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The Rise of High Stake Cryptocurrencies: How The instaPoW/PoS Fad Is Dying And Something Fabulous May Be Reborn In It's Ashes

Currencies are constantly evolving. Even if the designers of the currency are not changing the specifications, the currency adjusts according to its environment.

Indeed, most currencies have someone behind the wheel who observes the conditions the currency finds itself in and turns the wheel when necessary. All government fiat currencies monitor the way in which counterfitting operations chose to attack their paper currency. As the cheats obtain a new sophisticated method of scamming regular people, the “owners” of the currency (for lack of a better term) add new features to their paper bills that deflect these new innovations.

More often than not, we see that governments are ill equipped to manage the evolution of a currency. The demise of the US dollar and the Euro may be on the horizon due to central bankers playing a little too much with their currencies, but we can look to more recent events in currency that show us how governments make decisions about their currency against the best interest of the people.

Venezuela Is A Prime Example Of A Currency Forced To Evolve On The Black Market

Currencies that exist in awkward political situations tend to flex and fold according to their dire circumstances. Take Venezuela, for instance. This country has become a stronghold for strongly socialist tendencies since the reign of Hugo Chavez from 1999 to 2013 1). This is an important development not to be taken lightly…if you consider that the United States has threatened or actually attempted a coup d'etat against each country south of its border 2).

Obviously, the rise of socialist Chavez is going to flex a currency and force it to evolve, and evolve it has. Like many nations, Venezuela keeps a stockpile of U.S. dollars for a variety of reasons, but mostly because it is the defacto world currency. Many things need to be purchased in U.S. dollars, and Venezuelans running businesses need to be able to convert Venezuelan Bolivars to U.S. Dollars and vice versa. Chavez (and most of the world) resent the fact that they must hold a currency of a government that they despise in order to do day to day business. He and his cabinet of officials would love to turn the tables and have the Bolivar be stronger and the dollar weaker. Socialist having the ability to toy with things like this more than capitalists, they has decided to restrict the amount of U.S. dollars accessible from the government to the people. How do they do this? With a super generous valuation of the Bolivar, fixed at a price of 6.30 Bolivar's per 1 U.S. dollar.

The problem with fixing a currency to an exact rate is that it does not provide room for the currency to bend according to its circumstances. Other currencies are pegged to the dollar, but since the dollar is not guaranteed to have a certain value, those currencies gain and lose value according to how the U.S. dollar performs. The fixing of the Bolivar to the dollar at such a ridiculous amount means this: If you are an electronics store and you need to buy a refrigerators in U.S. dollars but have Bolivars, you go to your bank/government 3) and get a conversion. If a refrigerator costs $1,000 dollars, you get an exchange by giving them 6,300 Bolivars. This is a good deal, no matter how you slice it, because the exchange rate is fake. It's made up by the government to make the Bolivar look strong. They would run out of money if they allowed you to exhcange the currency at will, so they only let you exchange $1,000 worth of Bolivars 4). Since you are an appliance store and you intend on selling 100 refrigerators, this currency exchange doesn't even help you. The government has closed off the U.S. dollar spicket to its citizens after a certain amount and you as a business owner must go out and exchange U.S. dollars from someone else who is willing to do so. However, the going exchange rate “on the black market” ranges from 20 1 to 70 to 1, bolivar to dollar, depending on the day. Now you go to exhange 630,000 bolivars but instead of getting $100,000 to buy your 100 refrigerators, you get much less. Let us say the exchange rate at the time is somewhere in the middle, at 45 bolivar to 1 U.S. dollar. 630,000 / 45 = $14,000 dollars. That is almost one tenth of what the official exchange rate claims its value would be.

If you are that business person, you would have to sell your refrigerators closer to the black market value of the currency rather than the phony government exchange rate. Listing the refrigerators at a 30 to 1 rate, if it costs 1,000 bucks, you need to list it at 30,000 bolivars. The government's exchange rate would suggest this price is almost $5,000. Who would you rather believe? What the public at large effectively uses the currency as its value, or the government's made up number? The government may then come in and hold your business hostage and try to claim (again with their phony numbers) that you are unfairly price gauging and institute new socialist prices for the people (all of this has happened…follow the sources here5))

The currency cannot be controlled by the government. It evolves with the people smart enough to see where it is evolving.

Venezuelan Currency Evolves Through The People Who See It For What It Is

Consider the Venezuelans who read and understand exactly what the limits are for currency conversion. In our first example, citizens who are business people need to obtain U.S. dollars sometimes in order to conduct business. The government keeps a very tight spigot in that regard. In this next example, we shall see that “tourists” can access $3,000 at an exchange rate of 6.3 Bolivars to 1 dollar if they are provably leaving the country and need dollars to travel (again, generally accepted as the global currency reserve). Considering the absurdity of the official exchange, Venezuelans are buying up plane tickets such that there are no flights out of the country for months in order to capitalize on this government error. They take their credit card and 18,000 bolivars. They can get up to 3,000 dollars at the exchange rate through cash advances. Then, they return home with nearly all of that $3,000 and trade those dollars on the black market for bolivars.

  • If trading at 25 to 1, $3,000 equals 75,000 bolivar, enough to pay for the trip and then some
  • If trading at 35 to 1, $3,000 euqlas 105,000 bolivar, enough to pay for the trip and have a part time income
  • If trading at 50 to 1, $3,000 equals 150,000 bolivar, enough pay for a fancy trip and still be called a full time income.

The black market is simply the currency forcing its head into the open and demanding there be space for it to evolve. The government doesn't allow it to do so and it takes drastic measures. Unfortunately, all of this is slowly killing Venezuelan value and the government ought to stop it at the source. But it appears they wish to stick to their fantasy story line and they will blame the evolving black market for its woes and punish those who try to use the market (It's illegal in Venezeula to even post the black market exchange rate, let alone partake in it.)

The Root of Currency Is Current

The fact that currencies, both government fiat and crypto, evolve should not suprise anyone. Meriam Webster defines currency as “the money that a country uses; something that is used as money” 6). Their “full” definition gets a little closer to the heart of the matter by stating a currency is “circulation as a medium of exchange” 7).

A currency is designed to facilitate the exchange of value. When you buy bread at the store, you exchange something of value to get something of value. In lieu of bartering, exchanging a currency that people accept as valuable has been the most widely used manners of exchanging value. Currency takes its root in the word current, which see in the electrical world (as in the flow of electrical current through wire) and in the natural world (as in the flow of currents in water). Each of these describes a flow of energy from one place to another. The natural example gives us a much better picture of how currents evolve over time. Indeed, the motion of water is so malleable that a current is never fixed in one place. It is constantly changing its exact location, bit by bit, wave by wave.

Over time, currents in rivers carve out the bottom of the river bed, creating a U shape from shore to shore. The natural progression of a river is to follow this dynamic flow that is faster in some areas and slower in others. The erosion percentage carves the river into a living, moving thing. To try and stop a river from doing this would likely throw the river out of whack.

Cryptocurrency Is Evolving Rapidly

Cryptocurrency has numerous advantages, including the reduction of centralization to a very high degree. We can't say its 100% decentralized because most of this cryptocurrencies, Bitcoin included, have a core team of developers who are monitoring the health of the coin. They can step in and offer a new, upgraded version with a simple download, and if more than 51% of the people using the coin upgrade to the new client and download it accordingly, a new blockchain created (which is called a fork) and the currency is adjusted. Granted, if the majority of people do not accept the changes implemented in the new download and refuse to upgrade, then the people reject the central authority's choice. Thus, it's not completely decentralized but mostly so.

These kind of currencies also benefit all who use them for commerce due to their incredibly low fees. One can follow the blockchain on Bitcoin and notice particularly large blocks. On June 5th, there was a mined block that contained 191,000 BTC in transactions. Considering a new block is generated in around 10 minutes, that was a lot of money to be moving around the network in short a short time frame. Priced at the time's value of Bitcoin, it was about $126 million. If they was done through Paypal, Western Union, or some form of Bank transfer, one could expect fees flowing well over $1 million dollars 8). The fee for sending all of those Bitcoins? A mere $114. That is .00009% of a fee, which we like to call “effectively free transfer”.

Perhaps best of all, these cryptocurrencies have found a way to rout of the middle man in commerce. For thousands of years, bankers, kings, and goldsmiths could insert themselves as handy middleman, constantly making a buck off of other peoples money. Bitcoin uses a Proof of Work protocol were miners donate their computers processing power to the network in order to earn Bitcoins. They sell their earned Bitcoins to pay for the costs of running an energy intensive computer rig to the public who wants to save money on transfer fees. Any profit nowadays made by Bitcoin miners is slim and risky; if the value of the coin were to drop in half, many would find the process costing them more than they earned.

However, within a few years of Bitcoin's inception and the Proof of Work model, others noticed a problem, in particular a man named Sunny King. With a eye on the future, King realized that the more successful Bitcoin became, the more it would attract big money. In the beginning, Bitcoin was being mined mostly by regular people's CPU power. Perhaps people plunked down a few hundred dollars to increases their processing power or a few hundred bucks for a cooling unit, but nothing too extravagant. King rightly saw that more and more it would be normal to here of massive Bitcoin mining operations that costs six to seven figures simply to set up. Consider, for example, the massive Bitcoin mining operation set up in Iceland, where they built hundreds of computers for the sole purpose of mining Bitcoin. In addition, Iceland provides a source of cheap, renewable energy in the form of geothermal or hydroelectric power. Many Bitcoin mining operations spend precious capital on cooling their machines, where this million dollar installation take the freezing air from above ground and channel it onto the computer below ground, effectively finding a way to save massive amounts of money. This operation expects to have 15% or more of the Bitcoin network under it's control eventually 9).

The one in Iceland is definitely not the only one. Most stories of this kind revolve around a rich investor who locates an area with consistently cheap energy available to that area and they set up shop with their mining operation. The further this happens, King astutely notes, the further the Bitcoin mining network becomes accidentally centralized. This is something Bitcoin was avoiding in the first place.

King's proposal formed in another coin called Peercoin. In it he described a new mechanism for the coin's stability and creation instead of the Proof of Work Scheme, called Proof of Stake. Peercoin is actually PoW/PoS hybrid, where the coin begins with PoW to generate coins. However, holders of the coin can leave their coins in their wallet for 90 days and in so doing, “mint” a small amount (.25%) of new coins. Within a year you can mint 1% of the coins yourself. As the number of coins in circulation increases, it becomes increasingly more beneficial for PPCers to hold at least some of their coins and mint rather than use CPU power to mine the coins. PPC solves the problem of rapidly ascending mining centralization by providing a mechanism by which shifts the benefit of coin creation from CPU power to simply owning coins.

The Never Ending Tinkering Of The Protocol

Naturally, King's coin was created in the same spirit as Bitcoin but with one key update, a proposed solution to the centralization of mining that is bound to happen should the currency succeed. But just as King was inspired by Bitcoin, his invention of Proof of Stake inspired many others to tinker with this new form of coin creation.

The way cryptocurrencies truly evolve is by people watching how they operate in reality and then they makes changes by making their own. Other than a handful of coins which are employing developers to change algorithms and other aspects of the coin as they trend in an out of existence, most coins stay the way they are created. The evolutionary aspect of the crypto movement lies in the fact that other, aware users who are paying attention can provide difference by providing a new coin. Whether the coin succeeds because of this new innovation or whether the innovation is so popular that Bitcoin adapts it to its protocol is really inconsequential. The fact is that this form of currency provides more room for evolution than traditional fiat currencies. It's just that the tinkering is getting a little out of hand.

  • Litecoin is considered one of the first, very simple tinkered siblings of Bitcoin. They changed the hashing algorithm from SHA-256 to scrypt, which was intentionally done to provide resistence to specialized computing hardware (ASICs) as it was not possible to create ASICs to mine on scrypt at the time and its difficulty suggested it would take a while 10). They also reduced the block time from every 10 minutes a new block was found (and thus new bitcoins were generated and paid to the miners) to every 2.5 minutes. With the same protocol of how many coins were to be produced (50 per block for first 4 years, then 25, then 12.5, etc) but with 4x the speed, Litecoin effectively quadrupled the amount of coins they would produce.
  • Dogecoin is a fork of Litecoin, meaning the developers took exactly what Litecoin was doing and added a few differences. Initially Dogecoin was mined with the intention of many coins being produced fast and a not-so-gradual reduction in coins created per block, a.k.a. a fastmine, but has recently amended the protocol to allow inflation to occur without a cap. With 80 some billion coins in circulation, they opted for a much higher numerical values because they hope that the digital future requires a “tipping” currency. While tipping 1000 Doge on Reddit to a funny poster is mostly self serving (because 1000 Doge is usually pennies), tipping currencies could become useful for writers of books who want their book to bought instead of downloaded for free, or programmers of games who want to charge a small amount via a tipping currency rather than have their game leaked on utorrent. Oh, and they attached a ridiculous internet meme to their currency.
  • Quark decided that one hashing algorithm wasn't enough, and instead of choosing between SHA-256 and something else (like scrypt), they choose 9 different hashing algorithms. Quark blocks are also generated once a minute, meaning transaction confirmations can happen 10 times faster than on the Bitcoin network. Quark also attempted a “fast distribution” model, whereby the the coin produces nearly all of its intended amount within 6 months, followed by a fixed rate of inflation after that.
  • Zetacoin is a fork of Bitcoin that takes on much of what Quark attempted; a fast distribuion model ending with 15 fixed inflation rate and super fast block confirmations of 30 seconds 11)
  • Cryptogenic Bullion is based on Peercoin and has a hybrid PoW/PoS model, except they chose to go with a mining process similar to Quark and Zetacoin, where nearly all of the currency is mined within a year and 1% PoS takes over.
  • and on, and on, and on…

The current currency listing over at www.coinmarketcap.com shows over 400 currencies. Even in the precursor of the Bitcoin/altcoin boom in 2013, www.cryptometer.org shows some 50 coins created in a similar fashion to Bitcoin or Peercoin.

The Rise Of Dishonest Currencies

In the wake of all of these clones to Bitcoin in the attempt to further the cryptocurrency evolution, a number of bad apples appeared. In nature, bad apples are cast aside as anathema to supporting the life cycle of the fruiting tree and they are discarded for composting. In human society, the bad apples have a much better chance of hiding their rotting core and making their appearance glitter like gold.

Goldcoin is a case in point. A simple copy of Bitcoin, this alt coin purposely designed the mining of the coin to decease immediately. The first 24 hours yielded 9 million goldcoins 12), and even a year later the total number of goldcoins in circulation is barely triple that, at around 31 million coins. The facts of this coin make it abundantly plain that it was designed to enrich a few lucky/early users and not designed to be a fair currency for the world to use. Goldcoin wasn't the first (see ixcoin13) and it wouldn't be the last.

Darkcoin had a botched start. That is the nicest way to put it. Instead of producing 50 coins per block, the developer “accidentally” entered 500 coins per block. This was apparently “not noticed” for a period of 24 hours until it was corrected down to 50 coins per block 14). Yet the ability of Darkcoin to provide continual improvements and advancements to its protocol helped it to cover its sordid tracks. The fact that Darkcoin was able to reach over 50 million market cap and be strongly within the top 10 of crypto listings showed to anyone with a crooked brain that scams could indeed make it near the top in this business.

Blackcoin realized it could update Peercoin's concept of a PoW/PoS hybrid in a way that grossly benefitted the first adopters. While Peercoin favored a gradual fade out of PoW into PoS, Blackcoin agressively pumped out PoW coins and abruptly switched over to 1% PoS minting 15). They created 50 million coins in 3 days and by 74 million switched over to PoS. The rate difference between how many coins were generated by PoW vs. PoS was appalling; a 6,034 times increase via the proof of work method 16). In other words, Blackcoin realized a way to generate coins 6,000 times faster than it's dominant method (PoS would take over for the remaining life of the coin) and somehow make that look good. And boy, did it inspire a cacaphony of bad PoW/PoS hybrids.

In came Asiacoin, Cinni, X11, Boost, and all the rest which you can read here…

The Hottest Trend In Alternative Cryptocurrencies Is A Hidden Scam

All of them with the same MO; produce a ton of coins via PoW in a very short amount of time with the intention of mining as much as possible. Then turn off PoW for PoS and reap the benefit of a tightly closed spigot.

The Rise Of Honest Cryptos In The Wake Of So Many Scams

At some point, evolution can balance things out. No one was excited for the rise of scammy altcoins to Bitcoin (it already has to shake itself off from druglords, terrorists, and other illicit means of business), save for those peons caught up in the hype and the developers who planned it all to begin with.

But then something began to happen. Coins were beginning to tinker with a fork of their originally PoW only protocol and consider PoW/PoS hybrid as its long term function. More and more you would here that coins like Franko or Noblecoin were going to add PoS after the fact, in a move not planned originally during launch.

The hype around PoS also centered on a completely unique coin to Bitcoin (although certainly inspired by it), NXT. The first coin to be 100% PoS, NXT had a lot of people eagerly awaiting to see if the public would push the PoS button. They certainly did, because NXT has climbed the ranks and occupied the number 3 spot on the market cap list for months now. It seems to be stuck, however, in a potentially dirty history that it can't shake. So for now it is still number three, but the public wants an honestly created, fair distribution PoS coin.

A few of these coins were always there, but they lacked the flashy PR campaign and the team of pumpers to make their coin well known.

Hobonickels started in July of 2013 as a PoW/PoS hybrid, but the PoS was the focus of the coin because it offered 2% every 10 days. The coin had a very fair and innocous start, with no premines or instamines. It has had a market cap between 250,000 and 1,000,000 dollars for the majority of its time being traded.

Tekcoin started with 1 Tekcoin produced per block, and with one block per minute, there would be 1440 Tekcoins created per day, every day, via Proof of Work. In a move that pushes the boundaries of what a PoS coin can offer, Tekcoin provides 40% minting every 30 days for coins left in an open wallet. There tag line is no premine, no ipo, no bullshit, and they are right

With coins like Noble and Franko waiting in the wings, all of a sudden a new movement could generate some positive evolution in the cryptocurrency field.

The Grand Experiment

Followers of high staking PoS coins have their eyes on Hyperstake, coin that boasts 750% annual production 17). This coin is in its infancy and hasn't reached any exchanges yet, but rest assured, if Hyperstake doesn't do it then a different one will. What they are doing is pushing the boundaries of what currency creation can do and they are doing it is a fair method; buy the coin and you can mint yourself.

One would expect that the coins who are designed with such high yielding performance would naturally drop according to their minting percentage.

Hobonickels, for instance, allows minting from 2-5% depending on how many people are minting, but considering almost everyone who uses the coins mints them, it is pretty much on 2% every 10 ten days all the time now. Thus, one might expect a slow decline of around 2% every 10 for this coin. This has not been the case.

The coin has fluctuated between 3 cents and 30 cents a coin, going up and down more than once. What this means is that the coin has not yet followed a continual decline and thus can really offer an increase in wealth over time.

The problem with all of the “scam” alt coins is that the mining would be allocated to such a short frame of time that only a few would benefit. As Tekcoin, Hobonickels, and a few other honestly mined PoW/PoS hybrids appear, ANYONE can participate in the creation of new coins AT ANY TIME. It doesn't matter when you enter the game because anyone can begin minting once they own some coins. PoW provided a bit of a firewall to accessing coin creation because it required the hardware necessary to try and mine a coin 18). Thus, these are some of the fairest coins in the alternative cryptocurrency community today.

The fact of the matter is Asiacoin, Blackcoin, Whitecoin, Vericoin, and all the rest of the instaPoW/PoS coins have provided the fodder for currency evolution. People are sick and tired of the trend towards creating coins with little long term value and pump and dump action. They want coins with integrity, coins that will last them beyond the coming alt coin bubble.

The currency river has ebbed into some dangerous territory, but now it is flowing in the right direction. Hopefully the people support coins like Tek, Hobonickel, and any other coin that has a meaningful/slow PoW release and an opportunity for the common to partake in the creation of new coins.

cryptocurrency

2) http://www.zompist.com/latam.html No, seriously…Cuba (for obvious reasons), Guatemala and the genocide in the 80s against the “communist rebels”, the successful coup of Arbenz in 54, Bosch in Dominican Republic, J.M. Ibarra in Ecuador, Nicaragua and the never ending battle against left leaning Daniel Ortega, the U.S. support of anti communist Jose Ferrer in Costa Rica, the organized hits on Che Gueveara, Salvador Allende, etc etc.
3) what's the difference in socialism, anyway?
4) the actual limit of currency exchanged is not used here, but rest assured there is a limit to how much bolivar you can convert to U.S. dollar via official channels
8) we aren't saying one transaction was sent for $126 million, but rather that the total number of transactions. If the same fee percentage applies throughout all transactions (or roughly so), then it does not matter if it is one transaction or 5,000 transactions
10) now ASICs exist for scrypt as of winter 2013/14
18) typically speaking, you cannot mine worth a damn with a normal laptop or normal desktop computer

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