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Author Topic: Better metric for altcoin ADOPTION marketsize than manipulated marketcap&volume?  (Read 1213 times)
TPTB_need_war
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April 05, 2016, 05:30:52 AM
 #1

It is alleged that many (if not most) altcoins are P&D schemes where the float is significantly controlled by a small group of insiders and vested interests, who can buy from themselves to pump up the volume, price, and market cap.

Ranking altcoins by market caps seems to influence newbies to make irrational investments. "Hey ShitCoin#5 is worth $billion, thus I could be worth $million is I own 1/1000th of it!" But failing to account for the fact that the liquidity is fake and thus attempting to sell for $million would collapse the price.

I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Note transaction fees paid to staked miners (e.g. proof-of-stake or Dash's masternodes) can't qualify as transaction fees, because the miner is certain to win a block and can pay himself as much transaction fees as he wants to without any true cost. While this is also true of proof-of-work, this is offset by multiplying by the hashrate, because as the hashrate increases, then the likelihood any particular miner can win a block decreases over any chosen period of time and the overall costs of controlling the mining increases (which is not true for staked miners).

Also increased hashrate implies increased security against a 50% attack, assuming the hashrate is well distributed.

The metric doesn't capture the advantage of having a very high transaction load relative to the hashrate, which is an advantageous electrical efficiency. If anyone can think of how to incorporate this into a metric, please share.

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April 05, 2016, 05:40:29 AM
 #2

Also increased hashrate implies increased security against a 50% attack, assuming the hashrate is well distributed.

That's a pretty big assumption.

I like to say that network hash rate specifies the maximum possible level of security, but as the hash rate becomes more concentrated the actual level declines from the maximum.

I haven't thought through your valuation metric itself.

It is somewhat a tradition on this forum (especially in the Bitcoin section) that people make up their own metrics and post the results, generally in the form of graphs. Sometimes these are viewed as useful and are followed for years, sometimes they fall flat and are quickly forgotten. You might want to try that.
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April 05, 2016, 07:19:33 PM
 #3

Marketcap is a completely useless number - at least in crypto. It says nothing useful.
While 24h volume is much more easily manipulated it is still more useful imo (if we look at the average of 24h volume).

Transacrions fees vary wildly so I also don't think that's useful. Besides, automated services (like gambling) or even pools which pay out very frequently will push the transaction fees up.

Hash rate is also somewhat useless due to its fluctuating nature. While the fluctuation is lower for bigger coins, it can swing very wildly for smaller to medium coins.
And because of multipools the hashrate follows the current price very closely so if there's a price increase the hashrate follows.
So if we were to use hashrate as a metric similar to marketcap then a spike in hashrate/price would push the price/hashrate even higher becaue of newbies making irrational investments based on hashrate.

I don't think there's a one size fits all formula.

RIP Bittrex
TPTB_need_war
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April 05, 2016, 07:35:03 PM
 #4

I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Using M = Sent avg. per hour, H = Hashrate (normalized):

Coin |Relative Adoption |Ratio |Adoption-adjusted Market Cap
1.Bitcoin6.5×10¹²1$6.4 billion
2.Namecoin8.6x10¹⁰1/76$85 million
3.Ethereum6.6x10¹⁰1/99$65 million
4.Litecoin1.3x10¹⁰1/500$13 million
5.Dash9.8x10⁹1/663$10 million
6.Blackcoin7.4x10⁸1/8784$0.7 million
7.Dogecoin6.1x10⁸1/10656$0.6 million
8.Auroracoin5.8x10⁶1/1120690$5,931

One of the reasons that Bitcoin is 100X higher than the altcoins is because its "Sent avg. per hour" is so much higher than its Volume(24h)/24, which indicates that Bitcoin has a much higher level of transactions that aren't occurring on known exchanges that report volume. In other words, Bitcoin has more real adoption for use cases other than speculative trading, which is one of the attributes I wanted to capture with my proposed metric. What this seems to indicate is that altcoins are nothing compared to Bitcoin, which is what I expected but a 100X greater wow.

Unfortunately I couldn't find the "Sent avg. per hour" data for the others altcoins.

Note I am using transaction value as a proxy for transaction fees paid, which isn't entirely accurate. I believe for example that Monero has higher transactions fees to mitigate spam which could be used to reduce anonymity sets.

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April 05, 2016, 07:43:08 PM
 #5

While 24h volume is much more easily manipulated it is still more useful imo (if we look at the average of 24h volume).

It is not as meaningful as "Sent transactions" as measured from the block chain instead of only volume reported by exchanges. See my prior post on why.

Transacrions fees vary wildly so I also don't think that's useful. Besides, automated services (like gambling) or even pools which pay out very frequently will push the transaction fees up.

The entire point of using transaction fees is to capture the actual amount of adoption use for a metric that can't be faked because it is a fee that is lost to the miners.

Hash rate is also somewhat useless due to its fluctuating nature.

It is necessary because it indicates the competition that faking the transaction fees by paying to yourself as a miner would cost to achieve. In other words, it measures the security against cheating the transaction fee metric.



Also increased hashrate implies increased security against a 50% attack, assuming the hashrate is well distributed.

That's a pretty big assumption.

It is only necessary that the cost would be implausible of faking the transaction fees by paying them to yourself and significantly impacting the average transaction fees per unit time.

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April 05, 2016, 07:44:45 PM
 #6

I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Using M = Sent avg. per hour, H = Hashrate (normalized):

1.Bitcoin6.5×10¹²
2.Namecoin8.6x10¹⁰
3.Ethereum6.6x10¹⁰
4.Litecoin1.3x10¹⁰
5.Dash9.8x10⁹
6.Blackcoin7.4x10⁸
7.Dogecoin6.1x10⁸
8.Auroracoin5.8x10⁶

One of the reasons that Bitcoin is 100X higher than the altcoins is because its "Sent avg. per hour" is so much higher than its Volume(24h)/24, which indicates that Bitcoin has a much higher level of transactions that aren't occurring on known exchanges that report volume. In other words, Bitcoin has more real adoption for use cases other than speculative trading, which is one of the attributes I wanted to capture with my proposed metric. What this seems to indicate is that altcoins are nothing compared to Bitcoin, which is what I expected but a 100X greater wow.

Unfortunately I couldn't find the "Sent avg. per hour" data for the others altcoins.

Note I am using transaction value as a proxy for transaction fees paid, which isn't entirely accurate. I believe for example that Monero has higher transactions fees to mitigate spam which could be used to reduce anonymity sets.

It isn't accurate at all because with very low fees you can definitely have spam but you can also have transactions that are spewed as manipulation to make the coin seem used. (Even high fees would be irrelevant if the insiders also control the mining, but this wouldn't generally correlate with a high hash rate.) Bytecoin is a good example of this. It has tiny fees and junk transactions generated by some automated process 24x7.

But then, a lot of exchange volume (especially in China) is also documented to be fake, so it very hard to make these comparisons meaningful.

On this in particular:

Quote
In other words, Bitcoin has more real adoption for use cases other than speculative trading

Certainly true, but as far as magnitude, the data must be interpreted with caution. A huge portion of Bitcoin blockchain transactions are tied (by various published blockchain analysis) in some way to mining or trading (moving coins between exchanges for example). Mining is larger in size (and therefore mining-related txs are also larger in aggregate) simply because Bitcoin has higher value, so you are measuring a proxy for market cap in some ways here. Bitcoin also has various spam attacks over the past year or so that seem to be a outgrowth of the blocksize politics.

Anyway, interesting chart here, but as always inputs are not so trustworthy. https://blockchain.info/charts/tx-trade-ratio
TPTB_need_war
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April 05, 2016, 07:50:21 PM
 #7

It isn't accurate at all because with very low fees you can definitely have spam but you can also have transactions that are spewed as manipulation to make the coin seem used.

That would be if this metric was already widely used, and so coins were trying to manipulate the metric. So for the moment, using transactions instead of fees is a reasonable proxy as a first approximation until someone can compile the data for fees.

(Even high fees would be irrelevant if the insiders also control the mining, but this wouldn't generally correlate with a high hash rate.)

That is why I include the hash rate in the metric and then take the square root.

Bytecoin is a good example of this. It has tiny fees and junk transactions generated by some automated process 24x7.

I hope someone can compile the fees data. But we can already see that Bitcoin is 100X ahead of all the altcoins. We can presume the altcoins are generating more spam transactions than Bitcoin, because they have an incentive to hype as you indicate for Bytecoin.

But then, a lot of exchange volume (especially in China) is also documented to be fake, so it very hard to make these comparisons meaningful.

Fees aren't fake in any case (unless very low hash rate and can pay to themself as miners), which is the point of using fees (and multiplying by the hash rate).

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April 05, 2016, 08:20:46 PM
 #8

Hash rate is also somewhat useless due to its fluctuating nature. While the fluctuation is lower for bigger coins, it can swing very wildly for smaller to medium coins.
And because of multipools the hashrate follows the current price very closely so if there's a price increase the hashrate follows.
So if we were to use hashrate as a metric similar to marketcap then a spike in hashrate/price would push the price/hashrate even higher becaue of newbies making irrational investments based on hashrate.

I agree that a single point-in-time snapshot may not be representative. If my suggestion from a few posts back of creating a graph were adopted then this variability would be visible.
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April 05, 2016, 08:23:38 PM
 #9

My main conclusion is that market cap does not tell us how wide the adoption difference is between Bitcoin and the altcoins.

Thus the $billion market cap for Ethereum is really only about $60 million if compared to Bitcoin's $6 billion.

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April 06, 2016, 09:45:58 AM
 #10

I'm thinking of my proposed metric for the relative market value of cypto-currencies, as a relativistic alternative to a P/E ratio. For stocks of companies that earn profits, we can determine if the market cap is unrealistic by looking at the Price/Earning ratio, i.e. a form of adoption for companies. So my proposed metric is an alternative form of adoption measurement for crypto-currencies, because they don't have earnings.

We are not investing in businesses which sell a product or service to generate revenue.

Zero-sum game:

Quote
Zero-sum is a situation in game theory in which one person's gain is equivalent to another's loss, so the net change in wealth or benefit is zero. A zero-sum game may have as few as two players, or millions of participants.

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April 06, 2016, 12:36:36 PM
 #11

i think none of these will prove existing or none existing manipulation in the market. and as for market cap and trade volume you should look at it in the big picture meaning how did those number change over a long time.

if it is a pump and dump then the volume is high one day and it is 100 times less next month.














 

 

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vuduchyld
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April 06, 2016, 12:52:03 PM
 #12

Just popping in with a question...

I read somewhere recently that Poloniex doesn't allow self-dealing.  Couldn't find anything about it on their site.

But if it's true, I wonder how absolute that could possibly be.  Maybe one account can't self-deal, but it probably isn't that tough to set up multiple accounts if one wanted to essentially self-deal.
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April 06, 2016, 03:04:42 PM
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But if it's true, I wonder how absolute that could possibly be.  Maybe one account can't self-deal, but it probably isn't that tough to set up multiple accounts if one wanted to essentially self-deal.

Just deal with some friends buying from each other round-robin. Is Poloniex detecting that?

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April 06, 2016, 03:05:38 PM
 #14

i think none of these will prove existing or none existing manipulation in the market

Give specific reasons. I already provided reasons that I think you are wrong.

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April 06, 2016, 09:01:15 PM
 #15

I've purchased things with Bitcoin, Litecoin, and Dogecoin before.  Finding someone who has purchased something with NXT, Ethereum, Darkcoin, or Factom is probably pretty damn hard...

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TPTB_need_war
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April 09, 2016, 04:57:14 AM
 #16

I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Using M = Sent avg. per hour, H = Hashrate (normalized):

Coin |Relative Adoption |Ratio |Adoption-adjusted Market Cap
1.Bitcoin6.5×10¹²1$6.4 billion
2.Namecoin8.6x10¹⁰1/76$85 million
3.Ethereum6.6x10¹⁰1/99$65 million
4.Litecoin1.3x10¹⁰1/500$13 million
5.Dash9.8x10⁹1/663$10 million
6.Blackcoin7.4x10⁸1/8784$0.7 million
7.Dogecoin6.1x10⁸1/10656$0.6 million
8.Auroracoin5.8x10⁶1/1120690$5,931

I edited the table above so readers can see the "Adoption-adjusted Market Caps".

You can see how pitiful the altcoins are.

Edit: your investment money is being siphoned off into the pockets of the insiders of these coins. None of it is achieving any significant adoption.

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April 09, 2016, 01:57:24 PM
 #17

Are you working on an alt coin?


I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Using M = Sent avg. per hour, H = Hashrate (normalized):

Coin |Relative Adoption |Ratio |Adoption-adjusted Market Cap
1.Bitcoin6.5×10¹²1$6.4 billion
2.Namecoin8.6x10¹⁰1/76$85 million
3.Ethereum6.6x10¹⁰1/99$65 million
4.Litecoin1.3x10¹⁰1/500$13 million
5.Dash9.8x10⁹1/663$10 million
6.Blackcoin7.4x10⁸1/8784$0.7 million
7.Dogecoin6.1x10⁸1/10656$0.6 million
8.Auroracoin5.8x10⁶1/1120690$5,931

I edited the table above so readers can see the "Adoption-adjusted Market Caps".

You can see how pitiful the altcoins are.

Edit: your investment money is being siphoned off into the pockets of the insiders of these coins. None of it is achieving any significant adoption.

http://heatledger.com LIVE ICO 3.0 GENERATION CRYPTO WITH COMPANY STOCK IPO OPTIONS
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April 10, 2016, 04:46:28 PM
 #18

Investopedia 101

Seems like Ethereum is on her period

It´s still priced at almost 700 million dollars. That´s some serious money.

ETH still got a very solid marketcap and volume in crypto standards

Market cap is not a measure of anything real such as liquidity because for example if just 1% of the supply of Dash was sold it would cause the price to drop 99% whereas only 20% for Monero.

Market cap is not even a measure of how much has been invested in the coin. For example, I create 1 million tokens, then execute one transaction to buy 1 token from myself for $100. No one invested $100 million. Duh!

Much of the volume can be fake due to insiders buying from themselves to create pump of the price, which is especially likely (presumably always) in ICO and insta/premine coins (i.e. scams).

ETH is not even a hundredth of Bitcoin's market adoption:

I thus suggest an idea for a new metric for ranking altcoins.

Sqrt(M x H)

M = Mean transactions fees paid per unit time to decentralized proof-of-work miners
H = hash rate (normalized in electricity cost per hash to SHA256).

Using M = Sent avg. per hour, H = Hashrate (normalized):

Coin |Relative Adoption |Ratio |Adoption-adjusted Market Cap
1.Bitcoin6.5×10¹²1$6.4 billion
2.Namecoin8.6x10¹⁰1/76$85 million
3.Ethereum6.6x10¹⁰1/99$65 million
4.Litecoin1.3x10¹⁰1/500$13 million
5.Dash9.8x10⁹1/663$10 million
6.Blackcoin7.4x10⁸1/8784$0.7 million
7.Dogecoin6.1x10⁸1/10656$0.6 million
8.Auroracoin5.8x10⁶1/1120690$5,931

I edited the table above so readers can see the "Adoption-adjusted Market Caps".

You can see how pitiful the altcoins are.

Edit: your investment money is being siphoned off into the pockets of the insiders of these coins. None of it is achieving any significant adoption.

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April 10, 2016, 05:07:42 PM
 #19

Are you serious? This just tries to use a mathematical formula to prove an opinion on what are the parameters that should be considered in valuing a coin.  Roll Eyes

It is measuring traits of adoption (especially fees) which are much more difficult to fake than market cap, price, and exchange volume.

Market cap is a mathematical formula also, but it uses traits that are easy to fake:

Market cap is not a measure of anything real such as liquidity because for example if just 1% of the supply of Dash was sold it would cause the price to drop 99% whereas only 20% for Monero.

Market cap is not even a measure of how much has been invested in the coin. For example, I create 1 million tokens, then execute one transaction to buy 1 token from myself for $100. No one invested $100 million. Duh!

Much of the volume can be fake due to insiders buying from themselves to create pump of the price, which is especially likely (presumably always) in ICO and insta/premine coins (i.e. scams).



How can money be siphoned off?  Miner fees?

Are you seriously admitting you are blind?

1. Selling the ICO/pre/instamine to you.

2. Using control of a significant portion of the coin supply (and thus perhaps 90+% of the exchange volume float) to buy coins from themselves, set fake bid/ask walls, and otherwise manipulate you into buying high and selling back to them low. Repeat & rinse.

3. Having some "governance" scheme wherein some staked nodes (e.g. Dash masternodes and Bitshares' DPOS delegates) pay out some of the created-out-of-thin-air coins for each block and pay them to the owners of these staked nodes, which are disproportionately those who control the coin supply from #2. And even paying some of these coins to the lead developers via "voted on projects" (and remembering who controls the staked nodes and thus who controls the votes).


I haven't even heard of blackcoin.   Shocked

If you click to the original thread where that table was quoted from, you will see that I was not able to obtain the data for all coins, thus many are missing from the table that would be higher than Blackcoin.

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April 10, 2016, 07:06:44 PM
 #20

That may be a small part of the reason but it isn't the main reason. The main reason is that the market cap charts are bullshit, and the volume ranking is just a better ranking. I'll elaborate on that a bit later.

Many of the coins highly ranked on the market cap list are there due to cornering of supply and an artificially supported but largely meaningless price, and not by organic market dynamics. The phenomenon is described nicely by r0ach here:

"The market cap will remain high, but the buy side will constantly wither away until the sum of the buy side is only 15 BTC (like NXT was a few months ago). This makes them "roach motels" where you're theoretically wealthy, but nobody can actually exit the coin at all." link

Now on why the volume ranking is a better one to use, take a look a the various metrics on coingecko. Compare Monero with Dash. The overall ranking is fairly close and their order often flips, but that is only because market cap is included in the ranking. If you look at the other components, Monero beats Dash on almost every single metric, from reddit posts to commits to Bing search results and of course volume. The main ones where it doesn't are the ones that are most easily subject to manipulation: Twitter followers and Facebook likes (both likely purchased).

tldr: Monero is currently the #4 or #5 cryptocurrency by valid rankings.


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