At the first Bitcoin conference I ever attended, which took place in San Jose in 2013, I encountered Bitcoin bigotry. ASIC mining had begun, and those mining on home computers were switching to Litecoin. Although the altcoin mania was in full bloom, I was at a Bitcoin conference, and it was clear that many long-time bitcoin holders perceived altcoins as a threat. For them, it was all about the network effect, and any service poaching from the Bitcoin user base was not viewed favorably.
Fast forward two years, and I too am weary of most altcoins. Not because I don’t like altcoins, but because there are just too #[email protected]*! many. Spending much of the day just keeping up with Bitcoin developments, I find it difficult to keep track of new altcoins.
Bitcoin is the king, but altcoins deserve credit for three reasons
Altcoins allow for experimentation in proof-of-work mining algorithms, proof-of-stake security algorithms, graphical interfaces, and other network parameters, such as inflation and deflation rates, initial distribution models, premine percentages, distribution schemes, difficulty adjustment algorithms, block sizes, block speeds, API extensions, and decentralized trading platforms. These experiments are wide ranging. Even extreme choices teach us something about where the limits of coin parameters may lie. A diverse exploration of parameter choices now will lead to optimized cryptocurrencies later.
I, along with my nation’s founders, believe in financial privacy, and altcoins can help. Bitcoin faces the privacy implications of a fully visible transaction log, existing forever, with transactions and addresses permanently recorded. Several altcoins have sought to address this issue. Without great care, your addresses can be linked together and your privacy lost. The transactions will be permanently recorded like an unfortunately tagged, public Facebook photo.
And finally, altcoins provide diversification -- an escape route, and backup plan in the unlikely event that Bitcoin fails catastrophically. I think a catastrophic failure is unlikely, especially because with widespread agreement, the Bitcoin blockchain could be rolled back to a specific block number. Diversification, however, is a time-tested method for mitigating investment risk.
Monero is a privacy-oriented altcoin based on CryptoNote. It relies on ring signatures making transaction tracking a probabilistic problem instead of trivial exercise. I imagine the following courtroom exchange:
Your Honor, we think the defendant was the one who purchased the chocolate chip cookie during his lunch hour in direct violation of Michelle Obama’s Executive Order on Healthy Eating, but we’re not certain because he used Monero.
There are a few other coins like Monero based on the same technology. I also like Bytecoin, which goes by the abbreviation BCN not BTE.
When I first learned of Dogecoin, I didn't take it seriously: I’m an adult and the meme is just silly. The best attributes of Dogecoin however are its wide distribution, liquidity, and market cap. Also DoughWallet on iOS is a great mobile wallet based on BreadWallet.
NuBits is the most fascinating altcoin of the bunch. It is two coins (NuBits and NuShares) and a decentralized process designed to peg the value to roughly $1.00 US. If the price is too low, then through a process not unlike the Federal Reserve, NuBits are ‘mopped-up’ by paying interest to those willing to lockup their NuBits. Or, conversely, if the price is too high, the supply is expanded by selling new NuBits into the market with the value distributed to holders of NuShares in the form of Peercoin. These market forces keep the NuBits coin trading in a narrow band. It sounds complicated, and it is, but it is working (at least at the time of writing). Currently, some human intervention is required, and through voting, trusted custodians are elected to perform these duties.
Darkcoin has everything going for it except its name. Like Monero and the other CryptoNote-based coins, it solves a huge problem -- the problem of transaction tracking eroding financial privacy. But the approach is different. It anonymizes coins through Masternodes which mix and denominate coins. Privacy is important and valuable, but even better is the new InstantX feature that solves another Bitcoin problem -- slow confirmation times. The Masternodes coordinate together in seconds to confirm transactions and prevent double-spends. Nearly instantaneous transactions make this coin perfect for retail points of sale. Great technology, but widespread adoption would be easier with a moniker less associated with the web’s underbelly.
These are my favorites altcoins currently, but I look forward to seeing new and innovative ideas, especially in the area of financial privacy.
Disclaimer: This article is not investment advice or an endorsement of any specific technology or developer. These are just my opinions and are subject to change.