Imagining a Truly Alternative Bitcoin

Jacob Harper |

It’s little surprise that in light of the great bitcoin boom of the last six months, there’s been a slew of variations on crypto coins flooding the market. After all, bitcoin made its anonymous early adopters rich, rich, rich. Getting in on the ground floor of bitcoin now though is an impossibility.

Since we can’t turn back time to 2011, the answer for people who want to profit off the cryptocurrency boom in the same fashion is to create a new ground floor. Tweak a few things, rebrand, and release an alternative cryptocurrency. That is, follow the old Hollywood maxim of “giving the people the same – but different.”

The Digital (Currency) Revotlution

In the last year or so we’ve seen it play out with the cryptocurrencies that, despite their differences, very closely resemble bitcoin, and move in tandem with the price of bitcoin. Dogecoin, Litecoin, vertcoin, darkcoin, namecoin, not to mention the 30 or 40-odd other coins that seem to pop up and/or disappear every once in awhile. Different… but the same.

Different in proof-of-work or proof-of-stake network security; different in pre-mined amount, different in logo branding. But the same in the fact that they tend to get early adopters rich. That’s because an altcoin creator’s main motivator right now is the free market, and the free market’s greatest motivator is profit.

Even coins like peercoin and dogecoin, which are designed with slight, measured inflation (as opposed to the tendency of most cryptos to favor deflation), tend to more resemble bitcoin in price movement and speculation than not. There are outliers in crypto, to be sure, but considering that BTC’s market cap is more than all other coins combined, it is still the clear market leader and dictates the altcoin story.

What would a coin that did not essentially mimic BTC look like? A coin that did not so heavily favor the “insiders” from the get go? One that did not favor early adopters and thus encourage speculation, fraud, and pumping?

SocialistCoin, InvestmentBankCoin... ProspectorCoin?

There’s three possibilities. There could be a centralized coin. This coin would be an altcoin widely distributed, without a fixed supply amount, and with measured inflation in relation to goods and services. This of course would necessitate a human governing body to tweak the money supply. Which of course wouldn’t be kosher with the libertarian ideology held by most crypto fans.   

It would also amount to a SocialistCoin, which won’t be happening anytime soon. For crypto is, despite whimsical variances like dogecoin, married to an undiluted notion of a decentralized free market.

But it has sort of happened before. The altcoin Auroracoin’s inventors pre-mined 50 percent of the coin, and then tried to distribute approximately 31.8 coins to every Icelandic citizen. After the Robin Hood-esque “airdrop” on the nation (which the Icelandic government opposed) the coin immediately tanked, dropping from $10 to $1.60, and despite a slight rebound has continued to languish. Adoption has proven to be slow as well, with a market cap under $700,000. Auroracoin is far from dead in the cyberwater, but it’s certainly not the radically different coin that would prove a real alternative to bitcoin.

A second option would be a coin with a derivatives, or short market, built up concomitantly with the coin itself. Equities.com Quantitative Research Analyst Nicholas Bhandari discussed how such a market can act as a check and balance to by allowing investors to hedge and price out cryptocurrency's volatility, making a coin that is safer to invest in for the populace. Setting up a sophisticated derivtaives market around a coin would likely necessitate the introduction of "institutional money," AKA investment banks, again something many digital coin aficianados would not like to see.

A third option for making a coin that was radically different, as far as giving everyone a fair shot, is one that made mining more accessible. Mining, the process by which new coins are “discovered” by cracking increasingly more difficult math problems, gets exponentially harder as more and more coins are mined. In a way, it’s like gold, where the “claim” gets more difficult to work as time passes.

But getting into coin mining takes more than verve and a digital shovel and pickaxe. There’s little chance a plucky bitcoin or altcoin prospector can succeed with some basic, easily accessible tools and pure gumption. Coin mining heavily favors those with the biggest, best digital mining rigs, which usually go for thousands of dollars – at least. And even those pricey rigs will get less and less efficient over time, especially when the majority of digging is done by those who can shill out for a warehouse claiming to generate $8 million in BTC a month.

We've Still Got a Problem

Then again, if mining were too easy there’s the problem of rapid worthlessness. If mining is too accessible, coins will quickly lose their value like so many overprinted baseball cards.

Nobody said building an economy from scratch was an easy thing, especially one that’s anywhere near as “fair” as the USD (and that’s a sentiment that needs scare quotes) considering the relatively vast economic inequality of BTC and its ilk.  Whether an altcoin comes out that’s less profit-driven, or one that democratizes access to created capital, remains to be seen. But for now, just keep in mind, whether BTC or altcoin, if you’ve heard about it at all, that means the deck is already likely stacked.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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