Looking at the Landscape

It seems an oppotune time to dedicate a post to the plethora of alternative cryptocurrencies currently in circulation. If any readers are interested in more detailed analyses for a particular token I will consider your requests.

At this point in time, I find every alternate crypto to be experimental and their prices driven predominantly by speculation. This is not to say that they will all fail, nor that they are unworthy of investment but, I do believe the vast majority will ultimately go to zero.

Are some Alt-coins not better than Bitcoin?

No. None are better than Bitcoin.

Some may reform themselves and, over time, pose a better long-term value proposition. Very few have actual, real world utility [yet] and discovering value in and amongst this minefield will prove to be a very difficult task indeed.

Under no circumstances assume that other cryptocurrencies share the same features as Bitcoin, because they do not. I have mentioned before that we should refer to alt-cryptos as tokens since they do not posses the attributes which make Bitcoin money (security-stability-liquidity).

Most alt-coins launch themselves with the intention of improving upon or solving particular shortcomings which are inherent in Bitcoin. These shortcomings include: scalability (the ability to handle large volumes), transaction speed, privacy/anonymity, memory requirements, resource usage, governance & decentralization. I don’t believe that any alts have successfully implemented any significant improvements in any of these areas. Monero is possibly the exception to this – to date their privacy is unmatched and there is no case of identity leakage that I yet know of.

Types of Alt-coin

There are 2 types of alt-coins. The first are those which have forked off from the Bitcoin Blockchain (similar to what may occur with BCC on August 1st). This is the process whereby a protocol change irreconcilably forks off and a new ledger (following different protocol rules) begins. Litecoin is the most prominent example of this.

The second type of alt-coin is one which has built their own blockchain (note: I will capitalize the ‘B’ when referring to Bitcoin’s Blockchain). These blockchains are sometimes loosely based on Bitcoin, other times they are completely different. The key difference from forked coins is that they have their own genesis block and are coded from scratch with their own protocol and various features. Examples of this type are Monero & Ethereum.

Investing vs Gambling; Fundamentals vs Speculation

Gamblers aren’t usually given enough credit for their abilities. They are generally very skilled at a particular game; with a depth of knowledge including mathematics, statistics and game theory. They generally only play games in which they know their odds beforehand and are willing to take a calculated risk. Their main shortfall is entering the game without a strict exit strategy i.e. “winners know when to stop”.

Investment in stocks, bonds and other financial instruments is more speculative in my opinion. Can the average investor really calculate their odds of positive return? Especially since we know the markets are rigged to a large extent, those outside the “rigging circle” are mostly acting on guesswork. The difference, however, is that investors usually have a specific target in mind and are vigilant to exit the game when it is profitable.

Both, of course, are generalizations. You will find smart investors along with the dumb, just as you will find degenerate gamblers mixed with the professionals.

In my opinion, the most important aspect before entering this market is to be honest with yourself. Are you here for a genuine use case? for fun? for profit? as a career? Will you be here for a quick look, or do you intend on being around for the long haul?

If you can answer the above questions then you may succeed.

The next questions to ask yourself will be in relation to the tokens you choose. If you cannot succinctly answer: what, how and why you choose a particular token then you are speculating. There is no debate about this. I truly believe that only a handful of people on Earth genuinely understand what Ethereum is, how it works and why we actually need it; yet it has a market capitalization of ~$17 billion.

Charlie Lee (creator of Litecoin) offers his advice for evaluating different tokens:

The thread is 23 tweets long and is well worth going through in its entirety. Also note that as a professional developer Charlie has the expertise to understand the code. The average Joe cannot interpret code and therefore will have to rely on the opinions of others, which in itself is a dangerous game.

We especially need to be aware of the jargon deception:

blockchain ≠ decentralized

token ≠ currency

cryptocurrency ≠ secure

revolutionary ≠ useful

whitepaper ≠ business plan

There are potential traps at every step and scamsters around every corner. Be vigilant and make sure you do your homework.

Projects with potential for long-term value and/or catastrophe

There are a handful of tokens that I am mildly interested in and have begun looking into. I believe the ideas behind these tokens have merit but it remains to be seen if they can become fully functional and/or valuable:

Monero (XMR) – Anonymous untraceable currency.

Ethereum Classic (ETC) – blockchain-based computing platform featuring smart contract functionality.

Siacoin (SC) – Distributed cloud storage.

Storj (STORJ) – Distributed cloud storage.

Golem (GNT) – Network for renting out idle computing power.

Civic (CVC) – Decentralized identity verification network.

Initial Coin Offerings (ICOs)

Since inception, Bitcoin was framed as the scourge of the earth by the establishment media (and still is by many publications). Yet, ICOs are suddenly attracting positive media and, as a result, is helping to funnel tens of millions into risky digital assets. All of a sudden the media are stumbling over one another to hype up the next “world changing” ICO. Beware of anything printed by establishment media; they are bought and paid for and their glorified advertising space merely masquerades as journalism.

ICO tokens can almost be put into a third category of alt-coin. They do not originate from a hard fork event nor do they build their own blockchains from scratch. Typically they launch from an existing platform and operate on top of that platform’s blockchain. Ethereum is the most widely used but there are multiple others including: Ethereum Classic, Rootstock, EOS, IOTA.

The only justification I can find for participating in an ICO is the greater fool theory:

The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. In other words, one may pay a price that seems “foolishly” high because one may rationally have the expectation that the item can be resold to a “greater fool” later.

This is a dangerous tactic since it’s quite difficult to know if you yourself aren’t the greatest fool.

ICO_cartoon.png

Also of relevance are the legal ramifications of this new investment mechanism. For further information see the latest ruling by the Securities and Exchange Commission. A simplified interpretation can be found here.

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