Forbes Magazine Published Article about Litecoin and Namecoin

Time has indeed changed for the obscure world of alternate crypto currencies, when the well circulated and reputable financial publication Forbes magazine starts publishing articles regarding not only Litecoin but also Namecoin. Here is the link to the article: . Here are the two notable quotes:

Following yesterday’s news that Bitcoin had passed the $1000 mark, the halo effect continues this morning with the crypto-currency market capitalization site reporting that Litecoin has joined the billion dollar virtual currency club. Litecoin is currently trading at $48.99 with a market cap of $1.14 billion dollars (as of writing).

(Update; Namecoin, yet another virtual currency passed the $100 million dollar valuation threshold today.)

Just as everyone are still slowly discover Bitcoin, the existence of alt-coins will surprise them even more!

Namecoin (NMC) – Platinum in the World of Crypto Currencies

If Bitcoin is to be considered to be gold, then I would argue that Namecoin should be considered as Platinum. Not silver or copper, but the rarest of precious metals, platinum.

Let’s look as some pertinent numbers to bolster the argument. Bitcoin has in circulation a total of 12 millon coins in circulation and with a current difficulty of 609 million. By contrast, Namecoin has in circulation a total of 7.4 million coins with a current mining difficulty of 456 million. In other words, there are nearly twice as many bitcoins as namecoins, furthermore, the it requires on 50% more effort to find a bitcoin than a namecoin.

In terms of scarcity, Namecoin indeed is like the scarcest of coins. Platinum is an extremely rare precious metal, only 6% of platinum is mined as compared to gold. Given how rare platinum is, it is surprising that the price per ounce of platinum is not comparatively more than gold. Platinum is currently at $1,358 per ounce while gold is at $1,240 per ounce. Clearly Platinum appears to be under valued compared to gold if one considers scarcity.

Namecoin compared to Bitcoin is also considerably undervalued. As of this writing, you may buy Bitcoins (quotes from BTC-E) at $946 while Namecoin is at 11. This is an extreme disparity, which I believe over time will be corrected. In fact, it may not even be ridiculous to find that the price of Namecoin exceeding the extremely lofty levels of Bitcoin!

There however is more to a crypto-currency than scarcity. Another important consideration is the liquidity of a coin. If a coin is heavily traded like Bitcoin is across multiple exchanges around the world, then the value is proportionally increased as the trading volume increases. This kind of network effect allows even larger sums of money to be transferred via Bitcoin without substantially affecting the price.

Namecoin is not traded in as many exchanges as Bitcoin. For a long time, the volume for Namecoin at the BTC-E exchange was quite anemic. However, in the last few days, the volume in the NMC/USD trade exceeded 23 million USD a day. This is a remarkable change and bodes well for the future of the coin.

Two New Exchanges Start Trading LTC/USD

It has been a very frenetic weekend for exchanges.  Two new exchanges have started trading the LTC/USD currency pair.   I previously surveyed several exchanges in the post “A Survey of Crypto Currency Exchanges“.   In this post, I make a quick survey of the new exchanges.

The two new exchanges are Bitfinex and Crypto-Trade.    These two new exchanges look to me to me more advanced than any of the existing exchanges.


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The look and feel of this exchange is extremely basic, it does not even have a chart of the trading! However, underneath the basic functionality is an exchange platform that is incredibly advanced.    Bitfinex currently trades BTC and LTC.  USD can be transfered to the exchange via wire transfer.

The major differentiator of this exchange is the ability to use margin (i.e. borrow money) and to loan out your own money to traders.   Furthermore, this exchange also allow one to trade buy and sell on other exchanges like Bitstamp.    Due to these two features, I expect this exchange to explode to one of the major crypto-currency exchanges.    One indicator of the massive acceptance of this exchange is the amount of USD loaned out.  At this time it is at 700,000 USD.  This is pretty incredible for such a new exchange.

Bitfinex takes security extremely seriously unlike major exchanges that treat it as an after thought.   Wallets are stored in a customize BitArmory wallet and placed entirely into cold storage.  Two factor authentication is also available as an option.

Liquidity still needs improvement of LTC, however BTC liquidity is decent.  The exchange resides in Hong Kong.


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This exchange arguable has the most sophisticated interface among all the other exchanges.   This exchange was developed by the same folks who developed  Crypto-trade currently trades 9 crypto-currencies.  The exchange seems to have adopted all the currencies available at BTE-e with the exception of NVC.   Liquidity at this time is completely absent, that’s because it just started.

Security is quiet comprehensive include, captcha for logins,  pins that require the mouse to punch in,  question and answer verification and email verification withdrawal.   The site also has a chat box that one can conveniently hide.

In summary, this looks like one of the best designed exchanges.   However, we’ll have to wait and see if it can gain enough liquidity to be of value.

The exchange is also based out of Hong Kong.

What happened on March 4th, 2013?

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On March 4th, 2013 something happened to Litecoin that began the start of an incredible explosion in price versus the US dollar.   This event occurred after almost a year of non-eventful trading.

This photo depicts the exact event that was the primary catalyst for the massive price increase:


“Mineforeman” posting writes:  ”While details are still somewhat sketchy it seems that another 3 Avalon ASIC bitcoin miners have been delivered.”


A Survey of Crypto Currency Exchanges

Here’s a quick survey of existing crypto currency exchanges that support alternative currencies.   This survey does not include exchanges that support only Bitcoin like MtGox, CampBX, Coinbase and Bitstamp.   That will be for a future survey.


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The most popular of the exchanges with very deep liquidity.   Approximately 8% of Bitcoin transactions go through here and possibly 95% of Litecoin transactions.   BTC-E is extremely robust and rarely does it go down due to trading volume.  Handled DDOS attacks via CloudFlare which on occasions prevents access to the site.  Limited options to send USD into the exchange, however extensive option to send USD out of the exchange.   Charting not very good in that no volume is shown and the time scale cannot be changed.    Withdrawal of money is protected via the requirement of an email confirmation.   A very popular trollbox that can be extremely noisy.  This is the most important exchange in the alternative crypto-currency world.  Exchange is hosted in Germany but run by Russian operators.


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A lot of different currencies (12 at this time) that can be traded in all combinations.  That is, one can trade FRC to LTC if the need arises.  This is the only exchange that supports this, most other exchanges can exchange only to BTC.   Liquidity is extremely poor in the exchange.  Charting does show volume but no time scale option.  Charting can show inverse relationships.  Trading can at times be extremely slow, this is surprising since there is no liquidity.   Vircurex has gone offline several times,  more recently due to a hacking incident.   Fortunately, accounts did not lose their funds.   Employs YubiKey for 2 factor authentication. Exchange allows only one way to add and remove USD funds.  Exchange appears to be hosted in Canada.


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A few currencies ( MNC, LTC, SC and WDC) can be traded to BTC.  The exchange is extremely fast and never has a downtime with the exception of upgrades.  Charting is simplistic and only shows hourly averages.   Personally trading history very difficult to keep track of.   Exchange provides incentives to trading by drawing a lotto every 5 minutes.   Chat box is quite popular.  No ability to exchange to USD.   Poor support for two factor authentication and password recovery.  Exchange hosted in Australia.


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Multiple currencies (10 at this time) all exchangeable to BTC.  Charts shows volume with a time scale option.   Prices can only be set up to 5 decimal places.  This makes it very difficult to trade most currencies since this makes the spread extremely high.   No option to exchange to USD or any other currency.   Extensive use of 2 factor authentication for security.  Exchange is from mainland China.


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Multiple currencies (18 at this time) all exchangeble to BTC.  Very low liquidity.  The best chart among all the exchanges, shows volume and allows time scale change interactively.   No option to exchange to USD.  Exchange is of U.S. origin (Florida) and claims to be registered with the BSA as a Money Services Business.


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Multiple currencies (7 at this time) exchangeable in multiple ways.  Very low liquidity.   Exchange is built of the Drupal platform.  Employs OpenID for log in allowing existing accounts for other sites to be used as login.  Uses Google Authenticator for two factor authentication to secure withdrawals.   Exchange is extremely slow.  Charts do not show volume.  Money has been known to be lost in the exchange.  Exchange is extremely buggy and maintained as a hobby by the operator.  Site operator cannot afford a proper site certificate.  Hosted in Germany.

Anatomy of a Pump and Dump Coin


image source: microcapclub

In recent days, the Coin Pump and Dump has been one of the most lucrative of schemes.   This scheme goes like this:

  1. Announce a new coin in without advanced notice.
  2. On release, create a ‘private’ version of the daemon with target spacing between blocks of just a few seconds.  However, claim that the coin allows miners to mine at a rate of about 30 seconds or more.
  3. Mine the coin with zero difficulty after announcement to give the appearance that the coin is not pre-mined.  
  4. Release the public version of the daemon with the advertised target spacing and let miners scramble and struggle to mine the coin.  Watch as miners get mostly orphan blocks trying to keep up with the fast growing block chain.
  5. When difficulty rises after, remove the ‘private’ version from the network and mine with the ‘public’ version.
  6. Start conversations on about selling the newly minted coin.  Post faux trades to pump up the price.
  7. ‘Convince’ exchanges to adopt the coin.   This is done best incrementally, one exchange at a time until it reaches BTC-E.
  8. Pump up the price on each exchange when listed.  This is possible because it wil take time for other sellers to transfer the coins they have to sell.  That’s assuming they have any coins to sell!
  9. Dump the coin in a discrete manner.

That’s how Coin Pump and Dump works.   The actual record of step ’2′, that is, using a private copy of the coin, can be seen in the first blocks of the chain in a block explorer.   Check your favorite alt-coin to see if it has minted coins every few seconds with zero difficulty.   The block chain should confirm if your coin is indeed an Pump and Dump coin.


Does it Make Sense to have Only Bitcoin?

Bitcoin developer Amir Taaki

image source: The Guardian

I continue to hear this argument that the world only needs one kind of crypto-currency and that is Bitcoin.   Although Bitcoin is the first successful distributed P2P digital currency and it is the best support currency, that however does not imply that another alternative coin cannot exist.

I would argue that a Bitcoin monopoly cannot possibly exists in the long run.  Rather, there absolutely needs to exist alternative crypto-currencies which one can trade Bitcoin into.   Think about it, if you could only trade Bitcoin into Fiat (i.e. USD, EUR, GBP etc.)  then this would be a problematic situation from a Taxes point of view.   Does one have to pay tax everytime one sells Bitcoin into Fiat?   The existence of an alternative currency avoids this tax requirement.

I predict in the future that there will be multiple crypto-currencies that serve different audiences.   Currently, almost all crypto-currencies are identical.  I however see a day when there would be coins that would support stronger identity requirements,  stronger claw back provisions, coins that discourage mining and even coins that are closed to the public.

What Differentiates Litecoin from other Crypto Currencies?


What differentiates Litecoin from Bitcoin and all the other alternative coins?

Litecoin differentiates itself from Bitcoin in two significant ways:

  1. It uses a proof-of-work algorithm called scrypt (see: Percival) that makes it economically infeasible to develop an ASIC to mine the coins.
  2. It has 2.5 minute confirmations versus Bitcoin’s 10 minute confirmations.

The first feature is extremely significant in that it is the most significant reason why Litecoin has gained significant value since March.   In fact, the introduction of the Avalon ASICs in the March 3rd, 2013 can be the precise reason why Litecoin prices shot up almost 1000%.  What happened is that the many miners who had invested considerably in GPU based mining rigs were forced to focus their mining in Litecoin.  Overnight, Litecoin had inherited the massive GPU mining operations that had been mining Bitcoin for the past 3 years.   Significant amounts of hashing power were transfered over to mine Litecoin.  In fact, one may argue that the miner network for Litecoin is more robust since the hash power is distributed to more miners as compared to with Bitcoin where only the fortunate few have access to ASIC miners.

The second feature is less significant to Litecoin’s growth, but it is a clear differentiator to Bitcoin.  Faster confirmations don’t make a transaction more secure, it is the time elapsed in the distributed ledger that makes a coin more secure.   However, for small amounts, one does not necessarily need to have 6 confirmations every 10 minutes.   Litecoin provides the flexibility to have a faster confirmation time for smaller transaction amounts.  This flexibility is unavailable to Bitcoin with its fixed 10 minute minimum block confirmation time.  The flexibility is what is valuable, it is not the speed.

In a previous entry, I mention that all of the other new alternative currencies are clones to Litecoin, how then does Litecoin differentiate itself from these other coins?  Litecoin differentiates itself by having several orders of magnitude greater trading volume than the other competing coins.    As an example, TRC is an exact clone of BTC, BTC of course is 400 times more valuable than TRC.  That is because, a user can easily exchange 10,000 dollars worth of BTC without affecting the price.  If one were to sell 10,000 dollars of TRC, one could easily affect the price by 10%.

The daily trading volume of Litecoin in the BTC-E exchange averages around $1m.   This is significant in that it makes the exchange of large sums of money feasible with Litecoin.   This advantage will further increase as Litecoin is listed in new more liquid exchanges like Mt.Gox.

The value of a coin is similar to the value of a social networking site.  There are network effects in play where the utility of the service grows the growth of its users base.   The disenfranchisement of Bitcoin GPU miners has caused the massive hash rate growth of Litecoin.   The liquidity of the BTC-E exchange has also created growth in that there are more speculators and traders actively participating in the exchange of Litecoins.



The problem with Alt-Coins is that there are too many of them!


image source: Irish Central

In the last month, there has been a extremely violent increase in the number of alternative crypto-currencies.   This frenzy was kicked off with the release of Feathercoin, a coin that is almost identical to Litecoin with the exception of a few naming changes in the source code.   Feathercoin, minted 1.6 million coins in 3 hours, and within a week almost 5 million coins had been created.   Furthermore, the coin was released for trading in 4 different exchanges with a week of introduction.   The remarkable speed and ease in which this coin was released emboldened many other parties to release their own coins.

In just this month of May, the following new coins have been created:

  1. FTC FeatherCoin - A Litecoin derivation that mints at 4 times the rate. 
  2. MNC Mincoin -  A Litecoin derivation with 1 minute confirmations and a low mint rate of 2 coins per block.
  3. CNC CHNCoin - Derived from Feathercoin, release a week after.   Purportedly a Chinese based coin.  
  4. BTB BitBar-  Derived from NovaCoin. Very low inflation.
  5. JKC Junkcoin- started as a joke,  Litecoin derivation, but appears to be surviving.
  6. YAC YACoin- Yet Another Coin. NovaCoin derivation, with proof-of-work based on ChaCha rather than Salsa.  Presently CPU only mining.
  7. WDC Worldcoin- Litecoin derivation with 15 second confirmation.

In addition to these 7, the following have been created RYC Royalcoin, FRK Franko, NBC Nibble,  PWC Powercoin, SRC SunrRsecoin, GLD GLDcoin, SPC Supercoin, BitGem, DGC DigitalCoin and Elacoin.

Interestingly enough all these coins have one commonality.  All these coins are scrypt based.

It has become increasingly apparent in the Crypto-Currency world that alternative coins based on the same proof of work scheme as Bitcoin are increasing vulnerable to ASIC based miners.   These SHA256 based coins are TRC Terracoin, DVC Devcoin, IXC IxCoin, FRC Freicoin and PPC P2PCoin.  No new SHA256 based coins have been released since PPC was release in late 2012.

Clearly the creation of a new coin appears to be as easy as creating a new site.  In fact, it is inevitable that more new kinds of coins will be created in the future and may just be as prevalent as websites.   This is the natural evolution of Crypto-Currency,  more new coins are a given.   However, darwinian selection will kill of the coins that cannot provide differentiation and value.  The question though is this, does the creation of new coins hurt the overall economy of Crypto-Currencies?

My answer to this is that it does not.  There are currently 3 pools of money.  One pool are in the Bitcoin world, the second pool is betting on Litecoin, the first scrypt based coin,  finally the extremely speculative money is in a single pool that bets on new alt-coins.   The trend has been that with each introduction of a new coin into an exchange,   the value of the other alt-coins tend to decrease.  This is a consequence of the limited amount of money that gets spread across more new coins.

So for example, in the BTC-E exchange, where previous to the introduction of FTC and CHN,  the alt-coins PPC and TRC were trading.   Upon introduction of FTC and CHN, PPC and TRC prices loss 25% of their value.   The effect on BTC and LTC however were not obvious, the two major coins have tended to trade in unison.

In summary, I expect to see more new coins introduced.   Each new coin introduction dilutes the value of the previous coins before them, essentially spreading the wealth around more.   The trend in value of almost every alt-coin will go down unless the coin can show unique differentiation and value. If you have spare time - please also read about binary option trading opportunities Read about 5 Minute Binary Option Strategy