The Problem With Altcoins

[R160K]

I agree largely with the article, though I still feel altcoins could play a valuable role in the future.

However, once the dumb masses are in the main coin, it will become much more difficult to compete with that coin. Because the dumb masses don't care about decentralization, anonymity, and the benefit of mining on PCs can be offset with palm-scanning ATM machines for Bitcoin (the dumb masses will blissfully scan their palm). We are not yet there, but the window of opportunity is rapidly closing.

I think this underlines the true magnitude of the network effect (as discussed in the article). While most of the original bit-pilgrims were drawn by the decentralised nature of bitcoin, the anonymity it promised (including those with less-than-legal purposes), and idealistic/geeky aspects of its cryptography and its economics, many of the next wave were simply speculators marveling at rapidly rising graphs and sensing an opportunity. Since then, the "third wave" of bitcoin users have given it a try because they've seen it advertised, found it a convenient way of storing wealth and making online payments. Even if a new alt-coin emerged that was vastly superior to bitcoin in EVERY SINGLE ONE of its original goals, joe-public, investors and many service providers would probably feel no massive urge to switch.

Consider supercoin which has some radically better features than Bitcoin. Because Bitcoin has over $1bn riding on its success there is a significant investment by all the people who use it, own it, mine it, and otherwise profit from the ecosystem. So there would be huge incentive for Bitcoin dev to clone the software changes which make supercoin so super, even if it means a hard fork. Such a hard fork would be tolerated as all bitcoiners want to protect their own interests. As soon as these features are released in a new bitcoin version, then supercoin becomes irrelevant.

In this case, supercoin was not irrelevant, because it galvanised an otherwise reluctant bitcoin to innovate. Anyone who believes altcoins (in their current form) could rival or even supercede bitcoin is deluded. But (semi) thriving altcoin economies provide real-world stress testing for new ideas (more so than testnet) that could be used to improve bitcoin. I think if altcoins are to succeed (not necessarily match bitcoin, but run alongside as a significant alternative economy trading with bitcoin) then it will take one of four forms:

1. One or more of the current altcoins (or even brand new ones), instead of being minor twists on bitcoin, need to correlate several good ideas (and good developers) into ONE coin and aim to constantly innovate in ways that bitcoin (or at least the Foundation) are scared to, in order to attract enough "purists" over to make it viable.

2. A payment system (not necessarily a single currency) that allows decentralised, anonymous, CHEAP sending of fiat (or fiat-linked) "currency". Something like Ripple (which from my reading appears to be a lot more decentralised than they make out to be, perhaps to attract venture capitalists' investments) - it would be possible now the code is open source to build clients designed not to link addresses, tumblers would be possible etc, and it if the network grew big enough there would be no need to trust the company's own "validators" - I haven't however used the system so can't say much in detail about it. Something else that could take off is Open Transactions.

3. Something built as an "extension" to Bitcoin. #2 above could be achieved with something like "Coloured Coins" or "MasterCoin" built ON-TOP of the bitcoin architecture. MasterCoin, as well as NXT, plan on using an "exodus block" for coins moved over from BTC instead of a genesis block, utilising the ubiquity of bitcoin rather than competing against it, allowing people to trade out of bitcoin when they require special features, then trading back in again.

4. Something COMPLETELY different.

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[AnonyMint]

Please publicly disagree if you do.

Even if a new alt-coin emerged that was vastly superior to bitcoin in EVERY SINGLE ONE of its original goals, joe-public, investors and many service providers would probably feel no massive urge to switch.

If the altcoin has sufficient demand (not even any where near Bitcoin) to generate a liquid exchange, then the altcoin can be converted on the fly to pay those who accept only Bitcoin.

So an altcoin doesn't need ANYONE to switch from Bitcoin, it only needs to grab a small percent of the market of new users. Bitcoin only has 350,000 users. There is a long way to go to 7 billion.

The key though is the altcoin needs to present something truly useful that Bitcoin can't copy. So it has staying power.

I think if altcoins are to succeed (not necessarily match bitcoin, but run alongside as a significant alternative economy trading with bitcoin) then it will take one of four forms:

1. One or more of the current altcoins (or even brand new ones), instead of being minor twists on bitcoin, need to correlate several good ideas (and good developers) into ONE coin and aim to constantly innovate in ways that bitcoin (or at least the Foundation) are scared to, in order to attract enough "purists" over to make it viable.

Agreed.

[St.Bit]

Even if a new alt-coin emerged that was vastly superior to bitcoin in EVERY SINGLE ONE of its original goals, joe-public, investors and many service providers would probably feel no massive urge to switch.

If the altcoin has sufficient demand (not even any where near Bitcoin) to generate a liquid exchange, then the altcoin can be converted on the fly to pay those who accept only Bitcoin.

So an altcoin doesn't need ANYONE to switch from Bitcoin, it only needs to grab a small percent of the market of new users. Bitcoin only has 350,000 users. There is a long way to go to 7 billion.

The key though is the altcoin needs to present something truly useful that Bitcoin can't copy. So it has staying power.

Agreed.

I think the bold statement is the main reason why todays serious altcoins are here to stay (and justify a rise vs BTC)

The consenus required to do a hardfork is impossible to reach for anything other than fixing threating security problems for anything that actually changes someting. POS is unreachable for bitcoin and a true improvement over it. For everything else there would be an oposition against it and so prevents innovation on BTC itself.

People tend to forget that there is a difference between innvation on crypto and innovation on bitcoin. It doesn't matter that something was initially written for bitcoin since it can't be bitcoin exclusively. Bitcoin can't keep her innovation for itself, but also can't grap new innovation from the other cryptos.

The first crypto to buy is bitcoin, but some of the newcomers might see a feature, I think it will be POS and especially POS rewards, that is nice to have. I expect some of them to move on to altcoins, the % of is up to you, but that's basically the thing that matters.

Even if you don't belive in this there still will be a few idiots, lets say n% of them that want to become early adopters (as we are 350k/worldpop wouldn't be damm early) and they can be that rather on alts. The % is still up to you.

The massive urge to sell BTC for altcoins wouldn't come from the actual benefits for individuals from the altcoins features. It would come from possible profits and saving profits. It's always a bad idea to have all wealth in one thing, so it might be a good idea to move some % into different altcoins. Just to be save, and maby that altcoin will grow faster than bitcoin and there is no practical difference in using as payment.

A smaller crypto can easier double your wealth than a big one, so my point is about marketcapitalisation. Look up the % that all serious altcoins MC have compared to bitcoin and compare it with your estimated % on my previous points ...

[AnonyMint]

I've realized a new dilemma.

Assuming no transaction demand and no reason to hold the coin other than speculative investment demand, then the altcoin has to be appreciating faster than Bitcoin, else there will be a pernicious downward spiral. Litecoin may be caught in that now.

This realization seems to indicate there can only be one coin that survives, unless there is some reason to hold the coin other than its relative rate of appreciation.

One feature that might qualify is strong anonymity. Someone might resist transferring a balance to BTC given BTC's weaker anonymity, if anonymity was required for the holder.

[Wekkel]

This realization seems to indicate there can only be one coin that survives ....

I don't think this is the case. As a matter of fact, the open source character of crypto currencies, their similarity and the decentralisation and localisation aspects of multiple larger cryptos exactly fits the properties of this exiting new technology.

There will be more than one.

[AnonyMint]

This realization seems to indicate there can only be one coin that survives ....

I don't think this is the case. As a matter of fact, the open source character of crypto currencies, their similarity and the decentralisation and localisation aspects of multiple larger cryptos exactly fits the properties of this exiting new technology.

There will be more than one.

That is an opinion. But can you refute the logic I presented?

Logically it seems the coin must have a unique feature that requires holding in spite of a lower rate of appreciation, else it makes sense to trade for the coin that is appreciating faster.

For example, you might like the fact that a coin is CPU-only, but unless you believe that is going to make it appreciate faster someday, then it makes more sense for you to hold the coin that is appreciating faster, because CPU-only is only something you deal with when mining and has nothing to do with requiring you to hold the coin.

[justusranvier]

This realization seems to indicate there can only be one coin that survives, unless there is some reason to hold the coin other than its relative rate of appreciation.

Back in the early 90s, there were probably tens of thousands of individual bulletin board services. Most towns had several, and there were about half a dozen national ones in the US alone.

Each one was its own walled garden, with little to no communication between them.

In the late 90s as flat-rate ISPs began to enter the market, all the walled gardens got steamrollered by the Internet's network effect.

A tiny, statistically-insignificant minority of geeks prefer the walled gardens, while the rest of the population like having a single email address that works everywere.

It will be the same with cryptocurrencies. There will be one winner that achieves mainstream adoption, and a few toys currencies and that are kept alive by the few people who enjoy running them as a hobby and using them as testnets for new features.

[AnonyMint]

This realization seems to indicate there can only be one coin that survives, unless there is some reason to hold the coin other than its relative rate of appreciation.

Back in the early 90s, there were probably tens of thousands of individual bulletin board services. Most towns had several, and there were about half a dozen national ones in the US alone.

Each one was its own walled garden, with little to no communication between them.

In the late 90s as flat-rate ISPs began to enter the market, all the walled gardens got steamrollered by the Internet's network effect.

A tiny, statistically-insignificant minority of geeks prefer the walled gardens, while the rest of the population like having a single email address that works everywere.

I already explained how this can be solved. If there is a liquid exchange between the altcoin and Bitcoin, then the altcoin is just as liquid and usable as Bitcoin in terms of transactions.

But the problem is if everyone wants to sell the altcoin, i.e. no reason to hold it, then there is no such liquid exchange.

It will be the same with cryptocurrencies. There will be one winner that achieves mainstream adoption, and a few toys currencies and that are kept alive by the few people who enjoy running them as a hobby and using them as testnets for new features.

It is possible that an altcoin could have strong anonymity that is very important to smaller percentage of the market, and that would be a reason to hold it.

There might be some other features that are important enough that some percentage of the market must hold the coin and can't hold Bitcoin.

Strong anonymity is something that if you need it, you need it, and not having it isn't acceptable.

Can you deny this logically?

Any other such features?

[justusranvier]

I already explained how this can be solved. If there is a liquid exchange between the altcoin and Bitcoin, then the altcoin is just as liquid and usable as Bitcoin in terms of transactions.

But the problem is if everyone wants to sell the altcoin, i.e. no reason to hold it, then there is no such liquid exchange.

Friction always imposes costs. No how matter how good you make your exchange, it will always be more expensive than not needing to make an exchange. A line is the shortest distance between two points.

It is possible that an altcoin could have strong anonymity that is very important to smaller percentage of the market, and that would be a reason to hold it.

There might be some other features that are important enough that some percentage of the market must hold the coin and can't hold Bitcoin.

Strong anonymity is something that if you need it, you need it, and not having it isn't acceptable.

Can you deny this logically?

Any other such features?

Any feature that is so heavily demanded will be added to Bitcoin, because that is the most economically valuable solution.

[AnonyMint]

Another feature would be to make it much easier for merchants to accept payment in the altcoin.

Because that drives some level of holding, since if merchants are that unsophisticated (as most are), they are not likely to have real-time exchange to Bitcoin programmed.

[St.Bit]

then the altcoin has to be appreciating faster than Bitcoin, else there will be a pernicious downward spiral.

That doesn't make sense at all ...

I don't see why something has to be rising in order to speculate in something. Actually I'd rather like to speculate in something that got far less worth than it used to be than in something that got far more worth than it used to be. My profits depend on the %increase and my investment size, not on the actual value on the price tag.

This realization seems to indicate there can only be one coin that survives, unless there is some reason to hold the coin other than its relative rate of appreciation.

Back in the early 90s, there were probably tens of thousands of individual bulletin board services. Most towns had several, and there were about half a dozen national ones in the US alone.

Each one was its own walled garden, with little to no communication between them.

In the late 90s as flat-rate ISPs began to enter the market, all the walled gardens got steamrollered by the Internet's network effect.

A tiny, statistically-insignificant minority of geeks prefer the walled gardens, while the rest of the population like having a single email address that works everywere.

It will be the same with cryptocurrencies. There will be one winner that achieves mainstream adoption, and a few toys currencies and that are kept alive by the few people who enjoy running them as a hobby and using them as testnets for new features.

That doesn't make sense either. Just because better tec replaces good one doesn't suggest we will all use just the better tec and not lets say 2 better ones equally ...

A better example for arguing your way of thinking would be on BluRay vs HD DVD. Here your argumentation would work, but thats wrong either. Just take a look at DVD vs BluRay vs HD DVD and you see the dilemma.

It will never be just BluRay. Even if we wouldn't use DVDs anymore there would be a new format out by then so it will be Blu vs new disk. The networkeffect killed HD, that's true, but it could only do that because it was cheaper to use just one than 2 practical identical tecs. First of all is BTC to f.e. PPC not similiar in that kind of way (POS rewards) and it is actually better to use more than one crypto.

Any feature that is so heavily demanded will be added to Bitcoin, because that is the most economically valuable solution.

Dream on. It would be impossible to f.e. add at least some POS blocks to Bitcoin although it would be economically better.

[AnonyMint]

I already explained how this can be solved. If there is a liquid exchange between the altcoin and Bitcoin, then the altcoin is just as liquid and usable as Bitcoin in terms of transactions.

But the problem is if everyone wants to sell the altcoin, i.e. no reason to hold it, then there is no such liquid exchange.

Friction always imposes costs. No how matter how good you make your exchange, it will always be more expensive than not needing to make an exchange. A line is the shortest distance between two points.

Agreed, but if the friction is below what the dumb user can recognize, then it effectively doesn't exist. I am not sure if that is possible, but it might be.

It is possible that an altcoin could have strong anonymity that is very important to smaller percentage of the market, and that would be a reason to hold it.

There might be some other features that are important enough that some percentage of the market must hold the coin and can't hold Bitcoin.

Strong anonymity is something that if you need it, you need it, and not having it isn't acceptable.

Can you deny this logically?

Any other such features?

Any feature that is so heavily demanded will be added to Bitcoin, because that is the most economically valuable solution.

Bitcoin will never add strong anonymity. Disagree?

[AnonyMint]

then the altcoin has to be appreciating faster than Bitcoin, else there will be a pernicious downward spiral.

That doesn't make sense at all ...

I don't see why something has to be rising in order to speculate in something. Actually I'd rather like to speculate in something that got far less worth than it used to be than in something that got far more worth than it used to be. My profits depend on the %increase and my investment size, not on the actual value on the price tag.

That is a strong counter-point. If the weakness was perceived as a buying opportunity, then it is not a pernicious decline. I was actually thinking I should buy my own altcoin if it got too weak, yet I wouldn't want to be the only person buying it.

So really we come back to how many people strongly believe the features of the altcoin are going to make it popular for the masses? Features which Bitcoin can never implement. And whether the masses really adopt it, and don't just mine it then sell it for BTC.

If you can get the masses to mine it via CPU-only, then you've already got their first attention. Normal people hate to change too often, i.e. learn new software, wallet systems, etc..

[justusranvier]

Bitcoin will never add strong anonymity. Disagree?

If it's something that an economic majority of users want, it will be added.

If the current core devs won't add it, then someone else will make a version that does include it and the user base will upgrade to their branch.

[St.Bit]

Bitcoin will never add strong anonymity. Disagree?

If it's something that an economic majority of users want, it will be added.

If the current core devs won't add it, then someone else will make a version that does include it and the user base will upgrade to their branch.

Wrong, but you also have have just black-white thinking there.

What about some people like strawberry and some like choco. There is no point in arguning that there will be just one flavour and with different flavours in crypto we won't eat >95% bitcoin.


I have the feeling we are turning in circles here. What are the poins you agree on?

[AnonyMint]

Bitcoin will never add strong anonymity. Disagree?

If it's something that an economic majority of users want, it will be added.

If the current core devs won't add it, then someone else will make a version that does include it and the user base will upgrade to their branch.

Wrong, but you just have black-white thinking there.

What about some people like strawberry and some like choco. There is no point in arguning that there will be just one flavour and with different flavours in crypto we won't eat >95% bitcoin.


I have the feeling we are turning in circles here. What are the poins you agree on?

He already agreed with you, because if Bitcoin is forked without the permission of the core devs, then the Bitcoin market will be split.

The only way to maintain consensus with Bitcoin is to not change it, yet the only way to get 100% of market will require changing it.

So by definition of incongruence, there can never be just one cryptocurrency.

I think we've proved it now.

[MaxBTC1]

I agree with this article however as BTC increases in value, people WILL look to alt currencies and that will drive prices.  Already miners (inc myself) have made the switch.

[Wekkel]

Cryptos are based on voluntary systems. You cannot compare it with State imposed fiat just like that. Yes, it will be clumsy to have more coins. Yes, there were all kinds of different papers flying around from several banks when banking was still free. Its called freedom. I would compare it to the various Linux distro's rising and falling.

[AnonyMint]

Cryptos are based on voluntary systems. You cannot compare it with State imposed fiat just like that. Yes, it will be clumsy to have more coins. Yes, there were all kinds of different papers flying around from several banks when banking was still free. Its called freedom. I would compare it to the various Linux distro's rising and falling.

Now I see your logic. And it correlates with my prior post.

Freedom is incongruent with 100% consensus. Duh! (on me not you) Well yeah. Thanks.

So the only way you end up with 100% consensus is by state decree and then printing digits out-of-thin-air to gain the power and trickery to make that unnatural 100% consensus stick (with some percent of that 100% under duress).

[St.Bit]

I was actually thinking I should buy my own altcoin if it got too weak, yet I wouldn't want to be the only person buying it.

That's the way I feel about Yacoin at the moment. I woud say one actual problem of altcoins is that you could burn your self hard on them. Especially if when I realize how much these btc could buy me now.


There hasn't been a real altcoin bubble yet, but if too many people lost too much on alts they might stick just to BTC. Bitcoin had a nice crash from 30$, but there wasn't many lives destryed back then and everyone sticking to the plan got out nicely.
Altcoins will be different on that one.