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LegendaryActivity: 1330Merit: 1024 [ANALYSIS] Altcoin Investing January 19, 2014, 05:40:20 PM

Last edit: March 08, 2014, 05:10:22 AM by FreeTrade #1 Preamble:

This is not investment advice. People always say that when giving investment advice, so I thought I'd start with it. I guess some guy once did badly and sued some other guy and now nobody advises anybody about anything anymore. If you're a litigious guy, you should stick to T-bills, whatever they are. I hear they are very safe, but don't take my word for it, as this is not, as I have already told you, investment advice.



Bitcoin

Hopefully you already know why Bitcoin is great. This article is for people who already understand Bitcoin, so I won't dwell on its strengths. Those are name recognition, network effect and first mover advantage. I'm going to focus on its weaknesses by looking at the questions altcoins need to answer to succeed where Bitcoin is failing.



a) Inflation - How does the coin solve the inflation problem?

Don't be fooled by the econ 101 grads who wax on about deflation. Right now Bitcoin is highly inflationary  running at about 9%. That's a huge problem for the 'to the moon' proponents. Here's why -

There are 3,600 new bitcoins mined every day. It requires $3 million (3,600x$800) to enter the market every day just to keep the price where it is.

Let's say you want a modest 100X return on your investment. You need 1BTC to go from $800 to $80,000. The cost to keep BTC at $80,000? Every day $300 million (3,600*$80000) has to enter the market. It's difficult to see how that happens. The exchanges and markets aren't equipped for anything like that. This problem will ease over the years  the number of coins mined will halve every 4 years, but realistically, who can wait that long to be a billionaire?



b) Development - How is ongoing development, promotion and protection funded?

Bitcoin currently has a $10 Billion market cap, and there are lots of services and companies hopping on the Bitcoin bandwagon, but how much effort is going into securing the core-technology and making Bitcoin easy to use? A paltry amount. There's the Bitcoin Foundation which relies on donations, and open source developers contributing their time. The Bitcoin millionaires and billionaires should be co-operating to finance huge development of the core-technology. There is no mechanism for them to co-ordinate that, and it doesn't make any sense for any one person to do it individually. Who is going to pay for the legal, lobbying, PR that is going to be needed down the road? Ain't nobody going to do that.



c) Decentralization - How is the coin going to stay decentralized?

Bitcoin has become centralized in two ways  large pools and specialized hardware. China has worked out what Bitcoin means for capital movement and currency control and they don't like it. One of the first moves was to ban mining hardware  the ASICs  highly specialized computer equipment. Any government that wants to take control of Bitcoin will target this hardware first. Good luck to anyone trying to keep it a secret. The NSA already knows the colour of your underwear.The pools are a problem too  a co-ordinated shutting down of the major pools could cause severe disruption.



Bitcoin Verdict : Recommended 10X Possible  Despite these problems, Bitcoin is the market leader and safest cryptocurrency and gives good general exposure to the crypto-currency market. Keep 50% of your allocated crypto-currency holdings here. 10X short-term price increase still possible. Reduced potential for explosive growth in price.



Quark

I was recommending Quark way back in July 2013. It's since appreciated 50X. Let's see if the case still stacks up.



Q1: Inflation: The inflation problem is solved, most of the coins have already been issued and the inflation rate is now 0.5%. You'll hear people complaining about the 'pre-mine'  that's a really bullish sign. People don't complain about coins with unfair pre-mines, they ignore them. If there are complainers, it means they want in . . . but . . . yesterday. Well done Quark. (3/3)



Q2: Development: Community effort based on donations  same problem as Bitcoin (0/3)



Q3: Decentralization: Quark attempts to solve the hardware centralization problem through complexity. The proof-of-work algorithm is complex, so it's difficult to program for GPUs and GPUs are poorly suited to that kind of work. It'll slow down FPGA and ASIC development too, but they'll show up once the reward is high enough. Overall, a good effort  (2/4)



Quark Verdict (5/10)  There are still possible 100X returns with this coin.



Primecoin



I was very excited about Primecoin from the beginning. I think the hook that the proof-of-work might actually do something useful (finding primes) would be enough to get it a mention in any story about crypto-currency. Let's look at the questions



Q1: Inflation: This was the thing that turned me off Primecoin. The inflation formula is 999/(difficulty^2). Difficulty is currently around 10.4  so approximately 9 coins are issued each block. Difficulty increases by 1 every time computing power increases 30 fold, so you'll have a gradual reduction only with HUGE increase in the network. This coin will remain very inflationary. (0/3)



Q2: Development: Community effort based on donations  same problem as Bitcoin but +1 for SunnyKing (1/3)



Q3: Decentralization: Similarly to Quark, this has proved to be GPU resistant because of its complexity. Expected to be vulnerable to ASICs with sufficient reward. (2/4)



+1 Bonus for newsworthy proof-of-work



Primecoin Verdict: (4/10) - Still a buy  10X returns are possible.



ProtoShares



This is the first coin that has backing  Invictus Innovations have pledged that all further chains they launch reserve 10% for ProtoShares holders. They seem intent on keeping this promise, so buying into ProtoShares is like buying into an early stage crypto-startup. The CEO, Dan Larimer is something of a genius in my opinion, and has a strong team so it's a good play based on that alone . . . and it works as a plain old altcoin too.



Q1: Inflation:  There's a 5% reduction in block rewards every week, so inflation will be down to 10% before the end of this year, and 1% by the end of next year. Solved in time. (2/3)



Q2: Development:  The coin is backed by a startup with funding so some level of development and promotion is guaranteed. The team does have higher priorities with their other projects, but ProtoShares owners will get a cut of those, so that is offset somewhat. (1/3)



Q3: Decentralization:  It uses a clever new 'momentum' proof-of-work based on the birthday problem. However, GPU miners are operating privately and expected to dominate when they are generally available. The jury is still out on FPGA/ASIC resistance. Pools seem to be a problem with one pool dominating the mining (2/4)



+2 Backing by Invictus Innovations



Verdict: (7/10) I should mention bias here  I was involved with the launch of this coin. I'm not recommending it because I was involved with it . . . rather the reverse . . . I got involved because it was possible to recommend it. 100X returns possible.



MemoryCoin



I should mention bias upfront here - this is the coin I started to address the problems with Bitcoin. Again, I'm recommending this coin not because I started it, rather I started it because it is possible to recommend it. Here's why -



Q1: Inflation:  Similar mining schedule as ProtoShares, 5% reduction in block rewards every week, so inflation will be down to 10% before the end of this year, but reduces to a 2% inflation rate rather than 1%. Solved in time. (2/3)



Q2: Development:  This is the reason people are excited about this coin. 5% of block rewards are earmarked for development and promotion. Coin owners vote like shareholders as to how the funds are distributed. It has resulted in huge development effort already, within weeks the coin has more services and support than even Litecoin or Quark. (3/3)



Q3: Decentralization:  This coin heavily leverages memory and special instructions found in recent CPUs. There's a battle going on now between GPU and CPU developers to see who can make the most efficient algorithms for mining this coin. CPUs have pulled ahead dramatically in the past week. Uniquely, the project has distributed mining as a high priority so it well placed to avoid centralization of mining. The jury is out on FPGAs and ASICs. (3/4)



Verdict (8/10) 1000X gains possible. This coin is still in the very early stages with only 30% of coins issued, and not many people understand it yet, but is quickly gaining a large development community and does large volume on the Chinese market already.



Litecoin



I didn't want to talk about Litecoin, but I should because it has the second highest market cap. Let's see how it does with the questions.

Q1: Inflation: No attempt made to solve inflation problem  it's got the same schedule as Bitcoin. (0/3)

Q2: Development: Community effort based on donations  same problem as Bitcoin (0/3)

Q3: Decentralization: Litecoin was first to try to address the harware centralization problem but failed. Semi-specialized equipment (GPUs) already required, FPGA are here and ASICs on the way. I've relented a little and given 1 point here because it is more de-centralized than Bitcoin for the moment (1/4)



Verdict (1/10)  stay away from this one. Remarkably, there are coins worse than Litecoin  those are the coins trying to be the next Litecoin.





Infinitecoin



Infinitecoin is a misnomer. It refers to the number of coins out there (90.6 Billion) which is very high. It's not infinite at all. It's very much limited edition. It was one of the first coins to realize the importance of keeping inflation under control.



Q1: Inflation: So far 99% of coins have been issued, and the block rewards keep being halved with no intention to stop, inflation is less than 1% and will be effectively 0% by the end of the year (3/3)

Q2: Development: Community based development, but more difficult to include Bitcoin's improvements because it is a Litecoin based coin (0/3)

Q3: Decentralization: Scrypt (Litecoin) based coin, so same problems. It has a high-cap, but the difficulty for this coin is very low because the block rewards are very low - making a 51% + double spend attack easy. Essentially all the hashing power could be concentrated by a single individual with a handful of powerful GPUs who could re-write a long string of blocks. With the high value of IFC, we might see the first big altcoin heist.(0/4)



Verdict (3/10)  I still quite like this coin because of it's hard line on inflation - but it needs to take steps to solve the blockchain security problem, or we'll see a big heist, and that'll be very damaging for it. One to watch, but needs a rescue.



Dogecoin



Someone smart once said that the market can stay irrational longer than you can stay solvent. He must have been predicting Dogecoin. There's a lot of interest in Doge now from some of the nicest, coolest, funnest people, or as they are known on Wall Street, bagholders.



Q1: Inflation: Very high inflation right now as the coin is issued, but with halving block rewards until inflation reaches 5% in about a year. Little bit high for my taste, but could be worse. (2/3)

Q2: Development: Community based development, but more difficult to include Bitcoin's improvements because it is a Litecoin based coin. Lots of talk about projects right now, but these kind of people get bored easily and move on to the next fun thing. Expect to see lots of half-finished, half-working projects.(0/3)

Q3: Decentralization: Same problems as Litecoin (1/4)



+1 First big Meme coin (newsworthy)



Verdict (4/10)  Over 1 million USD per day needs to flow into Dogecoin to keep it at its current price levels. That doesn't mean it couldn't go up another 2X or 3X, but trading Doge is gambling. One day you'll wake up and there will be zero buyers at any price. Try to imagine how funny and well supported a 'Gangnamcoin' would be today.





Cryptogenic Bullion



CGB has some very nice qualities that give it a very good shot of making it into the top 10 and staying there. It combines low-inflation with a secure blockchain and interest payments for holders. This is a well conceived coin, on a stable foundation.



Q1: Inflation: 94% of coin already issued, in 10 weeks, inflation will be down to 2% (most of that paid as interest to CGB holders) - effectively 0.5% inflation (3/3)

Q2: Development: Community based development so usually 0 points for this, but currently has 2 effective and committed devs, so 1 point for that (1/3)

Q3: Decentralization: Less than 1K USD per day is required to soak up the new CGB being created. This is similar to other coins like QRK and IFC, but those coins don't solve the problem of blockchain security. CGB does - and in a very clever way. It uses proof-of-stake, effectively paying interest to CGB holders to secure the blockchain. Thus mining can be as decentralized as its ownership (3/4)



Verdict (7/10)  Potential for 500X returns. At the moment, it's a hidden gem. Sometime in the next 10 weeks, as the inflation rate falls to 0.5%, the market is going to pick up this coin in a big way.



MaxCoin



MaxCoin has 30 seconds blocks, block rewards halving every year, a slightly different PoW, and Max Keiser's pumping. So just Max Keiser's pumping really. It'll be interesting to see how far a coin can get with just high profile pumping. This could be the biggest pump'n'dump ever.



Q1: Inflation: Blocks rewards halving every year = rampant inflation for the forseeable future. I'm disappointed Max - I thought if anyone would understand the need to keep inflation under control, it would have been you.(0/3)

Q2: Development: Botched launch, same problems as Bitcoin with community development but without even the competent devs (0/3)

Q3: Decentralization: GPU and ASIC miners guaranteed. Same centralization problems as Bitcoin. 1 point because Keccak ASIC might take a little while. (1/4)



+1 Max Keiser hype



Verdict (2/10)  Sorry about the brevity, but this is clearly a pump'n'dump designed to separate fools from their BTC. No long-term potential but who knows how big the bubble could get or when it will pop.



Zetacoin



Zetacoin has 30 seconds blocks, 160 Million coins, 1 Million more added each year.



Q1: Inflation: Zetacoin is nearly fully issued and will shortly go into low-inflation mode, with inflation running at 0.625% (3/3)

Q2: Development: Same problems as Bitcoin with community development (0/3)

Q3: Decentralization: With fast block times and specialized hardware required, this coin almost looks designed to be centralized - so much so that it could be a feature rather than a drawback. I'm thinking it could be a good micropayments platform when Bitcoin becomes prohibitively expensive for small transactions. As cryptocurrencies proliferate, cryptocurrency as a movement becomes more decentralized and the need for any one cryptocurrency to be decentralized is smaller. (2/4)



Verdict (5/10)  10X Potential. This could be a potential micropayments platform. Attractive right now because it's nearly fully issued and moves to low inflation model shortly. Worth a punt.





FAQ: X Coin has fast confirmation times, why no points for that? I don't think confirmation time is important. When ordering via BitPay with Bitcoin, you'll get immediate confirmation. Retail merchants will offload the risk of double spends to third party processors - much better than asking folks to wait for a confirmation that may come in 30 seconds, or 30 seconds after that or . . .. - I'm more inclined to see very low block times as a negative because it weakens blockchain security for some cheap marketing that only impresses the naive.



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This is a living document - bookmark it now - I'll update with new coins, corrections, and as my view and the market changes. I'm also interested to hear what coins you think are good bets for the future - but don't just drop in the name of your coin - tell me, how does it answer the three important questions?



*nb I'll be deleting trolling and inflammatory posts - keep it civil please. This is not investment advice. People always say that when giving investment advice, so I thought I'd start with it. I guess some guy once did badly and sued some other guy and now nobody advises anybody about anything anymore. If you're a litigious guy, you should stick to T-bills, whatever they are. I hear they are very safe, but don't take my word for it, as this is not, as I have already told you, investment advice.I don't think confirmation time is important. When ordering via BitPay with Bitcoin, you'll get immediate confirmation. Retail merchants will offload the risk of double spends to third party processors - much better than asking folks to wait for a confirmation that may come in 30 seconds, or 30 seconds after that or . . .. - I'm more inclined to see very low block times as a negative because it weakens blockchain security for some cheap marketing that only impresses the naive.-----This is a living document - bookmark it now - I'll update with new coins, corrections, and as my view and the market changes. I'm also interested to hear what coins you think are good bets for the future - but don't just drop in the name of your coin - tell me, how does it answer the three important questions?*nb I'll be deleting trolling and inflammatory posts - keep it civil please. HODLCoin ANN - 5% Interest. No Staking Req. Term Deposits 10%. Solo Mining. http://hodlcoin.com/