Research Report: The Most Ethical and Genuine Altcoins

The altcoin market currently has a market cap of $700mill compared to Bitcoin’s $7.3 billion.

Impressed by the size of this market, I set out to find 10 genuinely useful digital currencies to support that might become major players in future commerce and trade.

Disappointingly, it’s difficult just to find 10 altcoins that aren’t blatant premine /instamine/ fastmine pump and dump scams, never mind 10 coins that genuinely improve on bitcoin.

That’s pretty amazing to say, considering these coins have a chance to experiment with the most groundbreaking technology in the fastest growing industry in the world.

Looking at the price charts on coinmarket.com we can see a familiar pattern for most altcoins – A quick pump at launch by a few preminers / instaminers whose massive stake in the currency allows them to easily manipulate the price up, create an impressive market cap and percentage return which sucks in greedy investors through marketing hype, then dump it on them to send the coin crashing by 90% or more. PoW / PoS hybrids are particular notorious for this problem.

 

Most coins were disqualified from my “ethical / genuinely useful” list for the following reasons:

 

1 – Launch: Scam distributions leading to short life of the coin because instaminers look to cash out early after an initial pump

Distribution of a new currency is a huge and underrated problem for competing coins. Bitcoin remarkably solved this by taking a patient and meticulous approach to issuing coins in a steady, consistent supply over a long period of time. Satoshi didn’t give himself higher block rewards than the other early miners.

Bitcoin took 10 months to obtain any value at all. Most founders of altcoins reward themselves with a massive percentage of the money supply within the first few days and have a coin worth millions within 10 days.

The problem of a “fair” distribution where the coin isn’t susceptible to early investors purposefully cashing out is a huge problem.

Current large coins that are particularly bad offenders of this are:

Peercoin 3rd biggest in the world

Blackcoin, 10th biggest in the world

Megacoin 21st biggest in the world

 

 

2 – Snake Oil Cryptography Claims: A New Hashing Algorithm

Coins claim to have superior security and a unique selling point to bitcoin by using different algorithms.

This is an attempt to blindly impress with cryptographic jargon to create the illusion of a significant feature over bitcoin, when really none exists.

Security expert Bruce Schneier breaks it down in this post

 

 

3 – Lack of Understanding of the Economics of Bitcoin – Why a Hard Limit Resulting in Deflation Is Important to the World, Importance of Decentralization, Etc…

This rules out currencies such as Dogecoin, Freicoin, Ripple

 

————————————————————————————————————————————————–

 

COINS WHICH DO MAKE A GENUINE ATTEMPT:

 

CATEGORY 1 – ANONYMOUS COINS

The only obvious feature that could improve upon bitcoin is Anonymity > Pseudonymity.

Here’s a closer look at some of the anonymous coins.

 

1 – Monero

Was forked from Bytecoin, and was not premined.

It uses Greg Mawell endorsed Cryptonote, which is the “ring signature” tech behind bytecoin.

“I wouldn’t be surprised if none of the current implementations of it are around in ten years though: Bitcoin emerged at a surprisingly mature state, the BCN/MRO/FTM stuff isn’t yet anywhere near as mature. But certantly darkcoin is totally uninteresting compared to this stuff. They’re also free of the trusted initialization challenges zerocash has” – Greg Maxwell

 

2 – Bytecoin

It’s a little disappointing to see how much ZeroCash is hyped compared to Bytecoin (https://bytecoin.org/), since the former is still vaporware while the latter is something real that you can go use right now.

If you’re looking to compare ZeroCash with competing technology, the comparison point should be Bytecoin. It’s also an altcoin (lame, because metcalf’s law applies— dividing up the cryptocurrency network effect is harmfful to all), but unlike ZeroCash it isn’t just a proposal— its an actual functioning system already – Greg Maxwell

 

Bytecoin is a ground up rewrite (for better or worse) blockchain cryptocurrency which uses a pretty boring schnorr-like ring signature in an _very_ clever way to achieve strong privacy. The ring signature its using has been peer reviewed, though the partial uncloaking technique they use to prevent double spending is a novel application.

The privacy achieved by Bytecoin is better than any existing-in-production privacy tools (e.g. CoinJoin) and also as good as or better than every theoretical system I’ve heard proposed except for Zerocash. Relative to ZeroCash, Bytecoin exists today and has simpler cryptographic assumptions, better performance for signers, and no requirement for trusted initialization. Because it doesn’t mask values its anonymity set is potentially smaller, though the implementation does some clever denomination tricks to reduce the harm of value transparencyGreg Maxwell

 

Unfortunately Bytecoin was premined.

 

3 – Anoncoin

Anoncoin gets an honorable mention for having the ability to route traffic over TOR/I2P.

This does a pretty good job at preventing people from associating transactions with IP addresses, but doesn’t do much else. It’s not a great deal different than the proxy functionality already built into bitcoin based client. – Hazard

 

4 – Zerocash / Zerocoin (Not realeased yet)

It’s certantly better to see things like ZeroCash and Bytecoin being worked on… I’m really skeptical about the wisdom of splitting up the crypto-currency adoption network effect just to introduce some new transaction features. But certantly doing it with substantive new features is way better than just-another-worthless-clone – Greg Maxwell

 

For further reading on altcoins which attempt to improve on bitcoin’s anonymity weakness see:

 https://news.ycombinator.com/item?id=7765455

http://www.reddit.com/r/Bitcoin/comments/269fih/what_do_you_guys_think_of_darkcoin/

 

 

CATEGORY 2 – HONEST COINS THAT SOLVE A PROBLEM OR HAVE POTENTIAL TO MAKE AN IMPACT

1 – Namecoin

Namecoin had a fair launch. It was not premined or instamined. It is a genuine attempt at a distributed DNS.

The current Domain Name System ICANN, is a centralized committee that meets 4X per year and has close ties to the US government.

A decentralized DNS makes internet censorship much more difficult. In 2011 Wikileaks claimed that Namecoin and Bitcoin will be revolutionary. Julian Assange has spoken about how a distributed DNS such as Namecoin is the most important technology to achieving free speech

 

2 – Counterparty

An honest attempt at a decentralized asset exchange. Currency issued through “proof of burn” which ensure an honest environment rather than the horrific launch of NXT or Mastercoin.

Done without the hype and and intense marketing of Ethereum.

 

 

CATEGORY 3 – GENUINE BUT GENERALLY USELESS COINS.

1 – Potcoin

Extremely rare for a coin to be launched with no premine / instamine. This is not a scamcoin.

It currently has a decent sized market cap and might appeal to a niche. However, it doesn’t have any real features to grow into a big currency. There is no reason not to choose bitcoin or an anonymous coin over Potcoin.

It’s difficult to see it going anywhere, but at least it’s an honest coin.

 

2 – Devcoin

One of the first altcoins.

Was not premined or instamined.

Extremely doubtful that it will ever scale. It’s been around for 3 years, but the price chart shows it dying a slow painful death.

 

3 – Litecoin

The fact that I included Litecoin shows how much I had to scrape the bottom of the barrel to find another coin that’s not simply an outright scam.

It’s been around for 3 years. There’s nothing particularly useful about it, and it offers no improvement over bitcoin but at least it’s not a pump and dump scam that the instaminers are going to offload imminently and destroy your holdings.

 

Conclusion

“Don’t let speculative experiments at the margin distract from the most mind-blowingly awesome monetary system mankind has ever seen – Bitcoin proper” – Erik Voorhees

The altcoin market is a shambles. “Speculative experiments” is an overly generous description of almost all altcoins.

What is claimed to be “experimentation” or “next generation” is mostly a lying fraudulent mess of  worthless get rich quick schemes. This is unfortunate, as the stakes for creating a genuinely successful digital currency couldn’t be higher. Bitcoin is currently the market leader, but hasn’t won yet so you would think it would be all to play for.

This is not the case. Founders who have a decent name, brand, logo (blackcoin) or a seemingly decent feature (darkcoin) could not resist the temptation to cash in on a quick instamine pump and dump over a couple of months, rather than build a coin up that aims for real merchant adoption over a period of many years.

Bitcoin is a remarkable experiment. Despite having 5 years to create a better model, most competitors have failed to balance the tough problem of allocating a coin in a sustainable way.

Even after 5 years, nothing comes close to bitcoin in integrity and utility.

 

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33 comments

  1. It’s odd to name Bitcoin as fairly mined, while we know that Satoshi has a massive stake.
    It’s also anachronistic to say “Bitcoin remarkably solved this by taking a patient and meticulous approach to issuing coins in a steady, consistent supply” … because it didn’t “solve it”, since the problem didn’t exist yet. The approach they took was the only approach possible. Nobody (not even Satoshi) would know back then how this would pan out.
    Who would have bought a 10.000 BTC pizza back then if they did know?

    It is simply a given that new coins will be heavily mined by a small group. The market makes other schemes very hard. You couldn’t pull a new Bitcoin scheme if you wanted to.

    Which is why I think you shouldn’t dismiss NXT like this. It was an open IPO (pure proof of stake has no other option). But only few saw the potential. There was no secret premine as other coins have – it was out there in the open. And there was no massive dump, despite it’s high cap.

    They also have an amazing code base – you don’t put that effort up if you just plan to scam people. And their asset exchange works better than the other options. With lots of interesting assets (had trouble finding anything in Counterparty). They even have stuff like distributed oil paintings…

    I’m also thinking Counterparty and maybe X11 have potential. I would like to diversify more, but like you I have trouble finding options that don’t have serious flaws.

  2. Lonet · · Reply

    CryptoNote’s Bytecoin is hugely premined: 83% before it is announced in Bitcointalk. Devs can cash out any time.

    1. Well, according to you, a coin does not exist until announced at bitcointalk.org, right?
      Don’t be silly.

  3. […] Even after 5 years, nothing comes close to bitcoin in integrity and utility – Lee Banfield […]

    1. Hinorisab · · Reply

      Sure, but here one thing. It was mined over 2 years since summer’12. It’s like just finding out about Bitcoin and saying it was premined because you hadn’t heard about it earlier. Bitcoin is already 61% mined and the majority of the public is unaware of its existence!

  4. […] Even after 5 years, nothing comes close to bitcoin in integrity and utility – Lee Banfield […]

  5. […] Even after 5 years, nothing comes close to bitcoin in integrity and utility – Lee Banfield […]

  6. Catmoonglow · · Reply

    In my opinion, Bytecoin is the better buy over all of these other coins. Monero would have had a chance if they had a name that made sense to the majority of others, but it is an unmarketable coin destined for the graveyard. XC is in the same boat, even worse. DRK is in a hype phase right now, so I would stay away until it dies down for a week or two. DRK has potential (and a great name) but also has weaknesses in Masternodes and its tech. I wouldn’t say it is a bad coin to own, but you must plan the market right to take advantage of it or you’ll be left behind. I also think DRK will definitely fall to ZeroCoin when it comes out while ByteCoin could actually stand to compete.

    1. AwesomeGuy · · Reply

      Agreed.

      I also think that BCN has the most dedicated development team there is. They are not pushing 104192841 small, insignificant updates just to create an illusion of the work and tell the community how good they are.

      Bytecoin developers really making an effort here with all the huge updates that are actually matter. Such as moving blockchain out of RAM and thus making coin available for more people.

      This definitely was a biggest problem among CryptoNote currencies and BCN developers solved it. And moreover they didn’t brag about all over the Bitcointalk and didn’t rub it in other currencies faces. Open-source environment is not about the competition, that’s what should XMR developers understand and accept.

  7. RepublicSpace · · Reply

    What’s cool is that it’s not BTC fork, BCN’s code is completely new. BCN dev team really rocks by implementing cool innovative features and besides, their philosophy sounds right to me.

  8. […] Research Report: The Most Ethical and Genuine Altcoins […]

  9. […] Research Report: The Most Ethical and Genuine Altcoins […]

  10. StatusSeeking · · Reply

    The difficulty in the cryptnote implementation adjusts every block and pretty fast in practice. The block times stay close to the target. In fact you look at the overall block rate on all of these coins since launch they are pretty close to the target in terms of blocks mined per day.

    There are definitely shitcoins that are launched with diff 1 and lousy adjustment algorithms that mine off absurd number of blocks on the first day or week until an adjustment hits but that is not the case here at all.

    Sure, if people find these coins attractive and begin using them the difficulty (and likely the value) goes up but that is not guaranteed nor is it a one-way street at all. Monero and Bytecoin have had significant drops in difficulty and value as popularity and value ebbs and flows over the past month (I can’t really speak for the others since I don’t follow them, but I would guess the same).

    But while the Monero threads has its share of speculators, pumpers and FUDsters (apparently on a mission from the DRK side), BCN-community actually have quite interesting technical discussions.

  11. […] May 2014 I wrote a report looking to find a few coins that were potentially useful and not scams. I couldn’t find many […]

  12. […] – Lee Banfield […]

  13. […] – Lee Banfield […]

  14. […] It’s difficult to see it going anywhere, but at least it’s an honest coin. – Lee Banfield […]

  15. […] Extremely doubtful that it will ever scale. It’s been around for 3 years, but the price chart shows it dying a slow painful death. – Lee Banfield […]

  16. […] – Lee Banfield […]

  17. […] – Lee Banfield […]

  18. […] – Lee Banfield […]

  19. […] Done without the hype and and intense marketing of Ethereum. – Lee Banfield […]

  20. […] – Lee Banfield […]

  21. […] It’s been around for 3 years. There’s nothing particularly useful about it, and it offers no improvement over bitcoin but at least it’s not a pump and dump scam that the instaminers are going to offload imminently and destroy your holdings. – Lee Banfield […]

  22. […] Done without the hype and and intense marketing of Ethereum. – Lee Banfield […]

  23. […] Even after 5 years, nothing comes close to bitcoin in integrity and utility. – Lee Banfield […]

  24. […] A decentralized DNS makes internet censorship much more difficult. In 2011 Wikileaks claimed that Namecoin and Bitcoin will be revolutionary. Julian Assange has spoken about how a distributed DNS such as Namecoin is the most important technology to achieving free speech. – Lee Banfield […]

  25. […] Done without the hype and and intense marketing of Ethereum. – Lee Banfield […]

  26. […] Unfortunately Bytecoin was premined. – Lee Banfield […]

  27. […] – Lee Banfield […]

  28. […] Unfortunately Bytecoin was premined. – Lee Banfield […]

  29. […] May 2014 I wrote a report looking to find a few coins that were potentially useful and not scams. I couldn’t find many […]

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