The Problem With Altcoins

[justusranvier]

Nails it.

http://themisescircle.org/blog/2013/08/22/the-problem-with-altcoins/

[Etlase2]

Wow, that article is the worst piece of bitcoin-bias I have yet seen I think.

[johnyj]

IMO， the problem with alt-coins is that they are actually inflation in crypto currency world, and that is against the whole idea of getting rid of inflative currency from central banks. If you would also have an inflative money supply in crypto currency world (by adding more and more alt-coins), then why not just use fiat money, which at least has some control over money supply speed

[sevenVII]

Because it was started earlier and has had a greater opportunity to grow and attract users, Bitcoin has a market larger by a wide margin than all the markets of all the altcoins put together, and this makes it vastly more useful as a currency. To defeat Bitcoin, an altcoin would require not just superior technology, but such vastly superior technology as to be an advance over Bitcoin comparable to the advance Bitcoin represents over fiat currency. Furthermore, a truly great innovation would much better serve people by being incorporated into future versions of Bitcoin rather than by requiring them to switch to something else.

^ THIS. Absolutely my sentiments.

[alp]

Nails it.

http://themisescircle.org/blog/2013/08/22/the-problem-with-altcoins/

Dead on.

The only way an alt-currency survives is if it has some new feature that is impossible to add to Bitcoin.  That only happens in very rare instances, or in situations where Bitcoin is so large and stable that it isn't worth breaking.  There are also some situations possible where Bitcoin is superior for 95% of use cases, but inferior in 5%, and the niche currency will be able to hold that 5%.  The clones are nothing more than jealous haters who wish they were around during the Bitcoin boom.

Just looked back and noticed the author.  He is a bright guy.  I was actually talking about another article he wrote at a meetup, and he interrupted me to tell me he wrote it.  Small world.

[n8rwJeTt8TrrLKPa55eU]

A much-needed debunking and evisceration of the pointlesscoin/scamcoin lansdcape.

Some pieces of writing are so comprehensive and well done, that they become the go-to authoritative link for certain topics.  This is one such article.

[solex]

Wow, that article is the worst piece of bitcoin-bias I have yet seen I think.

Yes. And I enjoyed wallowing in it.  

The only way an alt-currency survives is if it has some new feature that is impossible to add to Bitcoin.

Correct.

One point which they did not highlight enough is that because cryptocurrency is software it is much harder for altcoins to displace bitcoin, which is very different from competing manufactured products.

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.

[domob]

The only way an alt-currency survives is if it has some new feature that is impossible to add to Bitcoin.  That only happens in very rare instances, or in situations where Bitcoin is so large and stable that it isn't worth breaking.  There are also some situations possible where Bitcoin is superior for 95% of use cases, but inferior in 5%, and the niche currency will be able to hold that 5%.  The clones are nothing more than jealous haters who wish they were around during the Bitcoin boom.

I wouldn't say "impossible to add to Bitcoin" since that is basically never the case - you can add almost everything to Bitcoin.  But as you point out, it may not be practical.  I for instance consider Namecoin to be the most valuable "alt-coin" and of real use as opposed to most of the others, since it has some very real and great additions over Bitcoin.  But while it can in theory do everything that Bitcoin does and even more, I think it makes sense to not use them "also" as a Bitcoin-replacing payment system (or try to do so) but rather have different blockchains for different purposes (payments with Bitcoin, every kind of securing/freeing "information" with Namecoin).

[Lethn]

First of all, Bitcoin already has competition. It competes with the dollar, with PayPal, and with the banking system as a whole. It has plenty of competition.

Sorry, but this quote alone shows where this guys allegiance lies, I've given up reading the entirety of these kind of articles because they're usually all the same kind of ranting that gets posted everywhere whenever the word 'Bitcoin' is mentioned, I'm glad despite the gaps in my knowledge I don't believe as much bullshit about Bitcoin as this guy does. Some altcoins are just bloody daft, that's true, there are some that are just blatant clones, but what's going to happen if the developers get put in jail etc. for money laundering or making currencies? Cryptocurrencies need a free market if they are to survive.

I see altcoins largely as backups of Bitcoin, you always need backups on a computer and a digital currency should be no exception, don't go hating against regulated and fixed markets and then complain when you finally get an unregulated free market because there's too much competition which is the main point I'm taking away from this guy.

[Impaler]

One point which they did not highlight enough is that because cryptocurrency is software it is much harder for altcoins to displace bitcoin, which is very different from competing manufactured products.

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.

Actually the history of software clearly shows that a brilliant new idea that no one foresaw often knocks over an established giant that is not innovating.  Actual physical manufacturing is a lot harder to undermine because of the high upfront capital cost needed to have the huge scale to take on someone with market dominance.  Feature incorporation is indeed a likely scenario if the feature is cosmetic, but the things that really matter to BTC, the coin cap, the algorithm and the coins durability are all sacrosanct, virtually all alternatives are different in exactly thouse areas that BTC would never change.

[Impaler]

The OP's article discusses Freicoin and unsurprisingly disagrees with the economic theories of Gesell as we would expect from someone on the Mises Circle as Gesell is basically heretical to the Austrian school of economics.  But the author to his credit dose not call Freicoin a scam or accusing it's supporters of being disingenuous, he simply feels our economic theory is wrong which still puts us on a higher level of respect then other alts in his eyes.

I would argue though that the author proves our own case when he attempts to make his.  When he says

This is not the place to refute the economic theory behind Freicoin, but essentially it is based on the idea that the interest rate is a purely monetary phenomenon rather than a result of time preference.

He has actually struck DIRECTLY at the key disagreement between Gesell and the Austrian school, Gesell says interest is a monetary phenomenon resulting from liquidity, Austrians say it is a result of time preference.  But he then goes on to say

Thus, by design, Freicoin discourages hoarding and encourages spending. It is touted as a currency for the working class rather than the wealthy because it supposedly can’t be used for making loans. Actually, however, if Freicoin were used for real, loans would simply be given at interest rates that are higher by 5%.

Here the author I think makes the rather simple error here of saying higher by 5% when it's quite obvious the rate is lowered by 5% (conversely the PPC coins ability to grow increases interest by the rate is grows at).  But this is really inconsequential if the rate is up or down, the point is that he admits that interest rates will be altered by the nature of money.  This is nothing less then the admission that interest is a monetary phenomenon as it is subject to change when the durability of money is changed.  Jow can interest arise from a universal human time preference but be dependent on the durability of money, a characteristic of the money itself?

Lastly the author states

Now, if something is created with the express intention of providing an incentive to get rid of it, then it stands to reason that they will all the more not want to buy it in the first place. Thus, Freicoin is actually made to discourage investment in itself, which is the very thing that gives a currency value in the first place.

Freicoin is an idea whose time will never come. Since it rebukes buyers, it resists ever having value. Freicoin is thus not so much a scam but more an abortion. Its ideals are so refined that they eschew the merest chance of affecting the real world. Perhaps it could be taken as some sort of absurdist parody, which would be brilliant. I hope that is true because otherwise it is just too sad.

Their is some truth here, Freicoin discourages the formation of speculative bubbles which have been the driving force in BTC.  But speculation is not the only thing that gives coins value, the earliest days of BTC were built on ideological interest and commitment.  Their is also the valuation that comes from the active circulation of a finite supply via the classic MV = PQ equation, in our opinion this can provide a valuation without speculation.  Lastly we have a charitable distribution plan for the bulk of the initial coin base which will bypass the need for most people to buy coins as we feel this is unnecessary and a huge contributor to speculation.

[alp]

The only way an alt-currency survives is if it has some new feature that is impossible to add to Bitcoin.  That only happens in very rare instances, or in situations where Bitcoin is so large and stable that it isn't worth breaking.  There are also some situations possible where Bitcoin is superior for 95% of use cases, but inferior in 5%, and the niche currency will be able to hold that 5%.  The clones are nothing more than jealous haters who wish they were around during the Bitcoin boom.

I wouldn't say "impossible to add to Bitcoin" since that is basically never the case - you can add almost everything to Bitcoin.  But as you point out, it may not be practical.  I for instance consider Namecoin to be the most valuable "alt-coin" and of real use as opposed to most of the others, since it has some very real and great additions over Bitcoin.  But while it can in theory do everything that Bitcoin does and even more, I think it makes sense to not use them "also" as a Bitcoin-replacing payment system (or try to do so) but rather have different blockchains for different purposes (payments with Bitcoin, every kind of securing/freeing "information" with Namecoin).

There are things that theoretically could not be added, such as a better distribution mechanism of initial coins.  You really can't go back in time and redo that.  Then again, that potential flaw fades every day as Bitcoin becomes more widespread and easier to obtain.

[Kaiji]

Alt coins gave people who missed out on the bitcoin bubble 2013 another chance. LTC jumped from $0.66 to $5 in a matter of weeks.

[alp]

Alt coins gave people who missed out on the bitcoin bubble 2013 another chance. LTC jumped from $0.66 to $5 in a matter of weeks.

The best purpose they serve is to move idiotic speculators who are trying to make a quick buck out of the Bitcoin market.  You are buying tulips if you are buying alt-coins.

[600watt]

every $, € (and so on) that is spent for any kind of altcoin cannot be spent for bitcoin. therefore it weakens the potential of bitcoin.

[Carlton Banks]

every $, € (and so on) that is spent for any kind of altcoin cannot be spent for bitcoin. therefore it weakens the potential of bitcoin.

What about if you spend fiat on obtaining alt-coin, then spend alt-coin on obtaining BTC  

I think the major threat to Bitcoin from alts is that they crowd the picture to an outside. It makes the landscape look more complicated. A quick comparison of the price graphs for alts and Bitcoin should change that perception fairly rapidly.

[lonelyminer (Peter Šurda)]

Here the author I think makes the rather simple error here of saying higher by 5% when it's quite obvious the rate is lowered by 5% (conversely the PPC coins ability to grow increases interest by the rate is grows at).  But this is really inconsequential if the rate is up or down, the point is that he admits that interest rates will be altered by the nature of money.  This is nothing less then the admission that interest is a monetary phenomenon as it is subject to change when the durability of money is changed.  Jow can interest arise from a universal human time preference but be dependent on the durability of money, a characteristic of the money itself?

Some changes in the money supply can affect economic calculation and thus the ability to accurately assess the connection between actual available investments and time time preference. That does not mean that time preference changes, only that the relationship between nominal and real interest rate changes.

I would say that normally, people do the economic calculation using the unit of account, and that also determines the nominal interest rate. Interest rates of other media of exchange, in the absence of transaction costs, would simply adjust due to arbitrage. Historically, there probably were significant transaction costs for arbitrage, but this does not apply to cryptocurrencies. So freicoin could only affect the difference between nominal and real interest rate if it was unit of account. This is unlikely unless it overtakes not only Bitcoin but also fiat money, and this is unlikely because it has lower liquidity and no significant improvements of transaction costs. If it does not become a unit of account, the demurrage would be arbitraged away on derivatives markets.

Their is some truth here, Freicoin discourages the formation of speculative bubbles which have been the driving force in BTC.  But speculation is not the only thing that gives coins value, the earliest days of BTC were built on ideological interest and commitment.  Their is also the valuation that comes from the active circulation of a finite supply via the classic MV = PQ equation, in our opinion this can provide a valuation without speculation.  Lastly we have a charitable distribution plan for the bulk of the initial coin base which will bypass the need for most people to buy coins as we feel this is unnecessary and a huge contributor to speculation.

I personally am somewhere in the middle. I don't think that Freicoin can meaningfully compete, for the reasons Daniel Krawisz lists, but I also don't think it will go away, because cryptocurrencies have shown that the critical mass of media of exchange can be lower than economists previously expected and historically experienced. Demurrage seems to have supporters who are willing to spend their resources on publicity, development and actual use, and that appears to be enough. That Freicoin survives does not require that the economic theories behind demurrage are correct, rather it is more of a question of network effect, social group dynamics, organisation theory and so on.

[alp]

every $, € (and so on) that is spent for any kind of altcoin cannot be spent for bitcoin. therefore it weakens the potential of bitcoin.

Not necessarily.  Someone inflating bubbles then running away when they explode is not weakening the potential.  If anything, they are hurting it.  Move them to alt-coins, let that economy remain completely unstable.

[ninjarobot]

I found this to be a biased and mean spirited article. Just take a look at the images and captions.

Also the author cherry picks alts to bash. Namecoin for example brings a lot of innovation to the table due to the innovative use of the generic name/value pair and namespaces of which a decentralized DNS is one of the implementations. (Namecoin emphasizes the value of an open blockchain for purposes other than just currency)

Sure the majority are scamcoins but please don't tar them all with the same brush.

[xxjs]

I look at it this way: At all times, the commodity with the best money properties would be the most sellable, and therefore gain exchange value in addition to its use value. When better money became available, the value of the old money would fall back to its intrinsic value. To the contemporarys, this would appear (in fact be) a bubble that burst. This could happen to bitcoin if a better cryptocurrency became available. I think currently bitcoin is the best, theoretically it could even reduce gold to its intrinsic value. Trying to introduce something worse than the currently best money would fail.