[ANALYSIS] Altcoin Investing

[hammo]

But MAX has Max continuing the quality media hype as well!

Really, I do wonder if he will keep pumping this. It's really hurting his credibility.

He will while he owns them.

[flipstyle]

Great read.

Would love to hear your current and future forecasts on vertcoin.  Lot of hype around it, but I find that interesting considering it's not even the first n-algo jane scrypt coin.  But I guess it did market that fact better than any of the other ones.

[darbsllim]

Interesting analysis ... I agree with some of it, but I'm curious why you haven't included the top market cap coins like NXT and Ripple over some of the smaller, less significant market cap coins like MemoryCoin.

Full disclosure I am invested in MemoryCoin, NXT and Ripple, so no bias there.

I'd also like to see your thoughts on Vertcoin which has the innovative adaptive n-factor.

Again, along the same vein of innovation, I'd like to know your thoughts on the upcoming Ethereum launch, and hear your thoughts on Mastercoin.

Another interesting launch is Counterparty which just netted me a 10X on my proof of burn.

I think you also need to include sentiment as one of the main factors for long term investing ... sentiment is more important than development, as is the case with Protoshares which doesn't really have much of a development team behind it at all as far as I know... it's been nearly 3 months since PTS was released yet they've not been able to launch a DAC that honors the 10%.

I think the ProtoShares returns are based on sentiment moreso than development... similarly with DOGE.

[Netnox]

I have always been very cautious in switching to alts. I bought my first alt Litecoin at $1.35 and made some good profit on that, but i wouldn't invest in it anymore, because there are some serious alts which i believe that can give me the same return as Litecoin. Right now i'm going with Bitcoin, Quark and some Litecoins left.

[popshot]

FreeTrade, could you please provide me with a formula for calculating inflation of a coin? The same one you use in your analysis.
Thank you.

by smooth

The inflation rate is even simpler than that, it is just coins produced divided by coins outstanding.

The above comment is Bullcrap.

[FreeTrade]

Zetacoin added.

[GodfatherBond]

Great post, thank you!

[FreeTrade]

Great read.

Would love to hear your current and future forecasts on vertcoin.  Lot of hype around it, but I find that interesting considering it's not even the first n-algo jane scrypt coin.  But I guess it did market that fact better than any of the other ones.

Yes, good marketing for Vertcoin - essentially I think they are telling GPU owners what they want to hear and they're lapping it up.

[mercSuey]

 
The industry needs more micro-payment options.  Interesting addition.

[Percy520]

Preamble:
This is not investment advice. People always say that when giving investment advice, so I thought I'd start with it. I guess some guy once did badly and sued some other guy and now nobody advises anybody about anything anymore. If you're a litigious guy, you should stick to T-bills, whatever they are. I hear they are very safe, but don't take my word for it, as this is not, as I have already told you, investment advice.

Bitcoin Hopefully you already know why Bitcoin is great. This article is for people who already understand Bitcoin, so I won't dwell on its strengths. Those are name recognition, network effect and first mover advantage. I'm going to focus on its weaknesses by looking at the questions altcoins need to answer to succeed where Bitcoin is failing.   a) Inflation - How does the coin solve the inflation problem? Don't be fooled by the econ 101 grads who wax on about deflation. Right now Bitcoin is highly inflationary – running at about 9%. That's a huge problem for the 'to the moon' proponents. Here's why -    There are 3,600 new bitcoins mined every day. It requires $3 million (3,600x$800) to enter the market every day just to keep the price where it is.      Let's say you want a modest 100X return on your investment. You need 1BTC to go from $800 to $80,000. The cost to keep BTC at $80,000? Every day $300 million (3,600*$80000) has to enter the market. It's difficult to see how that happens. The exchanges and markets aren't equipped for anything like that.    This problem will ease over the years – the number of coins mined will halve every 4 years, but realistically, who can wait that long to be a billionaire? b) Development - How is ongoing development, promotion and protection funded? Bitcoin currently has a $10 Billion market cap, and there are lots of services and companies hopping on the Bitcoin bandwagon, but how much effort is going into securing the core-technology and making Bitcoin easy to use? A paltry amount. There's the Bitcoin Foundation which relies on donations, and open source developers contributing their time. The Bitcoin millionaires and billionaires should be co-operating to finance huge development of the core-technology. There is no mechanism for them to co-ordinate that, and it doesn't make any sense for any one person to do it individually. Who is going to pay for the legal, lobbying, PR that is going to be needed down the road? Ain't nobody going to do that. c) Decentralization - How is the coin going to stay decentralized? Bitcoin has become centralized in two ways – large pools and specialized hardware. China has worked out what Bitcoin means for capital movement and currency control and they don't like it. One of the first moves was to ban mining hardware – the ASICs – highly specialized computer equipment. Any government that wants to take control of Bitcoin will target this hardware first. Good luck to anyone trying to keep it a secret. The NSA already knows the colour of your underwear.The pools are a problem too – a co-ordinated shutting down of the major pools could cause severe disruption. Bitcoin Verdict : Recommended 10X Possible – Despite these problems, Bitcoin is the market leader and safest cryptocurrency and gives good general exposure to the crypto-currency market. Keep 50% of your allocated crypto-currency holdings here. 10X short-term price increase still possible. Reduced potential for explosive growth in price.

Quark I was recommending Quark way back in July 2013. It's since appreciated 50X. Let's see if the case still stacks up. Q1: Inflation: The inflation problem is solved, most of the coins have already been issued and the inflation rate is now 0.5%. You'll hear people complaining about the 'pre-mine' – that's a really bullish sign. People don't complain about coins with unfair pre-mines, they ignore them. If there are complainers, it means they want in . . . but . . . yesterday. Well done Quark. (3/3) Q2: Development: Community effort based on donations – same problem as Bitcoin (0/3) Q3: Decentralization: Quark attempts to solve the hardware centralization problem through complexity. The proof-of-work algorithm is complex, so it's difficult to program for GPUs and GPUs are poorly suited to that kind of work. It'll slow down FPGA and ASIC development too, but they'll show up once the reward is high enough. Overall, a good effort – (2/4) Quark Verdict (5/10) – There are still possible 100X returns with this coin.

Primecoin I was very excited about Primecoin from the beginning. I think the hook that the proof-of-work might actually do something useful (finding primes) would be enough to get it a mention in any story about crypto-currency. Let's look at the questions Q1: Inflation: This was the thing that turned me off Primecoin. The inflation formula is 999/(difficulty^2). Difficulty is currently around 10.4 – so approximately 9 coins are issued each block. Difficulty increases by 1 every time computing power increases 30 fold, so you'll have a gradual reduction only with HUGE increase in the network. This coin will remain very inflationary. (0/3) Q2: Development: Community effort based on donations – same problem as Bitcoin but +1 for SunnyKing (1/3) Q3: Decentralization: Similarly to Quark, this has proved to be GPU resistant because of its complexity. Expected to be vulnerable to ASICs with sufficient reward. (2/4) +1 Bonus for newsworthy proof-of-work Primecoin Verdict: (4/10) - Still a buy – 10X returns are possible.

ProtoShares This is the first coin that has backing – Invictus Innovations have pledged that all further chains they launch reserve 10% for ProtoShares holders. They seem intent on keeping this promise, so buying into ProtoShares is like buying into an early stage crypto-startup. The CEO, Dan Larimer is something of a genius in my opinion, and has a strong team so it's a good play based on that alone . . . and it works as a plain old altcoin too. Q1: Inflation: – There's a 5% reduction in block rewards every week, so inflation will be down to 10% before the end of this year, and 1% by the end of next year. Solved in time. (2/3) Q2: Development: – The coin is backed by a startup with funding so some level of development and promotion is guaranteed. The team does have higher priorities with their other projects, but ProtoShares owners will get a cut of those, so that is offset somewhat. (1/3) Q3: Decentralization: – It uses a clever new 'momentum' proof-of-work based on the birthday problem. However, GPU miners are operating privately and expected to dominate when they are generally available. The jury is still out on FPGA/ASIC resistance. Pools seem to be a problem with one pool dominating the mining (2/4) +2 Backing by Invictus Innovations Verdict: (7/10) I should mention bias here – I was involved with the launch of this coin. I'm not recommending it because I was involved with it . . . rather the reverse . . . I got involved because it was possible to recommend it. 100X returns possible.

MemoryCoin I should mention bias upfront here - this is the coin I started to address the problems with Bitcoin. Again, I'm recommending this coin not because I started it, rather I started it because it is possible to recommend it. Here's why - Q1: Inflation: – Similar mining schedule as ProtoShares, 5% reduction in block rewards every week, so inflation will be down to 10% before the end of this year, but reduces to a 2% inflation rate rather than 1%. Solved in time. (2/3) Q2: Development: – This is the reason people are excited about this coin. 5% of block rewards are earmarked for development and promotion. Coin owners vote like shareholders as to how the funds are distributed. It has resulted in huge development effort already, within weeks the coin has more services and support than even Litecoin or Quark. (3/3) Q3: Decentralization: – This coin heavily leverages memory and special instructions found in recent CPUs. There's a battle going on now between GPU and CPU developers to see who can make the most efficient algorithms for mining this coin. CPUs have pulled ahead dramatically in the past week. Uniquely, the project has distributed mining as a high priority so it well placed to avoid centralization of mining. The jury is out on FPGAs and ASICs. (3/4) Verdict (8/10)  1000X gains possible. This coin is still in the very early stages with only 30% of coins issued, and not many people understand it yet, but is quickly gaining a large development community and does large volume on the Chinese market already.

Litecoin I didn't want to talk about Litecoin, but I should because it has the second highest market cap. Let's see how it does with the questions. Q1: Inflation: No attempt made to solve inflation problem – it's got the same schedule as Bitcoin. (0/3) Q2: Development:  Community effort based on donations – same problem as Bitcoin (0/3) Q3: Decentralization:  Litecoin was first to try to address the harware centralization problem but failed. Semi-specialized equipment (GPUs) already required, FPGA are here and ASICs on the way. I've relented a little and given 1 point here because it is more de-centralized than Bitcoin for the moment (1/4) Verdict (1/10) – stay away from this one. Remarkably, there are coins worse than Litecoin – those are the coins trying to be the next Litecoin.

Infinitecoin Infinitecoin is a misnomer. It refers to the number of coins out there (90.6 Billion) which is very high. It's not infinite at all. It's very much limited edition. It was one of the first coins to realize the importance of keeping inflation under control. Q1: Inflation: So far 99% of coins have been issued, and the block rewards keep being halved with no intention to stop, inflation is less than 1% and will be effectively 0% by the end of the year (3/3) Q2: Development:  Community based development, but more difficult to include Bitcoin's improvements because it is a Litecoin based coin (0/3) Q3: Decentralization:  Scrypt (Litecoin) based coin, so same problems. It has a high-cap, but the difficulty for this coin is very low because the block rewards are very low - making a 51% + double spend attack easy. Essentially all the hashing power could be concentrated by a single individual with a handful of powerful GPUs who could re-write a long string of blocks. With the high value of IFC, we might see the first big altcoin heist.(0/4) Verdict (3/10) – I still quite like this coin because of it's hard line on inflation - but it needs to take steps to solve the blockchain security problem, or we'll see a big heist, and that'll be very damaging for it. One to watch, but needs a rescue.

Dogecoin Someone smart once said that the market can stay irrational longer than you can stay solvent. He must have been predicting Dogecoin. There's a lot of interest in Doge now from some of the nicest, coolest, funnest people, or as they are known on Wall Street, bagholders. Q1: Inflation: Very high inflation right now as the coin is issued, but with halving block rewards until inflation reaches 5% in about a year. Little bit high for my taste, but could be worse. (2/3) Q2: Development:  Community based development, but more difficult to include Bitcoin's improvements because it is a Litecoin based coin. Lots of talk about projects right now, but these kind of people get bored easily and move on to the next fun thing. Expect to see lots of half-finished, half-working projects.(0/3) Q3: Decentralization:  Same problems as Litecoin (1/4) +1 First big Meme coin (newsworthy) Verdict (4/10) – Over 1 million USD per day needs to flow into Dogecoin to keep it at its current price levels. That doesn't mean it couldn't go up another 2X or 3X, but trading Doge is gambling. One day you'll wake up and there will be zero buyers at any price. Try to imagine how funny and well supported a 'Gangnamcoin' would be today.

Cryptogenic Bullion CGB has some very nice qualities that give it a very good shot of making it into the top 10 and staying there. It combines low-inflation with a secure blockchain and interest payments for holders. This is a well conceived coin, on a stable foundation.   Q1: Inflation: 94% of coin already issued, in 10 weeks, inflation will be down to 2% (most of that paid as interest to CGB holders) - effectively 0.5% inflation (3/3) Q2: Development:  Community based development so usually 0 points for this, but currently has 2 effective and committed devs, so 1 point for that (1/3) Q3: Decentralization:  Less than 1K USD per day is required to soak up the new CGB being created. This is similar to other coins like QRK and IFC, but those coins don't solve the problem of blockchain security. CGB does - and in a very clever way. It uses proof-of-stake, effectively paying interest to CGB holders to secure the blockchain. Thus mining can be as decentralized as its ownership  (3/4) Verdict (7/10) – Potential for 500X returns. At the moment, it's a hidden gem. Sometime in the next 10 weeks, as the inflation rate falls to 0.5%, the market is going to pick up this coin in a big way.

MaxCoin MaxCoin has 30 seconds blocks, block rewards halving every year, a slightly different PoW, and Max Keiser's pumping. So just Max Keiser's pumping really. It'll be interesting to see how far a coin can get with just high profile pumping. This could be the biggest pump'n'dump ever. Q1: Inflation: Blocks rewards halving every year = rampant inflation for the forseeable future. I'm disappointed Max - I thought if anyone would understand the need to keep inflation under control, it would have been you.(0/3) Q2: Development:  Botched launch, same problems as Bitcoin with community development but without even the competent devs (0/3) Q3: Decentralization: GPU and ASIC miners guaranteed. Same centralization problems as Bitcoin. 1 point because Keccak ASIC might take a little while. (1/4) +1 Max Keiser hype Verdict (2/10) – Sorry about the brevity, but this is clearly a pump'n'dump designed to separate fools from their BTC. No long-term potential but who knows how big the bubble could get or when it will pop.

Zetacoin Zetacoin has 30 seconds blocks, 160 Million coins, 1 Million more added each year. Q1: Inflation: Zetacoin is nearly fully issued and will shortly go into low-inflation mode, with inflation running at 0.625% (3/3) Q2: Development:  Same problems as Bitcoin with community development (0/3) Q3: Decentralization: With fast block times and specialized hardware required, this coin almost looks designed to be centralized - so much so that it could be a feature rather than a drawback. I'm thinking it could be a good micropayments platform when Bitcoin becomes prohibitively expensive for small transactions. As cryptocurrencies proliferate, cryptocurrency as a movement becomes more decentralized and the need for any one cryptocurrency to be decentralized is smaller. (2/4) Verdict (5/10) – 10X Potential. This could be a potential micropayments platform. Attractive right now because it's nearly fully issued and moves to low inflation model shortly. Worth a punt.

FAQ: X Coin has fast confirmation times, why no points for that? I don't think confirmation time is important. When ordering via BitPay with Bitcoin, you'll get immediate confirmation. Retail merchants will offload the risk of double spends to third party processors - much better than asking folks to wait for a confirmation that may come in 30 seconds, or 30 seconds after that or . . .. - I'm more inclined to see very low block times as a negative because it weakens blockchain security for some cheap marketing that only impresses the naive.

-----

This is a living document - bookmark it now - I'll update with new coins, corrections, and as my view and the market changes. I'm also interested to hear what coins you think are good bets for the future - but don't just drop in the name of your coin - tell me, how does it answer the three important questions?

*nb I'll be deleting trolling and inflammatory posts - keep it civil please.

Hi freetrade, could you please add a timeframe to these prediction if possible.

[ltcifc]

Infinitecoin wallet updated. Also, extras added. Time for score change

[username here]

Hi freetrade, could you please add a timeframe to these prediction if possible.

Thanks for quoting the entire post again... Dick.

[Spekulatius]

What about those "Second Generation chains" like Nxt, Ethereum, Mastercoin, etc.? I think they really provide short term as well as long term (at least 2-3 years) potential. Also Zerocoin is on my watchlist with their expected launch sometime around May.

One important thing you may wanna add to your results as a criteria is "Features" I guess as many people value new chains because of their desired features that are promised to be implemented by them, such as in Protoshares or Infinity coin (not to mention the 2. generation coins). I would be happy if you could consider those as well.

[FreeTrade]

Hi freetrade, could you please add a timeframe to these prediction if possible.

No. What I've found in investment is that I nearly always predict the direction correctly, but never the timing. That's why I invest and not trade. I can't tell you what's going to double tomorrow - no-one can. I'm calling what has good medium term prospects.

There's an investment strategy that venture capitalist use to 10X their investment . . . invest in 10 companies that have 100X potential and expect 9 to fail, and 1 to succeed. That's the way to think about investing (not trading) in alts.

[shtako]

Unless you remove your own coin this thread have zero integrity.

[XbladeX]

What about those "Second Generation chains" like Nxt, Ethereum, Mastercoin, etc.? I think they really provide short term as well as long term (at least 2-3 years) potential. Also Zerocoin is on my watchlist with their expected launch sometime around May.

One important thing you may wanna add to your results as a criteria is "Features" I guess as many people value new chains because of their desired features that are promised to be implemented by them, such as in Protoshares or Infinity coin (not to mention the 2. generation coins). I would be happy if you could consider those as well.

Zerocoin as far i know it is not "Coin" just protocol implemented inside coin.
BTW Fedora lunched 1st coin mixing feature all others i think wait till they will copy it or Zerocoin protocool.

Some of second generation will succeed i think.
NXT for being thirst next gen not copied coin with unique 100% POS not mined.
If you look at NXT community(look at their forum eg.) its huge.
Emunie have unique approach to altcoins too.

[c@rl1t0]

What's your opinion about nxt coin?

[itsik78]

I had a nice short-term profit on MaxCoin.
Thank god I got out of it when I did The bubble is starting to burst.
I assume Mr. Keiser will get a few more spikes going but the general down direction is obvious.

[baddw]

I like your analysis.  There are a few other aspects that determine my views of a coin.  Mainly, mining.

I do not think that 100% POS coins are viable.  Whoever owns them at the start, becomes "rich".  The only way for the currency to spread is for the original owners to spend/trade it.  These coins become sort of a cartel; closely held by a few key players, none of whom can really trust each other not to devalue their holdings by selling them all off.  So they all have to slowly dispense their coins in order to maintain their "value" but not too slowly, because the market could crash at any time if one of the cartel members decides to liquidate.  A classic Mexican Standoff.  With no new coins being generated by outside parties, any "new blood" has to buy into it by trading something that has an extrinsic value, i.e. a value which is not determined by a cartel.  NXT falls into this category.

I think that a POS/POW combination system such as Peercoin is really interesting, and could have a viable place in the future crypto marketplace; or perhaps POS would simply be adopted by Bitcoin and others as an extra way of generating coins once mining income falls away.

I think that coins with alternative uses such as DNS (Namecoin) also carve out a viable niche.  Apparently this is the kind of thing that BitShares is going to get into, so I am excited to see where they go with their ideas.  Proof of ownership in general becomes an interesting idea.  I read an article suggesting that copyright and licensing could be integrated into a coin-like, peer-to-peer structure.  It would certainly be interesting if, for example, a computer game's DRM could be based on peer-to-peer software, and licenses for games could simply be "coins" traded in a marketplace; whoever shows up in the ledger as the "owner" of that game gets to play it.  But that ledger is not held by the developer, and is not subject to a single point of failure, e.g. Sony's servers go down and nobody gets to play their games for a few hours.

Of course this idea can be generalized to forms of tangible property as well; the idea of a public ledger denoting all transactions is found in every County Courthouse in the US, and the only way to determine 100% ownership of a piece of real property is to follow the ledger from the founding of the county, to the present day.  This is how title companies make their money, by maintaining their own ledgers (and researching from the public ledger when necessary) in order to provide a guarantee to a buyer that the seller actually owns the property.  It's kind of hilarious to me now that I've made this connection; Bitcoin is based on a centuries-old idea for proving ownership.

Other alternative uses include scientific computing enterprises such as Primecoin and Riecoin.  Hopefully this will be expanded to things such as Folding@Home and other similar endeavors.  People are already volunteering their computing resources for these purposes; it would only be fair to give them something in return, and it would be almost trivial to adapt an existing scientific computing platform into a coin "skin".

Now getting back to the mining bit... I think that the way that Bitcoin was/is mined/inflated is really a great model.  Maybe the most perfect implementation that we have.  Popular acceptance of a coin is to some extent based on the idea that it is "fair", that it is not extremely concentrated in the hands of a few individuals.  And I think that we have to face the fact that the first "popularity" that needs to be gained is within the cryptocoin community itself, which has a large proportion of miners.  And a "fair" coin has a lot greater chance of becoming popular among miners.

So, what determines "fairness"? 

(1) Choosing an algorithm that ideally is not CPU-only (which just gives botnets and AWS farmers a leg-up) but is also not tied to existing ASICs (so, at this point, not SHA256).  GPU-targeted mining is the way to win the hearts and minds of small miners, who IMHO are the "long tail" of the crypto community.... they may not have as much hashing power as the big guys; they aren't millionaires, and they know they're not going to become millionaires by mining (but they are non-trivially supplementing their normal incomes); but they are extremely numerous, fairly well-informed, and vocal.  These are the folks who form the initial community around a coin, and they can help or hinder the marketing aspects of the coin to a large degree.

(2) No or extremely small pre-mine. 

(3) Little chance of an "insta-mine", where difficulty is absurdly low for the beginning period and so much power comes to bear on the network that blocks are being generated every half-second, with tons of orphaned blocks.  Setting an appropriate initial difficulty level, and an appropriate block reward, and an appropriate difficulty-scaling algorithm are all very important here.   

(4) A fair and open launch, meaning: wallet, mining, and pooling software that functions properly at launch.

(5) A chance to mine over a fairly long period of time.  If 90% of coins are mined within the first 3 months after a coin's launch, you are going to have a hard time persuading miners to support the coin over the years to come.  A community can take some time to develop, and I think that a fairly high mining-inflation rate over the first several years is perfectly reasonable.  Again, I think that the BTC model is pretty darn good.

Riecoin did something interesting in its recent launch; the block reward for the first 500 or so blocks was 0.  This allowed all interested miners the chance to get up to speed, to make sure their wallet and mining software was working, etc.  The difficulty scaled normally during those first 500 blocks, so by the time actual coins started being produced, the difficulty was at an appropriate level for the network hashrate.

Bitcoin went through all the stages; CPU mining, GPU mining, FPGA's, now ASICs.  It had first-mover advantage, which is huge.  At this point, with the fiat investments put into BTC, I don't see it ever losing its lead.  We have "real-world" investment instruments based on BTC (private funds already exist, with the Winklevoss ETF supposedly coming soon), so I don't think there's any way to stop it now.

However, I do see there being a permanent place in the marketplace for niche coins, as explained above (such as Peercoin, Namecoin, etc.) and for different "denominations" of plain-jane coins (which is what I call coins with no notable added features).  So if BTC is the hundred dollar bills, LTC is the singles, and DOGE is the pennies.  Theoretically, this should not happen; after all, BTC is just some digits in a ledger, and it can always be sub-divided into smaller and smaller amounts. 

But at the moment, the BTC transaction fee is a show-stopper for microtransactions, where DOGE seems to have found a good foothold.  Nobody wants to pay a $0.06 transaction fee in order to send another person $0.10.  But that is where BTC stands today.  (And for good reason; preventing spam in the blockchain is, of course, a necessary step.)  But as long as there is some demand for a level of payment which would be considered spam in the BTC blockchain, there will be a place for a plain-jane, much-lower-valued cryptocurrency such as DOGE.

[zackclark70]

ADT is now fixed > https://bitcointalk.org/index.php?topic=440353.0

It would be awesome to here what you have to say about it and what you think should be improved