The Problem with Altcoins
themisescircle.org
themisescircle.org
Let me paraphrase what author is saying: "There will be no other cryptocurrency, for whatever purpose, ever, than bitcoin."
That's of course complete bunk. Yes, most of the existing altcoins are doomed, because they don't add anything of value. The few that do add something unique, are as likely as not to see these features adopted into bitcoin itself.
However there are areas where an altcoin can succeed, under the following conditions:
- If it adds something unique
- If what it adds is useful and liked by people
- If what it adds cannot be incorporated into bitcoin
Wait, how can it be that something can't be incorporated into bitcoin? Well, bitcoin has a certain architecture, which makes some ideas more easy to incorporate, and others hard, or impossible. A few examples of things that would have a difficult time landing in bitcoin:
- Colored coins
- Blockchain based trade order execution (would also be predicated on colored coins).
- Domain name resolution
- Trust metrics
- Arbitration and reversable transactions
There's many more. But you get the idea, most of these things are not inherently compatible with how bitcoin works, and is liked by people for working in this fashion. That doesn't make this bad ideas, it just makes them ideas where supplemental systems can excel.
Altcoins, among other things, provide a way for testing (sometimes crazy) ideas that can't be tested on Bitcoin at this stage, and allow for more choices to be given to the user (in the same way Linux is not the only open source kernel, GNU GPL is not the only open source license, etc.).
If you think of Bitcoin as just another open source project, and consider "altcoins" to be forks, you'll find forks that are basically just copies of the main project with some values adjusted to the will of the creator, and you'll find more elaborate forks that actually add something new (even if these additions prove to be inadequate to merge into the main project at some point). The second type of forks is, in my opinion, very desirable, while the first one is pretty much useless and, sometimes, is nothing more than a pump-and-dump scheme.
This is incorrect.
Litecoin was created to stop CPUs going idle, it was a resistance against GPU mining. They since changed their tune a bit, but that was the stated aim on their main page for a year or so.
> I believe the existence of other coins with different algorithms is important, even to point out possible flaws in Bitcoin and the way SHA-256 is used.
If sha256 is broken so badly that arbitrary outputs can be chosen, all things are dead. Litecoin uses sha256 everywhere internally too, just not for their mining algorithm.
I didn't say that was correct, I was just saying that's what the article (incorrectly, in my opinion) appears to say. I'm not sure who's misunderstanding who...
> If sha256 is broken so badly that arbitrary outputs can be chosen
It's not about sha256 being broken or not, but about the way it is being used for mining (being used incorrectly != broken hashing algo). Even though I agree, if it was being used improperly we would have noticed by now - I could have chosen a better example.
It's being used absolutely correctly for mining. Proof of work needs to be extremely easy to validate. You want the fastest hash possible, not the slowest.
https://web.archive.org/web/20111128074850/http://litecoin.o...
But Litecoin hasn't pointed out any flaws in Bitcoin, so it's pointless in that respect. It even introduced new flaws like claiming to be GPU-hard even though it wasn't.
Also, when a flaw in Bitcoin is discovered, attempting to fork the Bitcoin economy by deploying an altcoin is a very expensive and disruptive way to fix it. But it's par for the course in a world where you disclose security holes by stealing people's money.
You think that's a flaw? It's a claim you idiot, and it was bound to happen, just as PoW in Bitmessage was moved to the GPU by spammers so they could flood the network. I can't think of one alt coin that hasn't been mined by GPUs
That's why Stefan Thomas (developer of the original colored coin client) joined Ripple to continue his work - it has a protocol built from the ground up to support bid/ask offers and trade matching. Its also curious that a trusted "miner backbone" is being suggested as a solution to the 25% attack, because that's essentially Ripple's solution to sybil attacks (a hardcoded unique node list).
But, it is the author's opinion that much (all) of the current altcoin to date adds nothing. In his opinion, many are just algorithmic tweaks based on the same concept as BTC. They feel like a hopeful rush to copy BTC and manufacture value for those who missed out on early BTC.
I am inclined to agree. A friend dabbles in altcoin and we just had this discussion. He can't point to a reason that they have additional value currently, but suggests that one could take off. IMO, that's no different from playing the lottery.
From your list of possible value-adds for altcoin, can you point to any existing altcoins that possess them?
There's also a second wave of altcoins coming, ones not based on Satoshi's algorithms. The best example would be eMunie, which from what I hear is very close to release.
Still, I think the overarching point (at least in my view) is that what is overlooked most is that Bitcoin's greatest value at this point is the network effect. By far, it is the closest thing we have to a consensus on an alternative currency. So, it is not enough for a new coin to present some incremental benefit. It most be unquestionably superior in some fundamental ways. Remember, these altcoin aren't just competing with Bitcoin. They are competing with fiat.
So, the sheer number of altcoin popping up tends to devalue the lot. BTW, I actually believe that Bitcoin has some fundamental weaknesses that need to be addressed. Some of these may be so foundational to Bitcoin, that it may actually require a new altcoin to fix them. For instance, confirmation time is one such issue. So, it's not that I am swooning over BTC as the perfect currency. I just haven't yet seen anything that offers a compelling alternative when the BTC ecosystem, network effect, and inertia are considered.
EDIT: BTW, the idea of having a bunch of different altcoin, each catered to a certain "niche" strikes me as especially odd for a currency. As we've seen with BTC, it is difficult enough to gain widespread adoption for even a single alt currency. It is hard to see multiple niche currencies gaining the necessary critical mass to breakout, nor the desirability of managing such from a user perspective.. I am not being facetious in saying that the idea of assigning some niche value to a particular currency seems an excuse for the lack of true differentiation, and an acknowledgement that the currency represents only some minor or incremental benefit.
Bitcoin currently has a strong lead over 'altcoins' in being known&accepted by a number of services and merchants. In order for any of them to succeed it isn't nowhere enough to simply be technically better than bitcoin - they need to be very much better in order to compete with that advantage in compatibility.
I think the author is dead on. These altcoins don't improve on bitcoin, and are all orders of magnitude less valuable as money.
There's also a second wave of altcoins coming, ones not based on Satoshi's algorithms. The best example would be eMunie, which from what I hear is very close to release.
[1] http://books.google.com/books?id=xFsaVHBXlNkC&pg=PA61&dq=%22...
Check out http://ripple.com - they pretty much solve this problem, although its VERY beta. Expect really cool things from them in ~6 months.
Ripple is fiat agnostic and allows seamless conversion between currencies. This means I can buy something in Yen and you can receive payment in LTC. Amazing system if it gets up and running.
I am surprised though that the author did not make, what to me, is the most obvious and strong argument for or against alt-coins, namely; `there can only be one--per hashing algorithm`.
The problem with alt-coins that share bitcoin's mining algorithm is that they are inherently insecure; as bitcoin's hashing power can be used to 51% attack the alt-coins directly; which is inevitable if the alt-coin is profitable to mine, or if it threatens bitcoin's dominance.
Consider an alt-coin that is less profitable than bitcoin to mine; people won't mine it. Consider again an alt-coin that is more profitable than bitcoin to mine; miners will hash the alt-coin until it is less profitable (profitablility is a direct correlation between hashing power and price-per-coin; as more hashing power chases a static amount of coins, profitability drops)--this dooms any alt-coin that both shares a hashing algorithm with a more established crypto-coin and does not solve any fatal flaw.
For this reason, I think litecoin will have long term success; while feathercoin (et al) are doomed; bitcoin hashing power cannot be pointed at litecoin. Total network hashing power is very analogous to mass and gravity; like draws like in this regard, the more hashing power pointed at a block-chain, the more secure it is, the more peopel trust it, the value it will have, the more people will mine it.
There is room for infinite crypto-coins, despite the authors hand-waviness around bitcoin competing "with the dollar and paypal"; fiat currencies have shown (to the most freshman of history buffs) to be exploited for the benefit of the elite at the expense o the masses; something a well-designed cryptocoin (bitcoin included) cannot be subject to. People will choose to use cryptocoins as their benefits become more viscerally tangible; and competing blockchains will forever come in and out; and some will stay.
But, if you ever want to bootstrap your own blockchain; you must use a new hashing algorithm or it is doomed.
People are going to have a hard time converting their fiat dollars into a currency that changes value by +/- $150 every week.
Corporation branded crypto credit... Sounds like something from the future.
Another new idea with a similar goal is proof-of-burn: https://en.bitcoin.it/wiki/Proof_of_burn
Scalability is another goal of some alt-coin ideas. The finite blockchain idea is one example that couldn't be simply layered onto Bitcoin itself. Here's a paper (pdf): http://www.bitfreak.info/files/pp2p-ccmbc-rev1.pdf
b) is ripple (I already commented about it in this thread) - it really is amazing technology that I hope becomes mainstream. It solves a lot of the major problems of BTC and other Altcoins.
Redemption of IOUs is still a centralized process - you can only redeem IOUs through the issuing gateway. So the difference on ripple is that the order book for trading the IOU is decentralized, and the IOUs can freely circulate. For example, you can't send mtgox USD to another mtgox user (this used to be possible, but mtgox removed their "mtgox codes" feature). But you can do this on bitstamp, because bitstamp is a ripple gateway that issues USD IOUs.
In practice this means that they can freeze arbitrary coins and accounts and there's nothing anyone can do about it. What's more, unlike in Bitcoin it has protocol-mandated fees that are effectively paid to OpenCoin Inc (they have to be paid using XRP which is then destroyed, and the only source of new XRP is OpenCoin Inc) - and those fees are set as part of the ledger consensus. So if it takes off they can ramp up the fees they charge to use Ripple arbitrarily and no-one can do anything about it.
The Ripple protocol destroys negligibly small amounts of XRP with each transaction as an "anti-transaction SPAM" measure. It's a negligible amount of money. This anti-SPAM fee currently equates to about $0.0000001 per transaction. If you hypothetically applied that fee to every single bitcoin transaction that has ever occurred, it would total a whopping $2.64. [1]
It's pretty misleading to suggest that fees are "effectively paid to" Ripple Labs (formerly Opencoin) as if it's some greedy scheme. It's actually quite an elegant design to protect the Ripple network from DDOS attacks.
Yes, this does very incrementally benefit ALL holders of XRP, since it has the effect of decreasing supply. And yes, Ripple Labs is the largest holder of XRP.
But no one is laughing their way to the bank collecting some sneaky fees....
[1] Source for bitcoin transaction volume data: https://blockchain.info/charts/n-transactions?timespan=all&s...
OpenCoin/Ripple Labs can't steal funds at any account (unless they have the private keys to that account). They could attempt to freeze an arbitrary account by ignoring any broadcasted transactions associated with that account, and only voting on candidate sets which don't include them. But that would be noticeable, as the transactions would get stuck in the candidate sets of all the honest nodes. If there are enough honest nodes with overlapping UNL's, then the Ripple Labs nodes would have to accept it, or be split/forked from the network.
The paid transaction fees are destroyed, so they are effectively paid to all XRP holders, in proportion to their holdings. This is actually similar to the proof-of-stake scheme in ppcoin.
Also, the base fee gets changed by upgrading rippled. There is a pseudo-transaction associated with changing the base fee and the minimum reserve, but these pseudo-transactions are used to prevent the network from agreeing to a fee change (or implementation of new features) until enough validator nodes have the upgraded ripple (upgraded nodes will "vote" on the fee change).
http://bitcoinmagazine.com/6926/in-defense-of-alternative-cr...
hands out pinches of salt