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Real-time self-government in the cryptocurrency frontier: Jungle rules

By Daniel M. Ryan
web posted August 4, 2014

There's Bitcoin In Them Thar Hills

If there's something you need to know about the minor-to-bush league of altcoin speculation, it's the plain fact that there's too many Bitcoin chasing too few punts. This ratio has been surprisingly stable, despite what a theoretical economist unaware of the scene will tell you. Yes, the supply of altcoins did adjust to meet the demand of all those speculators with Bitcoin to "invest." But the punters adjusted too. In response to the flood, and to a lot of disappointments, they've become choosier. So, the hothouse ratio continues more-or-less in equilibrium. By the vague standards that ‘umble non-pros like me use, the action is just as hot as it was before the wave of altcoins turned into a torrent. There's just more "---coins" nowadays where the action ain't.

If you read part two and investigated further using the Vault of Satoshi's listings, you noticed that altcoin prices are much, much lower than those of Bitcoin. As of the time of this writing, one of those alts – Noblecoin – last traded at US$0.00013000 per NOBL, or little more than one eightieth of a Lincoln penny. The still-popular Dogecoin last traded at US$ 0.00019680 per DOGE, or s smidgen more than one-fiftieth of a Lincoln. By contrast, Bitcoin last traded at the same exchange at more-or-less $570.

Part of that huge price differential is caused by Bitcoin enjoying a far greater demand. But a large part of it is caused by the piddly-price coins having far more of an outstanding float than Bitcoin's. That's why a fairer comparison is found at Coinmarketcap: it takes the last trade price of alts in terms of Bitcoin, multiplies those values by the last trade in greenbacks of Bitcoin itself, and then multiplies those figures by each alt's total coins outstanding to get the cryptos' "market caps." Using Coinmarketcap's listing, you'll see that DOGE's total value is much greater than its per-unit price suggests. As of the time of this writing, Bitcoin's market cap was US$7.67 billion while Dogecoin's was $18.57 million. By this metric, Dogecoin is collectively worth about 0.242% of Bitcoin's worth. Noblecoin, on the other hand, is much father down on the list. The implied market cap of NOBL, as of the time of this writing, was only about $163,000.  If all of them could be sold for Bitcoin at the then-prevailing market price, the total proceeds would be about the median price of a house in the Midwest.

This relative dearth of market cap explains part of the altcoin boom-town hothouse. All it takes for an altcoin to be a "serious" coin is a market cap greater than the median price of a house in Vancouver, Canada. There's a condo located at 201 E 80th St in Manhattan's Upper East Side, with 1,889 square feet of space, three bedrooms and "3.5" bathrooms. Its list price is just a little below the market cap of an altcoin we're about to look at, Quark. Before Dogecoin exploded out of the mostly listless ground floor of Coinmarketcap's listings, Quark both captured the hot-house whirl and served as a guiding star for many, many developers with an eye on their Bitcoin wallets becoming full of swag. It wasn't the first hot hot altcoin in the 2013-14 whirl calendar – Feathercoin was - but it was one of the early ones.

As you'll see, Quark will be the first of three case studies that highlight some of the better coins in the altcoin micro-universe. In the spirit of full disclosure, I disclose that I own none of them. In the spirit of a vital warning, I have to emphasize that these cryptos are much, much better than the typical one. Hypee beware – be very, very wary. It's a hot-house jungle in here.

The Ups, Downs, Charms, And Strangeness Of Quark

When it was first listed at the most venerable altcoin exchange in the top five, Cryptsy, Quark's market cap was so small that its initial price was subject to two well-known distortions: the Cotillion Effect and the Cryptsy Deposit Delay Effect. The Cotillion Effect is one displayed by many altcoins when they make their big debut on a solid exchange. For a time, they become the belle of the ball and are chased after assiduously – for a little while; typically, for no more than a few weeks. Then, the ardency of the suitors shifts to another belle or just vanishes. In the case of proof-of-work coins, which share this feature with Bitcoin although the nuts-and-bolts usually differ, the Cotillion Effect is magnified by the fact that the coins are created and distributed in a hard-coded fixed schedule that, until recently, lasted years or even centuries. At the outer limit, until or unless it's changed in response to disappointed shibes' urging, is Dogecoin: it's hard-coded to increase its supply by 5% forever.

In many cases, there's a "pre-mine" for proof-of-work coins. The coins from said pre-mine are – formally, sometimes ostensibly – devoted to development funds and often giveaways. The rationale behind giveaways is to assure a wide distribution before an exchange listing, to make sure that there's a crop of cryptonauts with some skin in the alt before it's traded formally. Giveaways are so common, the moderator of Bitcointalk's Alternative Cryptocurrencies board made a formal rule disallowing giveaway threads. They're officially considered spammy.

As you might have guessed, this giveaway creates a fan group in a hurry - although many of them are cynical "dumpers" who plan to sell their stakes for whatever they can get. The devs know this well, so giveaway stakes are typically modest. Nonetheless, even the dumpers have an incentive to whip up ardour for the next contender for the coveted spot as the ball's belle. If a crypto deb doesn't have that BTC-on-the-barrelhead ardour when it's freshly listed, it's written off as a plain-Jane coin and preponderantly ignored. In the spirit of fully disclosive confession, I have to admit that the alt that I'm the co-lead dev for – NFD – is one of those wallflowery plain-jane coins. For whatever reason, a plain-jane crypto is my type. Feel free to adjust your reader's lenses and frames accordingly.

Quark was definitely a sought-after deb. When it made its début on the altcoin exchange Coins-E on July 25th, it started on an upward glide that saw its BTC value more than double in less than three days. Its coming-out on Cryptsy the next day was even more spectacular, albeit distorted by an artificial scarcity that still pops up even today when Cryptsy first lists a new stunner.

The trouble with Cryptsy is, a new listing of a popular coin inevitably gets tangled up in such a way that the coins are difficult to deposit. As a result, there's an artificial scarcity – the Cryptsy Deposit Delay Effect - that amplifies the Cotillion Effect on the first day or two. Suffice it to say that the wise gentleman will wait a week to take the hand of the latest deb.

As this all-time chart of Quark shows, the ardor cooled quickly until a little after Big Bitcoin rocketed up from about $100 to well over $1,000.

For convenience's sake, the typical unit of account on alt exchanges is the "satoshi." Named after its pseudonymous creator, "Satoshi Nakamoto," a satoshi is the smallest unit of Bitcoin that the Bitcoin infrastructure allows. It's one one-hundred-millionth of a Bitcoin. An alt has to be pretty pricey before its price appears in fractions of a Bitcoin, like dark-ballerina Darkcoin .Most of them are quoted in terms of satoshis.

As its deb's ardour faded, Quark settled into a run-of-the-mill bear market: the typical bear market you see in altcoin land - long, slow, grinding. From mid-October to late November of2013, you would have had lots of chance to pick up Quark for about 100 satoshis. If you were lucky enough to pick up a Bitcoin below $250 on Halloween Day, you could have easily picked up a million Quark with your Bitcoin. You had more than three weeks to do so starting on All Hallow's Day.

To be precise, you had until November 23rd – the same day when Big Bitcoin had reached $800 on a racing track with barely a pit-stop. At the beginning of November 25th 2013, when Bitcoin was on its way from $800 to $900, Quark's close on Cryptsy was 417 satoshis. At that time, your million Quark was worth more than four Bitcoin….or about $3,400. If you had made that precise pick-up maneuver outlined above, you would have made about more than thirteen times your money in less than a month.

And surely enough, it didn't take that long for word to spread. The resultant effect on Quark's price was something akin to the effect on the Facebook page of the more-or-less attractive young woman you more-or-less knew in school revealing that she had just been signed for a nation-scope gig on Fox News.

The awesome or frightening stampede came to an abrupt end in less than one week. At the dawn of December 1st, 2013, your one million Quark – had you been that plumb lucky – was worth 26,949 satoshis each. Your hypothetical stash of one million, picked up as above for about $250, was worth more than 269 Bitcoins or close to three hundred thousand dollars. Not a bad haul for light work over the stretch of a month and a day – plus a nice heaping helping of luck.

Of course, as veteran punters know, you would have had to have had further luck – plus almost inhuman self-control – to bank that gain. Not to mention, you would have had to have been fortunate to dispose of your Bitcoin in an exchange other than Mt. Gox. Unless all of the above selling requirements were satisfied, your huge huge gain would have been both notional and brief. Six days later, Quark had skidded to the point where the same million package would have been worth a little more than 100 Bitcoin.

By this time, the story has spread like the proverbial wildfire. The echo excitement was strong enough for a double top that actually peaked at a higher price at the start of December 13th. But then, the excitement faded into an all-too-typical slow, grinding bear market punctuated with sucker rallies. Any unlucky – or newb – punter who bought above 25,000 satoshis and held is currently nursing a loss of well over 90% in Bitcoin terms. Like many beforehand and even more many afterwards, he was burned by the bewitching flame.

But look at our hypothetical lucky fellow who started legging in at a not-that-close-to-the-bottom 100 satoshis. His 1 million Quark is currently worth about 2000 satoshis, or about 20 Bitcoin…or about the price of a nice used car. All on $250, or close to the price a wrecker would pay for a worn-out clunker. All over a nine-month stretch of buy, hold and hold. If this fellow had sold in disgust on the dawn-of-March drop, his sale at the opening of March 3rd would have netted him about 60 Bitcoins for a sixty-bagger over a little more than five months. And note that this brand of lucky fellow would have sold at the third intermediate-term bottom after the double-top peak, one which made a new low for the year: this timing is more real-punter realistic. Even behaving like the typical trader, our luck-struck Quark buyer would have emerged with a percentage gain that would have made him an instant hero had he pulled it off in the penny-stock arena. And that instant anointing would have necessitated exquisitely inhuman timing on both ends of the hold.

Quark, actually, is one of the good ones. It's had its struggles, and was surrounded by angry controversy over its pre-mine that still lingers even to this day, but its devs and community are seriously trying to make the Great Altcoin Narrative a reality for Quark. It has an Android wallet that has been explicitly branded as a neat-o way for an ordinary retail shop to take a sale. It's linked up with a guerilla-level multinational startup named Moolah, which aims to be the payment-processor answer to Bitpay in the altcoin scene. Also, the devs and community scored something of a coup in the gamer world. The more-notorious-than-famous ‘90s game "Shaq-Fu" is being reimagined, rebooted and reunveiled next year – and Quark is being integrated as an option for in-game payment.

As a light-vet cryptonaunt, I really do have to hand it to the Quark team and community. They have the proven staying power and git-‘er-done tenacity that's an absolute requirement to make the Great Altcoin Narrative a reality. Quark actually is on track to become an honest cryptocurrency.

They're pretty much underground right now, which makes them very different from case study #2: the now-battered but still irrepressible Dogecoin.

Dogecoin: The "Funny Face" That Became Crypto's Katy Perry

In terms of user adoption, spread and media exposure, Dogecoin has only one rival: Bitcoin itself. Within the Bitcoin world, Dogecoin shibes are regarded as the crypto world's answer to the stereotypical Jehovah's Witness or Amway hustler. In the outside world, Dogecoin enjoys a huge reputational advantage as the good Bitcoin. The shibes combine reasonably shrewd eyes for a publicity stunt, an awe-inspiring community strength that makes those stunts work, a largely unquenchable optimism and good nature (which the annoyed Bitcoiners see as cloying or pushy), and at the core of the rest a heart of real gold. Arguably, Dogecoin is #1 in terms of transaction count. Very definitely, Dogecoin is far and away #1 in terms of welcoming arms. If you can go along with a share of liberals, you can use <a href="http://dogecoin.com">Dogecoin as your entry gate to cryptocurrencies. You'll find that your settle-in is not only painless but also full of the honest pleasures of social intercourse at Dogecoin's now legendary subreddit.

Even if you don't have the talent for whipping up and sharing boosterish and sometimes goofy memes, as long as you can leave your political opinions locked securely in the parking lot you'll have an enjoyable time.

From a speculation standpoint, Dogecoin was a "how the --- did this one take off?" wake-up call. It clearly signalled that a crucial part of the speculator's toolkit was gauging the strength of the crypto's community. In fact, it's an almost in vitro demonstration of community strength as a value-builder…because Dogecoin began its life as just another clone coin. Yes, in its early years it was yet another parameter-tweaked clone of Litecoin, albeit indirectly through a now-defunct alt called Luckycoin. For most of its life, it was the equal of a standard clone that you yourself can order up for 0.25 Bitcoins or less. There are in fact several services that can put together a ready-to-go clone and deliver download links to it for about 150 dollars' worth of Bitcoin. But, as I hoped you've already guessed, there's more than one catch lurking therein.

Dogecoin actually began life as a genial practical joke. A team of two, Billy Marcus and Jackson Palmer, came up with the idea to make a joke coin based on the now-legendary Shiba Inu meme. At the time, the Shiba meme was on its way out, but Mr. Marcus and Mr. Palmer were about to give it a huge resuscitation.

It was unveiled to the Bitcointalk altcoin community – meaning, to miners – on December 8th, 2013. Thankfully for DOGE, Billy Marcus had the programming skills to nurse it through the inevitably messy launch that almost all proof-of-work coins begin life with. Although it began life as a good-times miners' coin, something started happening under the hood at Dogecoin's subreddit. Largely because of that "goofy" meme, the shibe community started growing by leaps and bounds.

Marcus & Palmer agreeably got DOGE listed on an exchange, the first major one being CoinedUp. It made its début on December 13th. It actually debuted as a plain-jane crypto, or as a "funny face." Unlike with Quark, DOGE's was no ardor-heated début. On the day it was first listed, you could have bought a nice big satchel for ten satoshis each – and you could have the following day too. Long-story short, or the obligatory tl;dr, its start of trading was pretty much what one would expect from a joke coin. For all I know, some of the buyers at the more-or-less ten satoshi range were friends of miners who bought mid-December DOGEs as a way of helping their miner buddies get some BTC to (indirectly) pay for their rigs' electricity.

Let's assume that you were one of those congenial souls. You bought a new Bitcoin on the day DOGE started trading and kicked it to your mining buds at 10 satoshis per DOGE. On December 13th, Bitcoin had been knocked from its peak in a panic bear trend caused by the restrictions on it enacted by the mainland Chinese government. It would go much lower, but on the 13th you could get a Bitcoin for a little less than $1000. That Bitcoin would yield you ten million Dogecoins on the 13th and 14th. Like a congenial fellow, you began joking around like the custom-designed Dogecoin wallet suggests. "Much Receive" "Many History" and so on. If you were one of the few who had bought DOGE at the time, it probably struck you on that 14th of December that the BTC you spent was something of a bar tab that came with a lottery ticket. Jolly good congenial fun, with a kicker.

But soon after, you discover that the subreddit was taking off like a rocket. Much to your bemusement, many of the new shibes were newbies to cryptocurrency period. Although there was a surface similarity between their meme-centered goofiness and your clowning around with the guys, you look further and discover an inner core of earnestness and even a kind of Amwayish booster vibe.

Also, you see a new Reddit doohickey called a "tipbot." A centralized online client with an interior ledger and a whole slew of wallet addresses, one for each person who signs up with it, it enables the shibes to pass each other a small amount (in greenback terms) of Dogecoin. A penny here, a dime there, in the form of a "tip" that would be transferred from the tipper's tipbot account to the recipient's. It's being used as a kind of mutual social grooming: a way to upvote someone else's comment with money. An upvote with benefits.

And you notice that it's being used a lot.

Now perplexed, you wonder what's going on here. The good old jokey times were only two-or-so weeks in the past. Now, the joke is turning into something…funny in a different way. It's also becoming very hot. Almost as odd, and hot, as that Angry Birds game.

You notice that some of your buds don't know what to make of all this – but some are cluing in. Some scoff, seeing the "kids" as brashy newbies who might as well be used as a source of Bitcoin for the Dogecoins those vets have mined, but some discern a real game-changer in the making. There's little argument that something is beginning to happen at Internet warp speed.

Now, you see your ten million good-time DOGEs as a lot like a lottery ticket – a lottery ticket that's already locked in most of the winning numbers.

December 19th, 2013 was the day of the tipping point, in a completely different sense. You were surprised to see that Dogecoin had actually took off the day after you got your satchel, peaking at around 50 satoshis before nose-diving to below 20 and recovering to around 40. But December the 19th was the day you saw it fly-jump above 100 satoshis. It later sunk back, floundered around, and then sunk further to reintroduce itself to 55-60 satoshis as 2013 came to a close. But you know that a moment had been reached. Although Bitcoin was still half-hammered by the post-PRC-crackdown panic drop, your ten million good-time DOGEies could get you at least 5.5 Bitcoins. Not spectacular like Quark, particularly since the Bitcoin-greenback leverage was working the other way, but still a darn nice gain.

As you keep track of the Dogecoin "kids," you see something – on Christmas day, of all days – that makes you feel a little sad but also fatalistic. The #1 online Wallet, Dogehouse, had been hacked by a malicious cyber-robber who made off with the entire bone-pile in the House. More than 40 million Dogecoins were stolen.

Same old story…at first. But you're astonished to see something utterly new in the grizzled word of crypto land, and it unfolds right in front of your eyes. Spontaneously organized, spontaneously ordered, seemingly out of nowhere, the shibe community piles into a huge charity campaign to help compensate the Dogehouse robbery's victims. For the first time ever, a crypto community was effectively united by a huge mutual-help charity drive.

As I hope you have already guessed, the above "you-were-there-‘you'" – just like the Quark one - is a guesswork-enhanced after-the-fact reconstruction. Myself, after a rude introduction to the perils facing a Bitcoin seller at Localbitcoins that cost me 1.5 BTC, scraped together enough bread for 0.5 more Bitcoins and – as plain luck would have it – decided to throw it into Dogecoin at a price of around 60 satoshis each. After some hesitation, I took the plunge and – like a lot of others – signed up at Reddit to participate in the burgeoning shibe community. Since I'm a middle-aged, battered-around-by-life cynic by nature, and since I found that the user name "slumdoge_millionaire" was already spoken for, I picked the Reddit username "junkyard_doge". And then eased in.

That legendary charitable impulse of the shibe pack, I saw in real time. Not being a joiner by nature, and totally lacking the young-person's boosterism that was and is the mainsteam there, I didn't participate in their more famous drives like the sponsorship of the Jamaican bobsled team and the Doge4Water well-financing initiative. Instead, I quietly contented myself with sending some DOGE to a small Shiba Inu rescue charity.

DOGE just kept on climbing as the publicity engendered by the Jamaican-bobsled sponsorship and the Amway-like evangelizing with tips hit full throttle all over Reddit. After yet another surge and pullback, it reached its all-time high of 296 satoshis on February 11th, 2014. From its debut on a major exchange, using a more-or-less average price of ten satoshis, it had peaked at a smidgen below a thirty-bagger over a timeframe that was two shakes of a lamb's tail below two months.

But something else peaked, too: aversion and outright rancour. Complaints from the Bitcoin subreddit painted a picture of a shibe pack that was jarringly at odds with the popular image of them as earnest, generous and the good side of cryptocurrency. For an increasing number of Bitcoiners, the shibes were a combination of obnoxious and cloying pests. Over at the frankly jaded and somewhat embittered environs of Bitcointalk's <a href="https://bitcointalk.org/index.php?board=67.0">Alternate Cryptocurrencies board, the shibe pack was not popular. As DOGE ascended to its peak, so did the rancorous and even hostile complaints about Dogecoin. It was a mere clonecoin with no innovation. It was just a joke that had gone way too far. Its shibes were clueless newbies who deserved to hold the bag when their precious Dogecoin descended back to the lows of its debut. It was just a fad: just you wait and see; it'll join its parent Luckycoin in crypto Hades.

In fact, the whole thing was a joke turned sick and nauseating. At best, those shibes were only good at huckstering; even their much-vaunted charity drives were just an unusually slick PR trick. If there were any justice in crypto land, it would become yet another coma coin or fade away to zero.

Don't those stupid kids know that Dogecoin was just a ----ing joke!? A joke that had turned into an MLMish scam!?

Of course, the dedicated shibes found it easy to quickly dismiss these people out of hand as "haters." Some chuckled about this rancour and (to be brutally frank) jealousy in the way that only high-spirited kids can chuckle about those sourpussed stuffed shirts. Besides, why waste time and grief thinking about haters? We have an ecosystem to build!

And build it they did. The aforementioned would-be altcoin answer to Bitpay, Moolah, began as a payment gateway for Dogecoin. Its loose team of leaders and staff sometimes had trouble getting their act together, but that lack of organizational acumen was more than made up for by their demonstrated leadership skills in a largely spontaneous and bubbly community. Quickly, the Moolah people became pillars of Dogecoin society. They became such a force, that some open complaints about a Moolah-is-never-wrong cult surfaced in shibe land at the time I decided to move on. But, I was going away with solid certitude that Dogecoin was transitioning into a fully real cryptocurrency with an ecosystem that would rival Bitcoin's. Granted that, in accordance with its "underdoge" nature, the businesses who plied their wares for Dogecoin were micro-retailers. But nevertheless, there was a real transition taking place that was still going on when their latest publicity coup – the sponsorship of John Wise in NASCAR – failed to work the usual magic for Dogecoin's price. Fact is, DOGE in February entered one of those long, drawn-out grinding bear markets that's strikingly like Quark's. As of the time of this writing, DOGE has all-but reintroduced itself to its 2014 low; it's a mere 35-36 satoshis. Anyone who bought on the first take-off day of December 15th and held all the way through its burst into the public consciousness is currently riding a significant loss.

Of course, there's more to the story than the above sunrise-to-sunset depiction would indicate. Because of the creation-over-time algorithm that comes with Dogecoin's proof-of-work system, the supply of Dogecoins as of now is much greater than the supply as of December 15th.  Amplifying this supply swamp is a whole circuit of big-swinging professional and utterly cynical multipools with a huge amount of hashing power at their disposal. They mine Dogecoin solely to dump it and collect BTC. As a result, Dogecoin is sliding downwards but its trade volume is still huge. Lotsa selling, but lotsa buying - even now. There have been some doughty drives to get shibes mining solely to hold, but the hash power that the big multipools command has swamped those efforts.

Consequently, Dogecoin's in much better shape than it looks. Its full-cryptocurrency ecosystem has yet to achieve critical mass, and the shibe community has shrunk an awful lot, but there's surprisingly little bitterness – and the ones who remain are just as undaunted as they were when DOGE was above 250. Dogecoin's ecosystem has not yet achieved critical mass at the scale Bitcoin has, but from where I stand the fix is in.

Before I move to the third alt, the somewhat tragic but very revealing case study Auroracoin, I have a short but important PSA for any punter or would-be punter. I bought my case of more than two million DOGE at about 60 satoshis and got rid of them after the peak at around 200. On the surface, this entry and exit makes me look like a sharp trader.

The fact is, I'm not. I saw the excitement building around Dogecoin and lucked in at its end-of-2013 intermediate bottom. As for my ostensibly well-timed sell…let me let you into my head and its memories for a moment.

The real reason I sold my DOGEs at around 200ish had nothing to do with any oracular foresight on my part. I was just shifting my holdings into another, younger altcoin that I thought was on the upward track to become the next Dogecoin. At that stage in the game, I was preparing to pile into that younger alt – Reddcoin, whose devs have branded it "the tipping currency of the Internet" – because I thought I'd get more de facto leverage with Reddcoin. I had fully intended to spend some months with Reddcoin until it more-or-less hit parity with Dogecoin and then pile back in to DOGE by snapping up a much bigger case. I even covered my bases at the time by averring in the shibe subreddit that Reddcoin was not a competitor to the tipping-legend Dogecoin; no, Reddcoin complemented Dogecoin. By branding itself as a tipping currency, Redd freed Dogecoin up to become a full-fledged ready-for-commerce altcoin. Dogecoin was the top-class theatre actor who got the call to Hollywood's A-List. Reddcoin was the understudy that would fill the star's shoes at the Tipping Theatre while Dogecoin went on to greater things. Not everyone bought it, but many did or agreed with the way I saw things for reasons of their own – or for no reason at all.

Now, let me tell you a little secret that you will never, ever hear from someone vaunting his own trading success. When I sold the rest of my Doges at 200, I was not only inured to but mostly convinced that I was selling at the bottom.

Yes, that's right. I had actually girded myself to see Dogecoin turn around from 200 and push its way up to 500 or even more by now. Since I was switching rather than selling outright, it wasn't a bother – but I did expect to see DOGE well above its February highs as of now.

Had I had either a pecuniary or vanity-driven need to vaunt, I would have confined myself to a breezy "Bought at 60; sold at 200; now at 36. Ask me for proof, and ye shall receive." I would not have given you a single peep into what my real motivations were, let alone what my real expectations for DOGE had been as of the time I finished selling. Even if I had been questioned about them.

Word to the wise. There's not a compelling reason to be cynical in altcoin speculation land, but there is very solid grounds to be skeptical.

Auroracoin: The Tallest Blade Of Tragedy

Like all boom towns throughout history, the altcoin scene definitely has its seamy side. In fact, like all boom towns, there are two seamy sides. One is the very well-known side filled with engaging but shady quick-buck artists that are more-or-less amoral. But the other side, not all that well known, is a red seam of embitterment, rancour, jealousy and even evil-eyed envy – the kind of envy now dubbed "hate."

The tragedy of Auroracoin – an alt with an innovative and fad-igniting distribution model that was once as white-hot as Icarius – was: all-too-many in the second side of the seaminess saw it as squarely emanating from the first side. Auroracoin, the first ever country- or nation-coin, is a real tragedy that deserves to be recounted as such. It is the scamcoin that wasn't.

To be honest, the deep pool of "haters" has justification for their often aggressive hostility. Every mother-lode, get-rich-in-a-month altcoin opened the floodgates to a whole gush of fad-following clones in more ways than one. Quark, whose initial claim to fame was a complete set of proof-of-work hashing algorithms, kick-started a whole plethora of coins with new or new suites of proof-of-work algos put in place to keep those big bad ASICs at bay  - for a while, some devs stipulate or admit - and keep the door open for the salt-of-the-crypto-earth solo miner. There was some rancour about Quark, because of its in-retrospect-modest premine, but that rancour was largely contained. But Quark's success was the big mound of flammable tinder that piled up in the altcoin forest.

Dogecoin, the above-discussed clone coin that rivals Bitcoin in its way, opened up a torrent of other clone coins that all promised to fulfill the Great Altcoin Narrative by either catchy branding or good-ol' can-do spirit. If you see the term "----coin," it's most likely one of these. The flood of Dogecoin-wannabe alts not only got on the nerves of the innovation boosters but also on the nerves of the miners. For the first time, they had to be unusually choosy or else risk wasting time and electricity. Adding to the nerve-grate was the fact that the word spread around about Jackson Palmer's huge huge holdings of Dogecoin and the fact that his jokecoin had made him not only famous but rich. Inevitably, Dogecoin became seen as the Judas goat that led the stampede of quick-buck slicksters into taking advantage of newbies and aggravating professional miners as 2013 turned into 2014.

Despite their rough, brusque and often salty language, despite their reliance on cynicism, gossip and surmise, often stuck to with adamantine stubbornness, they had – and still have – a good point.

They really do. As vets of the scene, they're like the legendarily abrasive master sergeant who's the go-to source for nuggets of wisdom you'll get nowhere else. Even if it often comes in the shrink wrap of choplogic.

The plain fact is, the quick-buck ‘devs' lowered the standards in three ways. First of all, they were far less sincere than the earlier crop of devs. The Great Altcoin Narrative began to be more and more honoured in the breach.

Secondly, they were unethical in a more callously venal way. More than a few of them were not above hyping their alt, sneaking the coins set aside for development into an exchange, selling said coins for BTC when the excitement more-or-less hit peak, and then walking away with their haul and leaving the once-hot coin to flounder. ‘Devs' like that ended up creating a lot of bagholders nursing a lot of losses.

In fact, there's a well-circulated rumour – a credible rumour – that there's a small group of hit-and-run clonecoin ‘devs' who unveil a new alt, whip up excitement, pay lip service to the Great Altcoin Narrative, only have their eyes on getting it listed on a major exchange, hyping it up while callously and almost sociopathically dumping it for Bitcoin, and then leaving it to die while preparing for the next one. They have about as much empathy for the bagholders as a professional con artist does for his victims. No wonder that more than a few altcoin vets look upon those clonecoin-creation services with almost seething hostility.

Especially given the third way that crapcoin ‘devs' lower the standard. Not to beat around the bush, but more than a few newly-self-appointed ‘devs' are plainly incompetent.

Yes, you too can be a clonecoin dev by ponying up about $150' worth of Bitcoin. It's almost as easy as suturing and stitching your own wounds by watching a five-minute Youtube how-to video…

So Dogecoin did ignite the tinder underbrush, but only left flames licking the pile here and there. As did another crypto which I'll defer discussing until the final part.

Suffice it to say that the altcoin forest was well prepared for the wildfire that erupted after Auroracoin because hot enough to peak at the eye-popping price of 0.1 Bitcoin per AUR on March 4th, 2014. At Bitcoin's then-market price, one single Auroracoin was worth close to seventy dollars. For nimble trend- punters with the rarefied gift of sniffing out where their fellow punters' Bitcoin are going to be stampeding into next, Aurora at its peak yielded a 34-bagger in less than a week.

It hit that ultra-hot high less than a month after it was first launched. In the tragedy of Auroracoin, the dev's tragic flaw was that he was too oblivious to the boom-town seaminess that the altcoin world had turned into. He was too innocent to be true.

The rationale behind Auroracoin was the capital controls imposed by the Icelandic government in the wake of the '08 crisis. Rather than loosen up when the worst of the crisis had passed, Iceland's legislators kept those controls in place. They had the de facto effect of illegalizing all cryptocurrenies, including Bitcoin.

Iceland also has a small population: only a little above 330,000. Because of other controls, Iceland is unique in that every citizen's name and address can be dumped from an easily-accessed database maintained by the government. If an Icelander wanted to, and could afford the stamps, it would be a straightforward task for him to send every one of his fellow Icelanders a Christmas card.

These two factors – the small population plus the ease of tracking each of them down – gave the dev behind Auroracoin an idea that was actually a stroke of altcoin marketing genius. He publicly pledged to set aside 50% of the eventual total float of 21 million Auroracoins for a country-wide "airdrop." Each Icelander would receive 31.8 Auroracoins: all he or she had to do was verify his or her identity, a very straightforward task. The other 10.5 million were to be distributed to miners in the standard proof-of-work creation and distribution model. Those 50% set aside for Icelanders were pre-mined before AUR was unveiled to the crypto community.

As I hinted above, any premine of any amount was already controversial. To some, particularly those disillusioned and embittered vets, a premine was red-handed evidence of a scam. And this one wasn't 0.5%, not 1%, not even 5%. It was 50%!

That unprecedentedly large premine was Red Cape #1.

Red Cape #2 was the anonymous dev. The dev in question had picked a pseudonym, Baldur Friggjar Óðinsson, to follow the example of Satoshi Nakamoto. The trouble is, that's what all new devs did – including the devs who had a more, shall we say, prudential reason to hide their real identities.

Red Cape #3 came with the fact that, other than the innovative distribution model, there was nothing innovative about Auroracoin – except for one feature. So, to the jaded, scarred and even scalded vets in the arena, Auroracoin might as well been yet another "----coin" with a new gimmick and a trendy faddish add-on.

That add-on was the Kimono Gravity Well. All cryptocoins come advertised with a fixed block time, but in truth the block time is really an estimate. The actual time between one block and the next depends upon the "difficulty" the miners face. That "difficulty" parameter is supposed to make it harder to mine a block when the hash power miners have directed at it increases. The difficulty-adjustment algorithms have to adjust in such a way that there's a relatively even balance between the hashpower and amount of computational work – the hashing – needed to verify a block and post it to the blockchain ledger. If well adjusted, the time between one block and the next is close to the advertised time.

But if it's not, particularly if it's too low to cope with the hashpower it actually gets, then things can go wrong. At the beginning of a launch, including the launch of a $150 clonecoin, things can go very wrong in a very big hurry. So wrong that a few gobsmacked devs – in response to an outpouring of angry complaints – have actually voided the blockchains of their coins and re-launched. Suffice it to say that being an "insta-dev" with a bought clone is about as foolhardy as trying to be your own local-anaesthetic surgeon by using Youtube how-tos. The parameter most prone to failure is the initial difficulty value. Getting a reasonably right value actually requires a private network, prior experience in coin mining, and lots of testing - including stress-testing. The ubiquity of mining pools makes a coin's hash rate spike up suddenly if the coin becomes hot or even popular. The trouble with spikes is that they increase the chance of other miners mining blocks that are later invalidated because they "forked" from the blockchan version that becomes the accepted consensus. In crypto parlance, these blocks are "orphaned" – and the reward coins are voided.

So, since even the smoothest proof-of-work altcoin launch has its hairy and chaotic moments, there was lots of demand for an algorithm that fine-tuned the difficulty adjustment and minimized the chances of a launch going haywire. The risk of a proliferation of forks and orphaned blocks wasting miners' time and electricity was so great by February 2014, that a clever dev went back to 2011 and resuscitated the formerly-exotic proof-of-stake system for Litecoin-clone cryptos. Although it's a lot less fun, proof-of-stake is also far less chaotic.

But proof-of-stake, even at its trendiest, would be aught but a sideline. Mining was and still is too much a part of the mainstream crypto culture to shake off. So, there was a huge demand for a smooth-stream difficulty-adjustment algorithm. That demand was answered by a certain Dr. Kimoto for an altcoin named Megacoin. It was the first coin to include the Kimoto Gravity Well.

So Auroracoin was not the first altcoin to incorporate the Well, just the biggest. But the fact that it was not the first one added further grist for the jaundiced onlookers' increasingly hardened claim that Auroracoin was just another clonecoin with a shady quick-buck dev. Which, at that time, were becoming more and more common.

But there were a lot of cryptonauts that were captivated by the airdrop idea. By the time it was listed, the Bitcoin-wielding punters were approaching a critical mass of stampede greed.

And when it hit that peak on March 4th, got splashed all over the Dogecoin-primed mainstream online media and even got discussed in Norway's parliament, the bolt of lightning finally struck. Sometime after its peak and pullback, with both being wild enough to make it further resemble a pump-and-dump scamcoin, one of the more colourful cynical vets had finally had it.

On the surface, he was yet another altcoineer in a boom town that makes a fella an old curmudgeon long before his time. But this fellow, underneath his I'm just one of the hardscrabblers surface, was actually a multimillionaire who controlled a mining botnet that could deploy a huge amount of hashpower. He also had friends with similar hashpower at their disposal. In addition, he had a real talent for sniffing out subtle flaws in computer programs. And yes, he had discovered a flaw in the Kimono Gravity Well. When he had disclosed it in polite conversation shortly after the Kimono Gravity Well was unveiled, a naïf would assume that he was a programming whiz who discovered something worth sharing and discussing. In a sense, said naïf would have been right because he does have that side to him.

But he also has another side that's a little less pleasant. A side that does make him somewhat of a folk hero in hardscrabble Alt Town. He's the only one I know of who successfully wrecked an altcoin via a 51% attack.

And he was one of the few who could successfully wreck an altcoin equipped with the Kimoto Gravity Wel,l via the "time warp exploit" he had discovered. And, it must be remembered, he had discussed the exploit openly with the Bitcointalk community when he found it. He in no way kept this exploit a secret; he did share it long before the Auroracoin dev had decided to add it to AUR.

When Auroracoin attracted his eye and his look-over, he was the type of jaded and jaundiced veteran who would see lots of red flags – red capes - pop up in his head while checking it out. By the time he was finished his look-over, including the rockety bull market followed by a sickening plummet; by the time he sized up all the attention it had gotten from the outside world, including skepticism and criticism in Iceland's parliament, he decided that this hot new altcoin was a great big ----coin. And that it was big enough to be worth making an example of.

In his more reasonable moments, he wrote that he was just going to engage in a rough but necessary stress test. It is a matter of record that he was very public about his intention long before his go-date. It's also a matter of record that he said – again explicitly and more than once – that he was giving a lot of advance notice to the Auroracoin dev. He made it very clear that he had given more than enough time for the dev to eliminate the exploit and thus render Auroracoin immune to his planned attack. In this sense, he was honourable.

But he was also fully prepared to unleash the botnet, wreck Auroracoin and decimate its still-high value if the dev didn't get on the ball. This ball, he was quite clear, was in his court.

By this time, the jaundiced cynics had hardened their condemnation to the point of immutability. By this time, the announced airdrop – which was widely attacked in Alt Town as a thinly-disguised scam – has taken place. And yes, real Icelanders popped up on Twitter saying that they had gotten their Auroracoins as promised. More significantly, no Icelander popped up anywhere complaining that he or she had been cheated or hoodwinked. From a distance far away from the altcoin Boom Town, the Auroracoin dev had in fact lived up to his promises.

But the desperados on the jaundiced side of town were having none of it. All contrary evidence – even posts from Icelanders who signed up specifically to vouch for the dev – were either brusquely brushed aside or ignored. It was High Noon time, and the gunslingers were not going to take one single step back. Not one, no matter what was said or by whom.

Everyone else, including me, were like the townsfolk of Dodge City gathering for one of its legendary gunfights.

Strangely, as word spread of the well-telegraphed attack, Auroracoin's price actually spurted up for a time. But sadly, that jump proved to be another in a long line of sucker rallies in yet another long, grinding bear market.

A few days before the planned attack, the dev blinked and modified the source code. And, like an old-West gent, the botnet-wielding desperado called off his attack. He put his botnet six-gun back into its holster.

As it turned out, his loudly-and-clearly telegraphed warning was actually a test to see if the Auroracoin dev had what it took. Had the dev been a scammer, or just plain irresponsible or incompetent, he would not have fixed AUR. But he did; that was reason enough to holster up.

Even now, this hardscrabble multimillionaire is credited by his fans as being the sole burster of the Auroracoin bubble. But the facts speak otherwise. Auroracoin had already entered the characteristic catch-the-falling-knife long-term bear market that befalls all coins when the old fad moves aside for the new. Moreover, a lot of the selling pressure came from Icelanders who wanted Bitcoin or to cash out. Some did use it as a barter currency, but not many.

Of the three case studies, Auroracoin is the one whose future looks doubtful. Granted that a similar ecosystem might be in the process of being put together by Icelanders for Iceland, but there's no way to check up on it unless you know Icelandic. The latest information I could find in English suggested only a small 10% fraction of Icelanders claimed their coins, so the dev is arranging a second airdrop with ten times the coins per claimant.

As you now well know, the altcoin Boom Town is a neck of the woods with some incredibly quick scores but a lot of traps, tricks and perils that make it a place that's outright dangerous to your net worth. The emotions therein often red-line into outright hysteria. Fad follows fad follows fad, and the crowd's fickleness leaves a large majority of altcoins lodestoned with a large swath of bagholders. The altcoin-punter turnover, as you may have guessed, is really high. The flood of new altcoins continues to this day in a steady river of rapids. The best thing that can be said about the mad whirl of altcoin speculation is that it's a perfect place where you can find out your punter's limitations the hard way, while only decimating your net worth by hundreds of dollars. In the assuredly regulated stock market, taking your life-lesson lumps still costs you thousands – even tens of thousands.

So in the best tradition of Adam Smith, I can say that this mad carnival of raw greed, raw rancour and raw hysteria – both interlaced with a surprisingly sophisticated understanding of the nuts-and-bolts of cryptocurrency infrastructure- has an unintended benefit. It's a ‘Hood of speculation where you can learn – for less than a thousand dollars – the hard-won life lessons that can save you hundreds of thousands of dollars over your investing lifetime. Provided the lumps stick, and provided that you learn the right lessons from taking them.

If you dare to venture into the Boom Town part of the altcoin jungle, with no more than one shiny Bitcoin, it would be very much to your benefit that they do stick and that you do learn. As Dirty Harry advised, a man's got to know his limitations. As does a woman: both need to know their limitations as speculators, period.

Anyone who's hep to the altcoin jungle will know that I've elided a fourth alt that was yet another get-rich-suddenly wonder. But unlike the above three, it has not endured a grinding bear market. It's essentially gone sideways since its halcyon peak back in late January of 2014. Even more unusually, its all-time high came five months after its get-rich-suddenly booster phase. Uniquely, it's the only Boom Town coin where the early-mania bagholders had a later chance to exit at a slight profit. Of all the alts, it's the most innovative and it's the one with the largest group of active and committed devs.

It's also the most hated, although the hate for it has diminished since the early months of 2014. But back then, it was so resented that it not only spawned a now-alpha stage competitor but also kickstarted an entirely new altcoin fad simply because of the backlash it elicited.

It's also, albeit indirectly, the alt that's responsible for me discovering – in full, raw form – the now-lost 19th-century art of self-government. An art so lost, that I have to take a full detour in the next part to illustrate how lost an art it really is.

But to give you an advance taste of the final part, let me unveil the Miss America of alternate cryptocurrencies. Allow me to introduce you to Nxt.  ESR

Daniel M. Ryan is a long-time contributor to Enter Stage Right and has returned to the fold. © 2014 Daniel M. Ryan.

 

 

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