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

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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.

 

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