Now that Bitcoin has stabilized above $100 for a while, and the world’s press is sending out a steady stream of info (or disinfo) on the subject of cryptocoins, I’m getting bombarded with questions about the alt-coins, such as Litecoin, PPCoin, Novacoin, Namecoin & even Ripple. “Alt coins” is a term used to describe all of the cryptocurrencies that aren’t the dominant cryptocurrency at the time. (e.g. Not bitcoin.)
Alt coins have all branched out from bitcoin, started in it’s wake, and each and every one of them excepting only Ripple are based on the same decentralized, peer-to-peer architecture that requires a miner crunching cryptography and user wallets to function. Yes, they are all worth dollars in trade on some exchange somewhere right now as I write this, and all have their own developer community and hopeful users like bitcoin does. (Only much smaller, with extremely little, if any, merchant adoption.)
Why are people putting time and money into alt coins? It is assumed by the developers that one day a major government or at least the Mexican drug cartels will have a reason to try to “take out” bitcoin. Although its peer-to-peer behavior should be adequate at stopping these threats, nobody knows what the future holds, and the fate of our very economy is at stake here… So litecoin (LTC) was the first created to be a sort of “understudy” or backup for bitcoin. It has it’s own wallet, mining software and blockchain. Although it was the 2nd alt coin created, it has almost always been the most traded of the group, worth about 2.5% what a bitcoin is worth.
For an updated listing of all cryptocurrencies, with descriptions, see here.
The parallels between Precious Metals and Cryptocurrencies is pretty interesting. Litecoin is to bitcoin pretty much exactly what Silver is to Gold, In both use and price. I’m glad that litecoin exists to support and be a backup for bitcoin, but in much the same way I don’t see Silver outperforming gold within our lifetimes, I cannot see litecoin becoming anywhere near as popular as bitcoin.
Actually, LTC is even more capped than silver is. As long as bitcoin is still uncompromised, it will be the most popular cryptocurrency and that can’t change because of the momentum of market adoption. Convincing all the merchants in the world to accept bitcoin is a wholly incredible feat of marketing and devotion… One that many economists say is in fact impossible.
No matter how many speculators or traders pump up LTC, they can’t convince the world’s merchants to switch over to it from bitcoin!
That is something that is not tied to the price of a cryptocurrency at all, but instead to direct marketing efforts. (Think: Billions of man-hours with enthusiasts convincing merchants one-on-one.)
Then there is the huge issue of miners’ choice of network security. Remember, the network for any cryptocoin “belongs to” the majority of the miners processing it. That’s why we join lots of different mining pools, instead of all piling into the one with the presumed best payout.
Theoretically, you could counterfeit or even destroy the whole bitcoin network (or all the trust in it at least) if “the bad guys” somehow gained control of the majority of the mining processing power… This is called a 51% attack, and miners would rather the bitcoin survive than not, so we are all kind of protective about the overall network hashrate, of which our hardware contributes to.
We are all taught through our mining pools, forums, and initial documentation how important our job is to bitcoins network security, so you aren’t going to see us all ‘hop on the litecoin train’ one day just because litecoin mining is a bit more profitable than bitcoin mining. (For assurance that I’m not imagining this point, just look at the mining pool Hashrate distribution.)
For this reason alone, you can rest assured that no alt coin will ever, and I do mean ever, challenge bitcoin for supremacy, unless either bitcoin is completely compromised, or the fundamental structure that defines a cryptocoin itself, mining blockchains, is removed from the structure of bitcoin someday, decades or centuries down the line.
So litecoin is completely, utterly, tidally locked in to a very small percentage of the worth of bitcoin, and will be right there in the #2 slot until either bitcoin is somehow taken out, or another alt-coin overcomes it’s price.
Are litecoins worth your time to invest in, speculate in, or be a miner for?
The short answer is yes; but not nearly as much as bitcoin itself.
They can be extremely volatile, which makes daytrading fun and profitable. It moves in relation to both the USD and the Bitcoin at the same time on many exchanges, so it’s not completely without any predictability… For instance if you see it at the top of it’s range, up against the “ceiling” in BTC<>LTC, then it is likely not time to buy more on the USD<>LTC graph at the same time.
Mining too can usually be more profitable than mining directly for bitcoin, if you trade your LTC for BTC while the exchange rate is favorable, that is.
How about the other alt coins?
I’m no expert on the rest of them, but I’ll spill what I know here. None of them show as much promise as bitcoin of course, but they all seem to have a slight advantage that has kept them in the game.
Namecoin (NMC) was the first coin produced after Bitcoin, and it has the very interesting property of serving as an open-source Domain Name Registration system! (a P2P ICANN)
That’s right, it’s not really trying to just be a currency; Each coin is the key of ownership of a domain name that everyone can view under the .bit top-level domain. (Although you can’t browse to a .bit domain right now without a software addition anyway.)
It’s still quite confusing with their present level of documentation, but I see that you can use both namecoin and bitcoin as currency to purchase .bit domains with, which is kinda hard for me to wrap my head around and I want to see some better docs on how this actually works myself.
One thing I do know, however, is that namecoins owe a lot of their existence to the ability of bitcoin miners to somehow simultaneously mine both bitcoins and namecoins without losing any bitcoin hashing speed! -I do this myself… It is a default setting in the BitMinter mining pool. So It’s a nice little extra free income for me. Yay namecoin.
PPCoin (PPC) was the next big coin after litecoin, and it attempts to improve upon the bitcoin design in a few ways that I frankly do not approve of.
First of all it does not have an upward limit of how many PPC will be minted, so it could in fact hyperinflate one day. Improvement? I think not. Apparently some Keynesian programmer thought that bitcoin’s 21 million coin limit was too crowded for them. Sheesh.
To throttle this speed, which they claim is more like the actual mining rate of Gold than bitcoin, they’ve added a very complicated concept called “Proof-of-stake” that I haven’t been able to wrap my head around yet either.
They claim that using proof-of-stake makes it more energy efficient as well… In the long term. Sadly for the PPcoin team, PPC trails the price of all other coins, trading for 0.002 bitcoins today.
Novacoin (NVC) is, from everything I can see, completely identical to PPcoin, excepting only the fact that they do have an upper limit; a total cap of 2 Billion coins. Oh, and they use a different hashing algorithm.
Trading at about 32 NVCs to the BTC right now, it is interesting that they are worth more that 10 times as much as a PPcoin with such a similar design… I guess it’s pretty obvious what investors think about PPcoin’s lack of an upper limit, huh?
Terracoin, (TRC) is for all I can tell, a direct clone of bitcoin with only one change: Twice as many terracoins will be mined than bitcoins. (And they pay off to miners a bit more often, too.)
I can’t imagine what these guys were thinking; but from their big talk on forums they seem to believe that the world needs this silly little bitcoin-clone so they’re sticking with it.
Meanwhile I’ve never even heard of a miner say he’s mining these coins.
Currently, one bitcoin can buy you 250 terracoin on BTC-E, but I would not suggest making that trade… This one has some very long odds if you ask me.
Other true Cryptocurrencies:
There are actually dozens of others, including BBQcoin, (Yum) and some others with creative names, but the coins above can be traded on exchanges like BTC-E, the Rock, and Virtcurex, while these others cannot… So they are in effect dead.
Ripple is something… Completely different. Although it has it’s own currency in it, “the ripple,” (XRP) Ripple is first and foremost a network that can deliver many different currencies from one party to another.
The one good thing I can say about ripple is it solves the problem of having a centralized exchange like MtGox, because it is a means of trade between currencies at it’s core, and therefore acts like the exchange itself! That would be awesome but it’s drawbacks are too many.
First of all, ripple is not based on bitcoin at all, nor is it even open source! I don’t mind seeing a little competition to Satoshi’s vision, but hiding the source code from us so we can’t see how it ticks and if there are any backdoors to the thing is simply unacceptable. For this reason alone, I’ll never pay a single PPcoin for a ripple.
Secondly, and just as sad really, is the fact that Ripple is not actually decentralized in that it is run by a COMPANY, who takes fees! Sheesh… Not only will the fees scare many people off, but if it somehow did grow legs, uncle sam would easily destroy this whole organization without a second thought… And the whole system would be dead overnight. (Reference: eGold.)
So Ripple’s not going anywhere, naturally, but I must say that Ripple’s promotional material is absolutely top notch, and has already gained them tons of followers. (Who all apparently can’t see the problem with it being run by a company. Oh well.)
In summation, alt coins are good for exactly two purposes:
- They serve as “understudies” for the possible dark day in the future when bitcoin receives a fatal attack.
- They are fun speculation currency to trade with in the market.
Other than that, these oddities are not going to leave much of a mark on history, because any improvements that bitcoin needs to survive will be made to bitcoin itself, not to an alt coin.