The Opportunity of Alt-Coins

Image credit: Flickr

Image credit: Flickr

by Adam B. Levine

There can only be one.  The Network effect is simply too strong.  Bitcoin has orders of magnitudes more adoption, acceptance and use compared to any other cryptocurrency on the market.  The game is over and Bitcoin won.

In order for an Alt-Coin to be successful, it has to be substantially better in multiple ways in order to attract current Bitcoin users.  It can’t just be as good or even a little better, it has to be much better and obviously so.

I used to believe those statements, and I think there’s a temptation to do just that when you’ve invested the time and money to understand and acquire Bitcoin.  I already bought my cryptocurrency; why would I want to jump through those hoops again for something even more speculative?

Since spring of 2013 I’ve worked on Bitcoin projects full time.  Everyone is excited and motivated, projects are cheap and can move from idea to reality with incredible speed.  It’s easy to forget that as a culture of early adopters, we represent less than .01% of global population.    The total market cap of our global Bitcoin economy is tiny compared to any other international commodity, and the reality is most people don’t know about  Cryptocurrency, what it is, or why they should care about it.

Now contrast that with a world where money as a whole is becoming more volatile, financial crises are commonplace, and periodic systemic disruptions shake individuals out of their daily routines- all of this making them ask questions that should not be asked.

Like why can’t our system function as we require it to?  Isn’t there a better way?

This is the opportunity of Alt-coins.

Yes, of course they can improve on what Bitcoin has created.

This is different than something like Facebook, where the act of leaving not only takes quite a bit of perseverance but comes at the cost of all the connections and content you’ve spent your time accumulating and creating while using their service.  This is the value you give up, and it turns upgrading into a choice carrying consequence and cost.

A substantially better product will almost always find its place in a market where the cost to move from one option to the other is cheap and easy.  Cryptocurrency to Cryptocurrency (Bitcoin to Litecoin for example) transactions are “frictionless;” what exchange fees exist are minimal, transactions are fast, and no identity is required.

But look beyond that- what I’m arguing here is that even a straight clone of Bitcoin could succeed if it were marketed to another sub-niche included in the 99.99% not currently using Bitcoin.     Yes, with a Bitcoin-using crowd you have to beat out features by a substantial margin- but if your cryptocurrency is the one first introduced to a large geographic or ideological sub niche, they would see all the innovations in that currency rather than Bitcoin and could develop into a parallel network that rivaled Bitcoin.

Primecoin is a great example of this.  Outside of its proof-of-work which generates somewhat useful strings of prime numbers rather than the non-useful SHA256 Bitcoin relies on, the changes to it are very superficial.  A slightly faster block time, a larger number of coins.

But Primecoin has that one nugget that solves a problem – How do you push science forward through pooled computation when there are only costs and no incentives beyond altruism?   Primecoin uses that work to generate a cryptocurrency, so now instead of only altruism you can leverage profit motive as well.

Suddenly people who don’t care about privacy or ease of transactions have a reason to care about Cryptocurrencies as they never have before.  The context makes it relevant, and in the short amount of time Primecoin has existed it’s actually broken a growing number of rather abstract world records in the Prime-Strings space.

What would happen if Popular Science covered Primecoin?   It’s no longer about speculating; people with computers can assist in the useful mining process and those wanting to support their work can “donate” by buying the resulting Primecoins and increasing the amount of value in the network.

In my estimation, the stillbirth of Altcoins has been grossly exaggerated.  Declaring a victor in the battle for the future of money is like looking at a ward full of infants and picking the future presidents; we just don’t know yet, and any attempt to make such a judgement will not only be wrong but likely ruin the chosen one’s chances.

We live in a world of one size fits all solutions that fit hardly anyone well.  My strategy is to keep an open mind and pay attention to each individuals merits as they make themselves known.  There is no assumed winner, there might never be, and I’m increasingly thinking that is a good thing.

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By Adam B. Levine
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25 October 2013 at 6:10am[…] The Opportunity of Alt-Coins ( ...Cryptocurrencies: Are they here to stay? Bitcoins, Litecoins & Alternative coins | Forex Auto Trading Singapore
  • Stephen Gornick

    The difference that matters between Bitcoin and any other proof-of-work based altcoin isn’t in the “branding”, or community, etc, whatever. The difference is … does the alt coin have the hashing capacity necessary to prevent a 51% attack.

    Litecoin seemed to be reaching a point that its hashing capacity might be sufficient but growth in hashing there has stalled.

    If (when) there is a way to trade a few million dollars worth of LTC for BTC (or other non-reversible payment) the risk of a 51% attack on Litecoin increases significantly. So far, none of the successful 51% attacks on altcoins (yes, that is plural, successful attacks) haven’t caused losses of significant funds at the exchanges, but anyone leaving funds at these exchanges is taking a risk of losing their funds if (when) the exchange gets stuck holding the bag after a 51% attack — regardless of which alt currency the attack had been performed against.

  • Let’s Talk Bitcoin!

    I don’t disagree with you, but I do think you’ve missed the point a little bit. Nilam Doctor, one of the candidates for the foundation board is developing a new alternative cryptocurrency that will be local to marikesh. Because of the high relative fees of Bitcoin compared to the value of their average transaction it makes no sense for them to use Bitcoin, but a cryptocurrency they can tailor to their local needs? That’s just the ticket!

    This is the sort of opportunity I’m talking about. You could see a TitheCoin emerging that is developed as a Bitcoin that is adopted en-masse by practitioners of a religion because the leader asks for payment in it. This is an extreme example, but there is nothing preventing it.

    These cultural currencies I think you’ll find won’t have a problem with distribution because they’ll bootstrap much more quickly than Bitcoin did.

    The important takeaway is don’t judge the Altcoins of the future by looking at the altcoins of now.

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  • Stephen Gornick

    Certainly innovations will continue. But Bitcoin is risky yet and all alts today make the value of Bitcoin look as safe as treasury securities in comparison. I’ld hate to see an alt ride on Bitcoin’s coat tails but without being protected like Bitcoin is and then end up with its user base suffering losses if it gets hit with a 51% attack.

    Ripple and/or Open Transactions might be a better platform for these alts you describe. Or if it is a community currency like the Bristol pound there is software like Cyclos (community currency accounting system) might be a better fit than a proof-of-work based design like Bitcoin’s.

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  • David R. Sterry

    This post brings up the excellent point that there are a lot more non-users of any cryptocurrency than there are users of any of them. This point, like many, only comes up when people start thinking seriously about a world with more than one coin.

    The other day I realized that the same ECDSA keypair that creates a Bitcoin address can generate any other kind of coin address as well…and it works. I’m told by Bitcoin developers that some people have used the same keys on many coins’ networks. I would encourage more people to think about how the world will be when many coins are widely used and how to make the experience easier in that case. For example, this idea of one key that works across chains means a heirarchical deterministic tree can be used to manage a single wallet with great granularity across every compatible cryptocurrency that exists or may exist in the future.

    It’s an exciting time to be sure.

  • ikilled

    I agree with Stephen.
    I.E. a government (or extremist religious group) could destroy TitheCoin with 51% attack because it will have very low hashing power.

    The world is becoming more and more a winner-takes-it-all game (as Nassim Taleb wrote in Black Swan)

  • Let’s Talk Bitcoin!

    If it shares a hashing algorithm with Bitcoin yes, that’s true. If it uses another algorthm, I don’t think that’s true. With a standard cryptocurrency you have a very hard time bootstrapping, but with niche-specific alts that target idealogical or geographic subniches you’d go from zero to sixty much faster than we’ve seen alts do so far. They make the mistake of marketing to people who already have Bitcoin, that’s not true for the vast majority of people out there.

    Tithecoin could be proof of stake, or a demmurage based currency. The point is it would have a market in a way that Freicoin or Ppcoin haven’t found because it would have be solving a problem that already exists (local conditions) rather than searching for a group who need that problem solved.

  • sull

    Interesting thought with the so-called TitheCoin. Just for fun, i’ll play along.

    Imagine instead, a Church (religious group) pre-mined them and in exchange for fiat money donations, they would give some denomination of tithecoins which would be useful within their church’s community for simple goods, time and loans etc. That almost makes more sense in a twisted world that may not be far off ;-)

  • sull

    It’s as if…. the core intrinsic value of bitcoins will become moot… a base value that spans across any crypto-coin. And what increases the value on top of that base layer are other attributes not of the design of protocol, algorithms and cryptology but rather of influential cultural niches, trends and external technology advancements not directly related to the crypto-currency itself. Different merits. A variety of values depending on how the world sees fit.

  • Jon

    Let’s Talk About Anything BUT Bitcoin

  • Let’s Talk Bitcoin!

    40+hrs of free content about Bitcoin currently available from the people at LTB :) In the end though, it’s about Cryptocurrency not Bitcoin. Bitcoin is just the first major one, not the last.

  • Jon

    So may I ask continue with the LTB title when you just stated that the show isn’t about Bitcoin. Much like altcoins you mentioned, your show is now riding on the coattails of Bitcoin. You speak as if your conclusion is already foregone.

    The quality of the content has drastically gone down hill over the past few months. This post + yesterday’s podcast proves to me you are a hindrance to Bitcoin.

  • Let’s Talk Bitcoin!

    I (Adam) have been very up-front about my decision making process. I look at all the evidence available, I make my best judgement based on that. If new evidence becomes available, I look at all the evidence including the new addition and make my best judgement based on that. Do you prefer people pretend they shouldn change their mind when reality dictates?

    I’m not saying Bitcoin is going to fail, but I certainly don’t think it’s guaranteed to succeed. Win, lose or draw Bitcoin is the sacrificial lamb of cryptocurrencies and whatever fate befalls it will inform cryptocurrency being created afterwards. Do you not agree that we’re in a period of uncertainty which could go either good or bad?

    We’re finally almost through the conference backlog and will be shifting strategies on the show so the show is host + interviews ALL THE TIME rather than having too much material from a single event. Event coverage will be going somewhere besides the show. I’d love some detail about what I’m hindering, and what didn’t you like about yesterdays podcast?

  • Let’s Talk Bitcoin!

    Ok I think I figured it out – By “Quality” do you mean that I ran an interview with a guy from Feathercoin on e40?

    I thought the conversation with Marc was really interesting, and the feathercoin piece was instructive in a variety of capacities not the least of which that apparently all the alts in UNOCs have no differences besides which markets their developers have chosen to specialize in. Those interviews were recorded over a month ago, the fact it was released near this article about altcoins was total coincidence as I work through all the piece from the conference in the “To Air” pile.

    If you’re looking for me to say Bitcoin is the only cryptocurrency that can ever succeed and its success is guaranteed, let me happily be a hindrance because I don’t believe that’s true.

  • Winslow Strong

    Adam, don’t take this troll too seriously. The problem with using comments as feedback is that comments select for the most extremal viewpoints.

  • Let’s Talk Bitcoin!

    When people tell me yes I have little to say, when people tell me no it’s a challenge.

    I like a challenge. Your point is heard.

  • Jon

    Let’s use that interview as an example. If you actually listen to the answers he gives, you’ll hear him say nothing of substance. It was all fluff answer or subtle attacks on Bitcoin (re: trolls – we have no trolls over here rubbish). I don’t think anything could be more grass roots than Bitcoin but apparently only Feathercoin is.

    I’m not looking for you to say anything other than at least have the courtesy to stick to the title of the show/webpage instead of detouring and giving these hucksters air time and legitimacy.

    If you really want to be transparent, why not let listeners know if you all have a financial position in the altcoins you discuss.

  • Jon

    Just because someone doesn’t agree with you doesn’t mean it’s trolling albiet it’s the best retort people seem to have when it comes to discussing altcoins in an honest fashion.

  • sull

    Guess what…. altcoins use the Bitcoin protocol. What else is their to say?

  • Let’s Talk Bitcoin!

    If you listen to the show you’ll be familiar with my stance. Let’s Talk Bitcoin is a platform for people active in the cryptocurrency space making things happen, we spoke with J.R. Willets last week about Mastercoin, a metacoin layer on top of Bitcoin – By your definition we should not have interviewed him either when I think that was an incredibly interesting look at what could be an enormous innovation.

    You may think they’re hucksters, but If you’re a listener you’ll recognize the style of interview was very characteristic. It’s not that hard questions weren’t asked, it’s just that they weren’t answered in the way you want. Next week I have an interview with the team behind, they definitely have a product they want to sell and yet they’re also the experts in what is an interesting space that many of our listeners are actively want us to talk about. By your standard do I listen to interviews after the fact to determine if the interviewee did “too good a job” of answering the questions before OKing it to run?

    We don’t make value judgements. We ask the questions, but can’t control the answers. I think you’ll agree we tend to ask followups and dig into issues yet we are not rude.

    I didn’t say I wanted to be transparent? We have more than 90% of our assets in Bitcoin, most of the rest in Litecoin and last week recieved 100 feathercoins from our #1 listener on Soundcloud. Want to disclose your financial holdings?

    I don’t think you’re a troll, I just think you’re looking at a fluid situation with a rigid and stationary worldview. Things are and will continue to change, and it would be a disservice to pretend otherwise. Bitcoin sparked the cryptocurrency revolution but asking us not to talk about Altcoins or any other interesting and relevant innovation to the future of money is like asking a miner to never upgrade their hardware.

    A recipe for obsolescence and uselessness.

    Thanks for listening

  • Let’s Talk Bitcoin!

    I think I have some pretty compelling retorts. Your primary argument seems to be I shouldn’t be talking about Altcoins because my brand is Let’s Talk Bitcoin! Is that what you consider discussing altcoins in an honest fashion?

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