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Is An Automatic Alt Coin Generator Bad for Cryptos?

There have been a couple people who have created automatic tools for creating alt coins based on Bitcoin or Litecoin. On top of this, some people have even offered up services of completely customizing a coin with your own changes and features, at a cost. While each of these is different, we see the same thing happen in each area where these services are offered: people voice opinions of fear for what this is going to cause to happen to the crypto scene. While these do have some merit, I want to use this article to help explain why these can also be beneficial.

How Alt Coins Are Successful

For an alt coin to be successful, it requires a few things:

  • A community to help support it (in code and updates)
  • Miners (to help keep the transactions being processed; no coin has any value if you can not even send anything through it!)
  • Ways to use it (this can be stores and exchanges, whether they are based on items or services)

Really, this is no different than what we are still facing with Bitcoin, with the only real difference being that Bitcoin has been here longer than most alt coins and it is pretty much the face of crypto currencies as a whole. In all actuality, though, any coin could easily break through and become a pretty big deal, alongside Bitcoin (or maybe even take over it). As such, the same path must be followed in order to bring success (note: while I say the same path, it does not have to be traveled in the same manner; just has to get from the beginning to the end in some way).

Bringing Something New to the Table

A new coin bringing something new to the table is important. If all of the new alt coins are just clones of others, what is the point of moving to them? I would even argue that slight changes like speeding up the transactions or altering the number of coins earned per block is not a big enough change. Bringing about true additions is what matters. For an example of this, we have PrimeCoin, which helps by giving some real world benefit (calculating prime numbers). Although its primary goal is still the transfer of finances (of some type) from one person to another, this extra benefit makes it much more valuable. Another example of something along the same lines is CureCoin, although I am still a bit confused on how it works (my understanding is that as of right now it is still being worked on). In any case, thinking outside the box and coming up with new benefits for coins is a must when it comes to getting people to start using alt coins. There are still millions of ideas we have either not thought of or just do not know how to implement in to a coin at this time, and each one has a different value from all of the others. Being that crypto currencies are still pretty fresh, we can therefore assume that we are going to have our minds blown over and over by what people do manage to get implemented in the future!

The Flood of Alt Coins

Here is where things start to get a bit tricky, as it involves both good and bad things. When we look at alt coins and what happens when they are easier to create (or at least are easier for you to have created for you), one of the first realizations that happens is tons of them are going to pop up. We have had massive floods of alt coins in the past, and we are undoubtedly going to see more floods of them in the future (it looks like we are already in another flood right now, in fact). Why is this? Because of the idea of pre mining coins and then running what is essentially a pump and dump scheme with them for profit. Far too many people have it in their minds that the crypto currencies are just a pump and dump item and they keep trying to take advantage of this. It works sometimes and it fails others, but it is somewhat detrimental to the rest of the currencies regardless as to whether or not this was the intention. Let us take a look at why.

Crypto Currency Market Cap

While crypto currencies are still new, what we have to do is realize that the majority of the public does not understand the difference between different coins right now. When they think of the cryptos, they think “Bitcoin.” Essentially all coins are the same. And for investors, a lot use the entire crypto world as one investment, so it ends up shared among anything they wish to invest in within it. For example, if they want to put $1000 in, they will pick coins they like and then spread that wealth among them. This is very, very important to understand because it means when a new coin is released and people start to jump on board with it, they are more than likely causing a bit of dilution. Note that this does not happen in every case, since we also have to account for people who only invest in the latest coin they heard about and otherwise would have put nothing in at all. But in the vast majority of cases, this does ring true. And more dilution means that each coin has a smaller value relative to where it would be were there not to be so many of them.

We can actually see this in action, to a point, when Bitcoin rises up in value or starts to drop. When Bitcoin goes up, most alt coins end up going down. When Bitcoin starts to drop down a bit, the alt coin prices start stabilizing again. While not a true sign of dilution, it helps show that we are playing with money in a single market here, with what are pretty much just a lot of tokens that (in the sense of transferring wealth at least) are all the same but with different names.

We can generally assume that when a new coin is released, people are going to jump on it. With some exchanges taking pretty much everything under the sun and allowing it to be traded, going from a fresh new release to a tradable currency can happen very fast. So what happens here is that we experience dilution in the beginning, as the coin is new and has to find its place. A lot of coins (dare I say the majority?) never make it past this phase, and end up dying out. This puts money back in to the main pool of crypto currencies again where it was before, setting things straight again. For the coins that end up being more successful (Dogecoin is an example of this, although its value is still dropping considerably) the money stays out of the other coins and effectively dilutes each of the others, as well as itself. Now, this is not a bad thing in all cases, as we are about to see.

Survival of the Fittest

Being that crypto currencies are so new and we are still trying to figure out how to handle them and what we can do to make them more valuable and viable, it makes sense that a lot of testing has to be done. These tests are, largely, handled by creating new alt coins to see how the community picks up on them. PrimeCoin and CureCoin, for example, can easily be considered as tests; prior to being released, there is no way to tell whether or not people are going to like them, much less help mint and trade them. Even if we were to create polls to help figure out what people want and what they would think about different options, actions speak louder than words and there is no way to tell what people would actually follow through with.

By having more and more coins released, we are able to see what sticks and what does not. As a coin dies off, we can write that off as being an unsuccessful test. On the other hand, as coins end up sticking with the community and become more popular (think about WorldCoin), we can classify those as being closer to what we should be moving towards. The more coins there are to choose from for this, the more refined our tastes get. Anything that does not fit the desires of the community will simply fall.

Early Adopters – High Risk and High Reward

Early adopters of any new alt coin can be considered as taking part in a high risk, high reward situation. It is really a lot like Bitcoin is (where we still have no idea whether or not it is going to be successful over the long term), but with a lot more volatility. This increases the risk considerably, but at the same time if someone were to jump on a coin when it was fresh and it ended up being a roaring success, they could have made a pretty good amount off it. Essentially it just boils down to whether or not someone wants to take a big gamble, investing in (or using GPU and CPU power for) new coins and hoping for the best.

Conclusion: Looking to the Future

With all of the new alt coins being released, I do not think that the train is going to stop. As more public attention gets focused on Bitcoin, more and more people are going to want to play the “get rich scheme” and create their own coins in the hopes that they will be the next thing. This is undoubtedly what we are going towards, and although the automatic coin creators and services do help contribute to this, it would happen regardless since Bitcoin is open source. This is just something that we have to live with, and learn to make do with what we are given. With that said, I have seen coins keep coming and going, and I have no doubt that allowing the community and economy decide what does and does not succeed is the right way to go. The more options we have available for this the better, and I hope that more people start thinking outside the box and coming up with new and inventive ways to use crypto currencies (or at least more useful methods for mining them, that do not involve just burning electricity). Being that the entire concept is still new, though, I really do not have any doubts that we are going to be seeing some awesome things in the future. And could a new currency end up taking over Bitcoin? Most definitely. It will not be easy, by any means, but there are still some flaws that need to be dealt with with it (and that are already taken care of by some of the alts). So while you may feel that this influx of new alt coins and the ability to create them is the worst thing that has happened to us, it is far from it. If anything, it is helping spark creativity!

e-Currencies


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