change the base protocol. people will need to build things on BTC ("bitcoin 2.0") or connect things to BTC (sidechains). If changing a parameter from 1 to 8 is such a drama, then I don't think it is likely that a lot of fundamental changes can still be made to the bitcoin base protocol. bitcoin is ossifying...
This rules out a bunch of appcoins like maidsafe, ethereum, bitshares, dash and counterparty and NXT.
Counterparty: I never understood why we need the token XCP. I think this can be done on BTC (even without a sidechain I think)
Dash: is just a coinjoin implementation, that already exists on BTC. the "incentivized node idea" is decent, but flawed because not anonymous. Besides that, I never understood why a "masternode" needs to hold a certain amount of coins. Why just not reward all the active nodes?
Ethereum: I could imagine that a sidechain with ethereum features is perfectly possible.
Bitshares: Also possible on sidechains/colored coins
Maidsafe: I think a sidechain for storage is also possible.
NXT: All features can go on a sidechain, without a doubt, but this coin uses PoS, so I don't rule it out completely.
*fair launch, no shenanigans, decent (real) volume and "decentralized nature"
why?
Crypto land isn't a playground. We need to raise our level a bit. If we want serious money to invest in our crypto scene, we need to be serious ourselves and don't jump on every new shitcoin that is premined and act if it were the new gold and dump it a few weeks later...
This rules out coins like Dash (again), Ripple/Stellar and bytecoin
Dash: massive instamine in the first 24 hours of the coins existence (2 million coins)
Ripple/Stellar: a coin that isn't decentralized at all. The banks will maybe fork it for their own internal ledgers, there is no need for the coin itself.
Bytecoin: massive 80% stealth/instamine and fake volume on HitBTC
---
So which coins remain that also have a decent volume and market cap?
NXT, Peercoin, Namecoin and Monero
NXT: I'm was on the fence about this coin, but since I've read this paper by Andrew Poelstra about the flaws in PoS I'm less convinced:
https://download.wpsoftware.net/bitcoin/pos.pdfPeercoin: this is a good hedge against a flaw in PoW because it also has PoS combined with PoW. Seems a more secure solution AND it has the first mover advantage in the PoS space. But it doesn't offer anything else. And theoretically PoS could be implemented in BTC if needed (although unlikely).
Namecoin: This is based on the bitcoin codebase, but why do I include it in the "shortlist"? Well, I don't think a new decentralized naming system is fair, because that would render all registered domains on namecoin useless and invalid. However, I don't think it's a good hedge, because it's really a niche currency and has the same codebase as BTC.
Monero: this coin offers something that is very unlikely to be implemented in BTC: anonymous transactions and fungible coins through the unique combination of ring signatures and stealth addresses. Anonimity can be reached to a certain degree on the bitcoin network, but not fungibility. A good functioning money system needs to be fungible. I suggest you check out this video for more information about the tech behind this coin:
https://www.youtube.com/watch?v=GEVm1dMn5KsAlso, this coin has a small perpetual block reward, making this coin a hedge against possible problems in a fee market. I have doubts a fee market can function, so a small perpetual block reward solves this. Also, this makes the coin more fair for people who adopt this coin in the future. In 20 years time people will look at BTC and maybe think it's a scam because most of the coins will be mined. they will need to "buy in" the project of others. Monero won't suffer from this, or at least to a lesser extent.
It also has a different cryptographic curve than BTC, so this is an additional hedge
And it has a dynamic block size limit. No discussions about hard forking here...
---
So, here is my overview of coins. As you can probably see, I lean towards using Monero as a hedge. I think it fits perfectly. Also investing a bit in NMC, PPC and maybe NXT seems reasonable.
What are your thoughts?
edit: willing to change this post with your feedback. Will try to provide some links to document claims.
