we will see who is right after nem launches..
We will see 6 months after it launches, that much is certain. Looking forward to it. Must be some really outstanding technology you've got there, wonder why virtually no one cares?
Liquidity Cannot Be DesignedLiquidity, which is required for anything to be used as a currency, cannot be built into a protocol. It does not matter how brilliantly designed an altcoin is and what cool features it has. Its value depends on a factor that is outside its designer’s control, something more characteristic of the “spontaneous order” of the market than an intrinsic property of the currency.
Bitcoin and the dollar have very different properties, so it is possible to explain Bitcoin’s success in competition with the dollar despite the network effect of the dollar in light of those different properties. However, cryptocurrencies do not have very different properties from one another, so there is very little basis to predict that an altcoin can successfully compete with Bitcoin. In the case of, for example, as Bitcoin and Litecoin, I see no evidence in reality or in my understanding of human psychology that investors should see the difference in their mining algorithms or confirmation times as remotely important. The factor of roughly twenty by which Bitcoin’s market cap outweighs Litecoin’s is by far the biggest difference between them. Right now Bitcoin is growing by supplanting the national currencies, but eventually will absorb the altcoins as well. Bitcoin will gobble up Litecoin at some point, but I do not know if it will be the appetizer or the dessert.
A new altcoin cannot survive with only a fraction of the cryptocurrency pie. It must defeat everything else to succeed, including Bitcoin. Since it begins at an extreme disadvantage with respect to Bitcoin, it cannot succeed with technology that is marginally superior to Bitcoin. It must be as significant an advance over Bitcoin as Bitcoin is over the dollar.
Analogy to Social NetworksFor currency investors, the network effect is absolute because it is impossible to buy bitcoins and some altcoin with the same money. This is why analogies to other network effects, such as that between social networks like Facebook and G+, are spurious. It is possible to leverage the benefit of Facebook and G+ at the same time. I can, for example, write a single status update and then post it to both social networks at almost no additional cost.
Furthermore, there is very little long-term investment in the use of a social network. New status updates lose all value in hours. Message boards come and go. All it takes is to ignore Facebook for a few weeks before there is little to draw one back to it. The network effect for social networks is therefore tiny compared to that of currencies.
Intellectually BarrenSo far, altcoiners have been able to continue creating and mining altcoins without having to justify themselves very clearly. The responses I have heard to my arguments against them have been terribly inadequate: I get either a non sequitur (“Scrypt is ASIC-resistant”) a misunderstanding of the network effect (as with Vitalik’s piece) or a vapid, inappropriate skepticism (“How can you be absolutely certain that Bitcoin will win?”3).
I have never even heard any positive argument for any altcoin that explains why a majority of Bitcoin investors should sell and buy the new coin, or why enough new investors should reject Bitcoin and invest in the new one, in spite of the enormous advantage that Bitcoin already has.
Altcoin Investment PsychologyThe present popularity of altcoins should be explained in terms of foolishness and hubris because it cannot be explained rationally.
As investors look at a new altcoin that has come out, they might think to themselves, “This cryptocurrency network is innovative, perhaps this means it will do well.” They might buy in at that point, or they might think a little harder and continue, “But wait. Bitcoin has the much larger network and is therefore objectively more useful as a currency than this new altcoin, despite its innovative features. If I decide to buy some, I would have to sell some of my bitcoins for it, so there is a real opportunity cost. Furthermore, the only way it can win is if all the other investors also switch. Will they or won’t they?”
At the same time, many of the other investors will be thinking the same thing. They will think about the fact that the rest are thinking it too. They will think, “
No reasonable person would expect this coin to have any but a small chance of success. But since it can only succeed if lots of people really believe in it, this ensures that it cannot be successful because if no one buys more than a small gamble, then its failure is virtually guaranteed.” If they stop thinking there, they will stick with Bitcoin.
However, they might also think something along the lines of, “It’s quite possible that this altcoin will have an extra jolt in price during the next Bitcoin mania because some people may buy it either because they were not intelligent enough to follow the same train of thought as me or because they too, like me, realize that it may attract people who can be preyed upon. However, that is a risky proposition because it will be hard to know if I am the one preying upon suckers or if I am a sucker myself.” They will then either buy it or not depending on their own confidence in their ability to predict the behavior of foolish people.
Thus, altcoin investment ends up as a dynamic interplay between people who have not thought very far ahead, and people who think they are taking advantage of other people.
The Bursting of the BubbleThe more that altcoiners are asked for valid self-justifications, and the more they are asked how their new coin will achieve liquidity, the less effective their arguments will become, the less hype they will be able to generate, and the less that people will buy them. To defeat the altcoin movement, keep warning newbies against them and insist upon relevant arguments every time an altcoiner tries to change the subject.
The irrationality that props up the prices of altcoins cannot continue indefinitely. As soon as enough investors learn to think far enough ahead to wonder who the sucker is, the prices of the altcoins will begin to drop inexorably. We can make this happen sooner than later. I would like to see a more concerted effort within the Bitcoin movement to demand valid answers and to denounce as charlatans those who cannot give them.
I don’t think it is right to let the altcoin bubble continue without trying to stop it. Altcoins will cause a lot of people to lose money and for a lot of people to make money who are not adding value. Many who are already invested will lose, but I would prefer at least that there will be no more.
Although I cannot be certain, and I am, like everyone, prone to wishful thinking, I think that there is some indication that the altcoin movement is playing itself out: it is no longer possible to generate any interest in a straight Bitcoin clone like Litecoin. It is now necessary to add either a lot of extra features, as is the case with Mastercoin and Ethereum, or simply to act outrageous, as with Dogecoin. Furthermore, it is ridiculously easy to create altcoins now: Coingen is a service that automatically creates altcoins to any specification, and which, amusingly, only accepts payments in Bitcoin. It was apparently created especially for the purpose of helping to discredit altcoins.
Legitimate Reasons for AltcoinsI don’t object to altcoins in themselves.
What I object to are the lies. There are legitimate reasons for altcoins, but none of them allow for real money to be made off of them. Altcoins should have little or no market value, but the distributed system as a whole can have value as an experiment or test of a possible upgrade to Bitcoin.
If you tell me this altcoin implements some cool new idea, then very well. But if you tell me it’s going to be the next big thing and that it’s a great investment, you’re lying. And if you believe it yourself, you’re lying to yourself.
The only reason that an altcoin should have any value at all is as an extreme speculation on the death of Bitcoin. Although it is impossible for an altcoin to beat Bitcoin on its own merits, it is theoretically possible that the Bitcoin community could destroy Bitcoin through its own foolishness. If that possibility should loom, then altcoins can do a valuable service by going up in value, thus alerting the Bitcoin community to reverse whatever it is doing.
Read more here:
http://themisescircle.org/blog/2014/03/14/the-coming-demise-of-the-altcoins/
