rpietila Altcoin Observer

[dewdeded]

http://yro.slashdot.org/story/14/11/26/2121214/bitcoin-is-not-anonymous-after-all

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[lebing]

http://yro.slashdot.org/story/14/11/26/2121214/bitcoin-is-not-anonymous-after-all

Honestly who uses the desktop client to send transactions anyway? Obviously this does not apply to services like coinbase, blockchain.info, etc.

[jehst]

That said, there *are* potential niches to be filled by alt-coins. The only one I can clearly identify is anonymity. It's clear that bitcoin does not offer meaningful anonymity unless the user is technically skilled enough and motivated enough to obfuscate their transaction chains sufficiently. Furthermore, bitcoin is becoming a global asset class, fit for corporate balance sheets and HNW portfolios. It's also obviously seeing high-profile merchant adoption, and tacit acceptance/approval by various governments and regulatory bodies. If bitcoin offered technically pure anonymity that required zero user effort, governments would probably be a lot more directly hostile towards it. Thus, it seems unlikely that the bitcoin community would embrace full-anon tech in bitcoin core; lest governments react harshly and reduce existing ecosystem investment value dramatically.

So that leaves the anonymity niche open to an alt. As I've previously noted, ever since Zerocoin was published, I thought that when it came out as a functional implementation, it'd be the first actually interesting alt-coin. Well, it looks like these CryptoNote coins have beaten it to the punch of functional anonymity. Which CN coin will win is a different matter. XMR seems out in front, but the waters are muddy still.

I don't see any other obvious niches for alts. Turing completeness is interesting in theory, but I wouldn't trust the security of such a chain for a quite a while, and much of the benefits may be possible in bitcoin anyway. Other than that.... ?

I believe there will be room for another niche. I will call it a "catastrophic hedge niche." This niche would be filled by a coin that would be a hedge against some sort of crippling vulnerability in bitcoin. This coin would need to meet three main requirements:   1) high liquidity, 2) a different codebase, and 3) a different hashing algorithm in( addition to the general requirements of no-premines, instamines, and a fair distribution).

Litecoin partially qualifes based on its high liquidity and different hashing algorithm, but shares basically an identical codebase with bitcoin. Therefore, It fails.

Counterparty uses the bitcoin blockchain so it also fails.

Namecoin, Dogecoin, and Darkcoin use the bitcoin/litecoin codebases so they fail as well.

Peercoin passes (questionably). Peercoin, being a proof-of-stake coin is a hedge against a PoW failure. It has good liquidity and a different codebase. However, a crippling potential weakness has already been identified with pure proof-of-stake coins, which is the "nothing at stake" attack. I am not technically minded enough to say whether this attack vector can be eliminated, but Vitalik Buterin and others have described some potential ways to minimize this problem, so I won't rule Peercoin out as potential leader in the catastrophic hedge niche on this ground.

Another issue is the fastmine:
"Currently, as of April 22nd, 2014, Peercoin has 21,343,191 coins in existence. One really has to look at how nearly 4 million Peercoins were created in the week of August 16-23rd, which comprises nearly 20% of the coins in existence nearly 16 months later."
http://www.devtome.com/doku.php?id=a_massive_investigation_of_instamines_and_fastmines_for_the_top_alt_coins#peercoin1

A fastmine is not a pre-mine or an instamine and Peercoin seems to have retained legitimacy despite the fastmine. So I'm going to let Peercoin pass.

NXT, Ethereum, Ripple and Fuelcoin are all pre-"mined"(centrally distributed), so they fail.

Again, we come to XMR. Good liquidity. Different codebase. Different hashing algorithm.  Pre-mine? None. Thus, XMR meets all three requirements, and isn't disqualified on other grounds. It is second only to Peercoin because of Peercoin's superior liquidity. XMR also lacks the PoS "nothing at stake" attack vulnerability.

A potential issue with XMR is blockchain bloat which is a potential threat to scalability. However, ever cheaper storage, ever cheaper RAM, lightweight clients, and other developments will lessen this problem. Thus, I will let XMR pass.

I am not considering other altcoins as serious candidates due to inferior liquidity.

Conclusion: Currently, only Peercoin and XMR can serve as legitimate catastrophic hedges. We can see that XMR is not only a very strong candidate to be #1 in the privacy niche, but also a very strong candidate to be #1 in the catastrophic hedge niche. A small proportion of funds in XMR will occupy two important niches at once (neither of which can be adequately addressed by bitcoin). If we assume that these two niches together should account for 5% of the total cryptocurrency marketcap, XMR seems to be an incredible expected value (EV) play.

[vlight]

jehst, what's your opinion on BitShares?

[dewdeded]

http://blog.cryptographyengineering.com/2014/11/zero-knowledge-proofs-illustrated-primer.html

[David Latapie]

XfMR (first) and PPC (second) as fit for the "catastrophic hedge niche."

Very well written. Kudos.

[wpalczynski]

Well written indeed.  I largely feel the same way about what he wrote, however it would be interesting to hear some counter arguments.

XfMR (first) and PPC (second) as fit for the "catastrophic hedge niche."

Very well written. Kudos.

[numismatist]

Litecoin partially qualifes based on its high liquidity and different hashing algorithm, but shares basically an identical codebase with bitcoin. Therefore, It fails.

Counterparty uses the bitcoin blockchain so it also fails.

Codebase? Seriously?  
... most customers/users could not even differentiate between two codebases. And when does a codebase qualify as beeing sufficiently different, at all? And for what exactly?

That argument ... fails. And what exactly is a "PoW failure"? And why is "nothing at stake" ... "a crippling potential weakness"? Either is is crippling, or it is potential. Cannot have both.

[dewdeded]

jehst:
I think you should do more, deeper and real research on cryptocurrency in general and the altcoin enviroment (incl. at least trying to understand technical backgrounds and how to rate the devs and community behind a coin) before trying predict chances of success of so many different coins and technologies, you talk about in your post.
You made alot very general statements, mostly without giving any reasons for your argument.

To me, it looks like you read some general altcoin news pages and some threads here and now repeated some standard arguments, you heard there. You didn't mentioned any kind of (simple) scientific instrument or methods of analysis you used during your research work (to create valid arguments and reasonings). Some stuff you wrote is ridiculous incorrect and shows you don't really know what you are talking about.

BTW, a currency lives through usage, no coin will just survive on being an "catastrophic hedge" against an BTC failure. There are other tools and ways to do that.
I think this catastrophic hedge-scenario isn't even worth discussing. (It was discussed in 100.000 threads before here on this board. Just research there.)

(No personal attack or hate, just a comment    to improve level of discussion.)

[turtoro]

jehst:
I think you should do more, deeper and real research on cryptocurrency in general and the altcoin enviroment (incl. at least trying to understand technical backgrounds and how to rate the devs and community behind a coin) before trying predict chances of success of so many different coins and technologies, you talk about in your post.
You made alot very general statements, mostly without giving any reasons for your argument.

To me, it looks like you read some general altcoin news pages and some threads here and now repeated some standard arguments, you heard there. You didn't mentioned any kind of (simple) scientific instrument or methods of analysis you used during your research work (to create valid arguments and reasonings). Some stuff you wrote is ridiculous incorrect and shows you don't really know what you are talking about.

BTW, a currency lives through usage, no coin will just survive on being an "catastrophic hedge" against an BTC failure. There are other tools and ways to do that.
I think this catastrophic hedge-scenario isn't even worth discussing. (It was discussed in 100.000 threads before here on this board. Just research there.)

(No personal attack or hate, just a comment    to improve level of discussion.)

Lets be real. If there is a catastrophic breakdown with btc then all cryptos will be degraded for at least 3-5 years. Both the faithful followers and the layman investors will be scared to the core of their bodies. The media onslaught will be like a tsunami. By the time the smoke settles and faith/confidence restored years later,  there will be a completely new set of innovations in the space that will be 3-5 years ahead of xmr.

I dont buy the catastrophe argument for one minute. If btc has a major flaw, the space will be stagnant in terms of investment for many year after.

[jehst]

jehst:
I think you should do more, deeper and real research on cryptocurrency in general and the altcoin enviroment (incl. at least trying to understand technical backgrounds and how to rate the devs and community behind a coin) before trying predict chances of success of so many different coins and technologies, you talk about in your post.
You made alot very general statements, mostly without giving any reasons for your argument.

To me, it looks like you read some general altcoin news pages and some threads here and now repeated some standard arguments, you heard there. You didn't mentioned any kind of (simple) scientific instrument or methods of analysis you used during your research work (to create valid arguments and reasonings). Some stuff you wrote is ridiculous incorrect and shows you don't really know what you are talking about.

BTW, a currency lives through usage, no coin will just survive on being an "catastrophic hedge" against an BTC failure. There are other tools and ways to do that.
I think this catastrophic hedge-scenario isn't even worth discussing. (It was discussed in 100.000 threads before here on this board. Just research there.)

(No personal attack or hate, just a comment    to improve level of discussion.)

I think you should do more, deeper and real research on cryptocurrency in general and the altcoin enviroment (incl. at least trying to understand technical backgrounds and how to rate the devs and community behind a coin) before trying predict chances of success of so many different coins and technologies, you talk about in your post.

Although I talk about many coins in my catastrophic hedge post, the scope is extremely limited. The requirements are very clear: no pre-mine/insta-mine, good liquidity, different codebase, different hashing algorithm. Nearly all coins are clearly disqualified on one of these grounds. I admit that I have not done any deep research on most of the coins, but I am not going to do any "deeper research" on any pre-mined/IPO shitcoin, for example. If it fails to meet the requirements, then it's immediately out of consideration. If it meets the requirements in the future, I will reconsider it.

a currency lives through usage, no coin will just survive on being an "catastrophic hedge" against an BTC failure.

A currency lives on for one reason and one reason only. Supply and demand. This is why I made "liquidity" a requirement. Liquidity is a proxy for demand. The coin wouldn't be valued if it didn't have demand and a limited supply. I do not need to examine what the coin is being used for, nor am I saying that any of these coins won't have other uses besides being a catastrophic hedge.

[jehst]

Lets be real. If there is a catastrophic breakdown with btc then all cryptos will be degraded for at least 3-5 years. Both the faithful followers and the layman investors will be scared to the core of their bodies. The media onslaught will be like a tsunami. By the time the smoke settles and faith/confidence restored years later,  there will be a completely new set of innovations in the space that will be 3-5 years ahead of xmr.

I dont buy the catastrophe argument for one minute. If btc has a major flaw, the space will be stagnant in terms of investment for many year after.

If bitcoin has a catastrophic failure, bitcoin will be patched and the blockchain will be rolled back to a safe date. It's not going to take years. However, there will be a significant shakeup of the market, including a reordering of alts. The coins that were least affected by the exploit will do better than those that were. If, for example, bitcoin ends up switching to a different hashing algorithm/codebase more similar to Peercoin or XMR in the patch, then we might see Peercoin or XMR increase in value by an order of magnitude, overtaking other alts which lack the staying power of bitcoin. That's a real possibility. I believe that speculators will be prepared to hold qualifying coins for the chance at achieving those sorts of gains.

BTW, bitcoin has already experienced major flaws, including a fatal exploit where anyone's bitcoin could be spent by anyone. It was fixed.

[turtoro]

Lets be real. If there is a catastrophic breakdown with btc then all cryptos will be degraded for at least 3-5 years. Both the faithful followers and the layman investors will be scared to the core of their bodies. The media onslaught will be like a tsunami. By the time the smoke settles and faith/confidence restored years later,  there will be a completely new set of innovations in the space that will be 3-5 years ahead of xmr.

I dont buy the catastrophe argument for one minute. If btc has a major flaw, the space will be stagnant in terms of investment for many year after.

If bitcoin has a catastrophic failure, bitcoin will be patched and the blockchain will be rolled back to a safe date. It's not going to take years. However, there will be a significant shakeup of the market, including a reordering of alts. The coins that were least affected by the exploit will do better than those that were.

This is technically true. I was referring to market perception. ANY major flaw in the protocol will have disastrous implications for all cryptos. While the tech savvy  might understand that the issue can be managed and fixed, the public at large will have a major reason to dismiss it. Seeing as market adoption is the next hurdle to overcome, a shakeup of the scale we are talking about would set the space back for more time than you are assuming. Btc is fragile as it is, everything underneath is x10 more fragile. We can do all the T.A and tech discussion we want to, but adoption/market confidence is ~90% of future value.

Edit:

BTW, bitcoin has already experienced major flaws, including a fatal exploit where anyone's bitcoin could be spent by anyone. It was fixed.


This all happened before bitcoin came into the public consciousness. What would happen if this occurred today?

I stand by my argument. If Biitcoin loses faith, there is no hedge because faith will be lost on all cryptos in the mainstream market (for some time)

[jehst]

Lets be real. If there is a catastrophic breakdown with btc then all cryptos will be degraded for at least 3-5 years. Both the faithful followers and the layman investors will be scared to the core of their bodies. The media onslaught will be like a tsunami. By the time the smoke settles and faith/confidence restored years later,  there will be a completely new set of innovations in the space that will be 3-5 years ahead of xmr.

I dont buy the catastrophe argument for one minute. If btc has a major flaw, the space will be stagnant in terms of investment for many year after.

If bitcoin has a catastrophic failure, bitcoin will be patched and the blockchain will be rolled back to a safe date. It's not going to take years. However, there will be a significant shakeup of the market, including a reordering of alts. The coins that were least affected by the exploit will do better than those that were.

This is technically true. I was referring to market perception. ANY major flaw in the protocol will have disastrous implications for all cryptos. While the tech savvy  might understand that the issue can be managed and fixed, the public at large will have a major reason to dismiss it. Seeing as market adoption is the next hurdle to overcome, a shakeup of the scale we are talking about would set the space back for more time than you are assuming. Btc is fragile as it is, everything underneath is x10 more fragile. We can do all the T.A and tech discussion we want to, but adoption/market confidence is ~90% of future value.

Currency crises happen all the time. I agree that bitcoin is very fragile, but look at what happened with MTGOX. The market shat itself, but then recovered. In the aftermath, the exchange rankings were shaken up. This is not the same as a problem with the protocol, but eventually bitcoin's going to get big enough where a temporary issue with the blockchain will play out similarly. The public at large is eventually going to hear about a bitcoin crisis and go "Oh, again? Whatever." the same way they hear about a crisis with Russian ruble or Argentinian peso.

[turtoro]

Lets be real. If there is a catastrophic breakdown with btc then all cryptos will be degraded for at least 3-5 years. Both the faithful followers and the layman investors will be scared to the core of their bodies. The media onslaught will be like a tsunami. By the time the smoke settles and faith/confidence restored years later,  there will be a completely new set of innovations in the space that will be 3-5 years ahead of xmr.

I dont buy the catastrophe argument for one minute. If btc has a major flaw, the space will be stagnant in terms of investment for many year after.

If bitcoin has a catastrophic failure, bitcoin will be patched and the blockchain will be rolled back to a safe date. It's not going to take years. However, there will be a significant shakeup of the market, including a reordering of alts. The coins that were least affected by the exploit will do better than those that were.

This is technically true. I was referring to market perception. ANY major flaw in the protocol will have disastrous implications for all cryptos. While the tech savvy  might understand that the issue can be managed and fixed, the public at large will have a major reason to dismiss it. Seeing as market adoption is the next hurdle to overcome, a shakeup of the scale we are talking about would set the space back for more time than you are assuming. Btc is fragile as it is, everything underneath is x10 more fragile. We can do all the T.A and tech discussion we want to, but adoption/market confidence is ~90% of future value.

Currency crises happen all the time. I agree that bitcoin is very fragile, but look at what happened with MTGOX. The market shat itself, but then recovered. In the aftermath, the exchange rankings were shaken up. This is not the same as a problem with the protocol, but eventually bitcoin's going to get big enough where a temporary issue with the blockchain will play out similarly. The public at large is eventually going to hear about a bitcoin crisis and go "Oh, again? Whatever." the same way they hear about a crisis with Russian ruble or Argentinian peso.

I hear what you are saying, its late on my side so forgive me if I am succinct in my response:

1: Crypto is no longer at the MTgox stage. It was still a relatively isolated and insular market in 2013. If something like that happens a few years down the line, affecting the core, it would be devastating with market confidence of a new and untested technology being shattered.

2: The larger bitcoin gets, the more a flaw has on the daily economics of business/personal, the MORE a temporary issue with the blockchain will impact users and cause them to lose confidence. A system handling billions of dollars a day in transactions will be affected by the smallest sneeze.

3: Its disingenuous to compare the RBL and Peso to bitcoin. Because bitcoin is inherently decentralized  and trust less, this inherently assumes that faith is absolute. If that faith is shattered for any reason, without the back stop of a "trusted"  centralized authority to fix the issues, what makes the average person follow crypto rather than a central bank?

[jehst]

I hear what you are saying, its late on my side so forgive me if I am succinct in my response:

1: Crypto is no longer at the MTgox stage. It was still a relatively isolated and insular market in 2013. If something like that happens a few years down the line, affecting the core, it would be devastating with market confidence of a new and untested technology being shattered.

2: The larger bitcoin gets, the more a flaw has on the daily economics of business/personal, the MORE a temporary issue with the blockchain will impact users and cause them to lose confidence. A system handling billions of dollars a day in transactions will be affected by the smallest sneeze.

3: Its disingenuous to compare the RBL and Peso to bitcoin. Because bitcoin is inherently decentralized  and trust less, this inherently assumes that faith is absolute. If that faith is shattered for any reason, without the back stop of a "trusted"  centralized authority to fix the issues, what makes the average person follow crypto rather than a central bank?

1. Years from now,  after bitcoin has "died" 5+ times, the market is going to react less and less to new "deaths."

2. I think it's the opposite. The more money there is in bitcoin, the more motivated we (as bitcoin holders) will all be to develop a solution and find consensus.

3. I don't have absolute faith in the current protocol. I have faith that some group of developers somewhere  (if not the core devs) will provide a fix and a suitable fork for any issue. In contrast, I have much less faith that the Argentinian government won't collapse within a few decades making the peso worthless.

I think we've made our positions clear on this issue. We'll have to disagree on what will happen if a crippling flaw occurs. We're getting off-topic.

[turtoro]

I hear what you are saying, its late on my side so forgive me if I am succinct in my response:

1: Crypto is no longer at the MTgox stage. It was still a relatively isolated and insular market in 2013. If something like that happens a few years down the line, affecting the core, it would be devastating with market confidence of a new and untested technology being shattered.

2: The larger bitcoin gets, the more a flaw has on the daily economics of business/personal, the MORE a temporary issue with the blockchain will impact users and cause them to lose confidence. A system handling billions of dollars a day in transactions will be affected by the smallest sneeze.

3: Its disingenuous to compare the RBL and Peso to bitcoin. Because bitcoin is inherently decentralized  and trust less, this inherently assumes that faith is absolute. If that faith is shattered for any reason, without the back stop of a "trusted"  centralized authority to fix the issues, what makes the average person follow crypto rather than a central bank?

1. Years from now,  after bitcoin has "died" 5+ times, the market is going to react less and less to new "deaths."

2. I think it's the opposite. The more money there is in bitcoin, the more motivated we (as bitcoin holders) will all be to develop a solution and find consensus.

3. I don't have absolute faith in the current protocol. I have faith that some group of developers somewhere  (if not the core devs) will provide a fix and a suitable fork for any issue. In contrast, I have much less faith that the Argentinian government won't collapse within a few decades making the peso worthless.

I think we've made our positions clear on this issue. We'll have to disagree on what will happen if a crippling flaw occurs. We're getting off-topic.

Well, I dont think its off topic because it goes back to your "catastrophic event" theory. Which is an interesting theory nonetheless and merits discussion.

I agree. Lets let other people chime in if they have an opinion.

[smooth]

I think the catastrophic event hedge makes some sense, but you have to define catastrophic event more broadly and it could be the sort of thing that happens in slow motion, as opposed to waking up one day and finding out that Bitcoin has been hacked (which I agree would likely just be fixed).

I view issues as catastrophic dysfunction of the development process, catastrophic failure of fungibility, catastrophic loss of decentralization (arguably has already happened, though likely is not irreparable quite yet), or even catastrophic damage to the brand (an entirely cultural and not technical issue) as being the sorts of failures that could lead to a somewhat different cryptocurrency becoming dominant. None of these happen overnight, and in fact might be more likely to happen at all if they happen slowly (boiled frog). Failure of scalability also possible, but I mention it separately from the above list since there is strong overlap with the first and third items.

As long as the possibility of network-specific failure exists -- for whatever reason technical or otherwise -- the concept of hedging has validity.

Only the failure of the brand is effective hedged with something like LTC or DOGE.

[jehst]

I view issues as catastrophic dysfunction of the development process, catastrophic failure of fungibility, catastrophic loss of decentralization (arguably has already happened, though likely is not irreparable quite yet), or even catastrophic damage to the brand (and entirely cultural and not technical issue) as being the sorts of failures that could lead to a somewhat different cryptocurrency becoming dominant.

Yes. There could easily be a situation where different governments start blacklisting coins and trying to become gatekeepers. This might happen somewhat slowly at first and then more quickly if bitcoin is seen as a threat in countries with weaker currencies. Slowly, and then perhaps increasingly quickly, speculators and users will start rebalancing their money into unblacklistable crypos. This might not result in bitcoin losing its #1 spot, but it will result in a crippling of bitcoin. And it may mean that an unblacklistable coin increases 10x in value.

This is distinct from the privacy niche.

[aminorex]

I view issues as catastrophic dysfunction of the development process, catastrophic failure of fungibility, catastrophic loss of decentralization (arguably has already happened, though likely is not irreparable quite yet), or even catastrophic damage to the brand (and entirely cultural and not technical issue) as being the sorts of failures that could lead to a somewhat different cryptocurrency becoming dominant.

Yes. There could easily be a situation where different governments start blacklisting coins and trying to become gatekeepers. This might happen somewhat slowly at first and then more quickly if bitcoin is seen as a threat in countries with weaker currencies. Slowly, and then perhaps increasingly quickly, speculators and users will start rebalancing their money into unblacklistable crypos. This might not result in bitcoin losing its #1 spot, but it will result in a crippling of bitcoin. And it may mean that an unblacklistable coin increases 10x in value.

This is distinct from the privacy niche.

That is closely related to the fungibility crisis hedge scenario.  The fungibility crisis is only possible in jurisdictions deriving from English common law.  Those are the jurisdictions, coincidentally, where private currencies are generally accepted and acknowledged by the legal system.  The threat you describe is already manifest, IIRC, under the military dictatorship in Thailand.