Why We Need All The Altcoins We Can Get

Danny Bradbury
Aug 9, 2014 at 10:45 UTC
Updated Aug 11, 2014 at 10:41 UTC

altcoins-rain

Did you know that more than one altcoin is launched per day, on average? Website Altcoin Calendar keeps a running total: one day this week we’d had linkcoin, onyxcoin (version 2, no less), xryptbit, and limicoin. The day before that, we saw the birth of bizcoin, shopcoin x, filebit, and, predictably given the political situation, palestinecoin.

The obvious temptation is to say that there are too many of them. After all, the cryptocurrency markets are littered with crummy coins that add little technical merit to the coins that they cloned, and which have no clear goal or community backing.

Sometimes they’re launched by enthusiasts from their basements, with good hearts but no idea how to execute. Sometimes they’re ‘flashcoins’, launched by smart fraudsters, intent on pumping and dumping for a fast buck. Either way, many altcoins are like the fast food of crypto. They’re no good for you. You’ll buy them, and receive no value. And half an hour after you’ve bought in, you’ll want another one.

Some altcoins may offer returns, but they’re like penny stocks: highly volatile, and difficult to predict. That makes investment difficult, especially when they’re entirely unregulated.

However, this still doesn’t mean that there are too many coins. In fact, we need them all.

A frothy market

Proliferation is common during the early stages of any major new trend. Technology is like Mentos and Coke. When someone drops a new concept into the market, you’ll see it froth and bubble, as people try to implement it in different forms.

Back in the early days of the home computer, there were dozens of them, which made many geeks like me insanely happy. The Apple II and the IBM PC were well known, of course, but then there were Vic 20s, the Z80s, the BBC Micros, and the obscure ones, such as the Imagination Machine and the Lynx.

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I had a ZX Spectrum, which you might call the dogecoin of early home computers. Small to begin with, but cute to look at, and incredibly successful, it was supported by a dedicated community, at least in the UK. But few memory. Much slow.

Over the years, as the technology matured, all these machines fell away. Only a handful of platforms now remain for computers at home. But it was important for the market to have them when the concepts were so immature, because competition bred innovation.

Hardware is difficult to design and finance, of course. Software is far easier. When the first computer viruses rolled around, there were not that many. Then, people learned the concepts and began writing their own. As computer software inadvertently made it easier (thanks, Microsoft macro programming language!) the barrier to entry decreased. Within four years, the first virus construction kits appeared, and then any wannabe evil genius could make one.

The barrier to entry is similarly low for cryptocurrency. The code is open source, and easy for a developer to tailor in a few working days. Already, there are online tools appearing that let you colour by numbers, and create your own alt with next to no technical skill. There will be a glut of coins for a long time to come.

Faced with a barrage of new coins, what can cause an altcoin to rise above the general din and become more interesting? There are several contributing factors:

Community activity

Coins with a strong community can do particularly well. In some cases, a community builder will work alongside the coin’s technical mastermind, focusing on marshalling a group of people together and making things happen. It’s hard not to respect these coins.

When you have tens of people all lobbying to have an altcoin used at conferences and festivals, and creating cross-promotions with products and services, it quickly becomes the little coin that could.

Ideological or political innovation

Coins are often interesting when they promote a particular ideology or cause. One example is solarcoin, the environmental coin that links itself to renewable energy production.

Some of the earliest ‘national’ coins – whether auroracoin, or the Lakota Nation’s mazacoin – stimulated discussions about financial freedom and economic sovereignty. Now, national coins are sprouting like weeds. Suddenly, it becomes less interesting, because it’s already been done once.

Developer activity

The developer is key. Ideally, the developer is well-known to the community. They are consistent and reliable at updating the coin’s code, and it is encouraging to have more than one developer to handle various aspects of coin development, including exchange integration and block-chain explorers.

However, it’s easy for developers to get burned out, or to go rogue. In the past, there have been cases where a single developer for an alt has absconded, leaving the community floundering and angry at having put in so much work building the ecosystem for the coin.

Technical innovation

Coins that push technical boundaries can often be interesting because they enable the cryptocurrency community at large to test out new ideas.

Computing concepts are one example. Coins that introduce new cryptographic algorithms, or different proofs of work can be stimulating. Economic concepts are another, and coins have tested these too. Freicoin tried this with its demurrage (the application of a carrying cost to money) approach, for instance.

A celebrity

Is Max Keiser a celebrity? I don’t know, but he’s the only near-famous person to publicly launch his own coin as an extension of a personal brand. So that makes it at least intellectually interesting.

One of the notable things about celebrity coins if launched or endorsed by the celeb themselves is that the stability of the coin is supported by a brand that people have already bought into. If Kanye had launched coinye himself, it may have had some significant staying power. On the other hand, tying the fortunes of the coin to the fortunes of the celeb might not always be a good thing: when the A-lister becomes a C-lister, the coin’s popularity is likely to wane in parallel.

Relationship with bitcoin

Just because a coin is cerebrally interesting doesn’t mean it’s going to thrive or go up drastically in price, though, and that’s what most altcoin investors want – auroracoin and mazacoin haven’t fared too well, for example. But ultimately, the value in these coins doesn’t come from their pinball movements on the markets. It comes from their role as counterparts to bitcoin.

Bitcoin’s developers are a conservative bunch, and rightly so. They’re steering a core architecture that forms the basis for an increasingly large commercial layer. In the early days, mistakes were OK. The bitcoin economy would have been more forgiving, because it didn’t really exist. Now that larger money is pouring into bitcoin’s ecosystem, the devs can’t afford to screw it up. So any changes are well thought out, and cautiously implemented.

The alts create a playground for testing features and concepts that would never make their way quickly into bitcoin – a research and development laboratory for features that may one day go mainstream. The crummy coins with nothing to offer are noise that you’ll find in any natural system. The alts with something to offer are the signal. We must take the good with the bad.

And who knows? In time, an alt may develop with the right mixture of innovation, community support and development expertise to gain prominence over bitcoin. We’re in the early days of what promises to be a long cycle of technological development. Anything’s possible.

Coins image via Shutterstock

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