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Internet of Coins (or: On the Current Decline of Altcoins)

21 Aug 2014 / CodaSiren

The current decline of alt-coins has recently been on my mind a lot. As has been the marginalization of many of these coins. Some of them have great concepts, for example Datacoin. So what is going on with these coins, and what to do about them? (also featured on CoinTelegraph)

For the past eight months I have been running my own trading bot called Project Stormwind. It is a bot that performs arbitrage across the board of seven exchanges and many different types of cryptocurrencies. It is supposed to identify pumps-and-dumps in the market and tries to invest capital to stop these from destabilizing the currency by returning the price action to average levels. While the trading engine makes a profit, the overall value of the alt-coins it trades has measurably and steadily been declining.

It can also be seen on the charts that the collective value of most of the coins has been dwindling. Would this leave Bitcoin as the only cryptocurrency to become successful? Some avid Bitcoin fans would have us believe this. It reminds me of a history I once read of the development of bank notes in the United States.

An essay in the spirit of the Friesian School on www.friesian.com says: National Bank Notes were established by the National Banking Act of 1863. This was done to raise money for the federal government, since it required that National Banks that wished to issue banknotes deposit United States Securities with the Treasury as backing for the notes. This effectively multiplied the money with which such securities were purchased, turning the money itself over to the Treasury, for its purposes, but then enabling the banks to issue currency against it. The desire of the federal government to monopolize banknotes is evident in the tax that was subsequently levied on all banknotes issued by State banks.

Although this development much differs from what we see happening in cryptocurrencies today, there is a similarity in the way value flows from 'independent' initiatives in digital cash back to the cryptocurrency-to-rule-them-all: Bitcoin. There may be many reasons for this, beside Bitcoin being perceived by a lot of traders as the reserve cryptocurrency, and I do not pretend to know each and every one of them. Still, I want to explore some directions I think this can take us, and contemplate on the concept of creating an Internet of Coins.

Bitcoin is being tempered with legislative action as of late in the United States and other parts of the world. Regulating Bitcoin is impossible according to some, however, the fact that Bitcoins are pseudonymous makes a good case for government to have power over it nonetheless. Spending from non-identified addresses could made illegal for businesses wanting to accept cryptocurrency, and this would severly hamper the adoption of Bitcoin. An immutable public ledger can be abused by governing powers and used to start a campaign for identifying its users.

What we need to stay free from this is further decentralization of the cryptosphere, but this also causes fragmentation and isolation. And that is what we see happening right now. Cryptocurrencies that become marginalized lose value because they cater only to speculators. A cryptocurrency cannot live on speculation alone. It needs a market of diverse elements to thrive.

During the development of the world-wide-web we saw many different ideas and technologies taking shape and making a niche for themselves. However, what made the Internet so powerful was the way in which all these technologies became integrated, empowering eachother its users. Up to today this has never stopped. Some concepts like Gopher, for example, have become marginalized, but are still in use by many across the globe today. My hope is for many marginalized alt-coins to be as resilient in the years to come.

We mustn't forget the diversity of the Internet is often threatened by large companies trying to take a large slice of its market by enticing netizens to use their centralized services. So the same will most likely happen in the world of cryptocurrencies. We must already be thinking right now about how to protect the cryptosphere from becoming just a plateau of monoliths.

So how can we further decentralize the cryptosphere without spreading its benefits too thin and destroying its potential? My take on it is integration of technologies. In the past years we have seen a lot of innovation, and a multitude of blockchains spring forth from this. We have seen the implementation of innovative concepts from being your own bank, to distributed assets, and running decentralized applications.

To make sure we can benefit from all this in the future, now is the time to tie it all together and shape it into a coherent, useful and decentralized philosophy. Now is the time to integrate the greater and smaller technologies. To look beyond your own blockchain, and look towards The Internet of Coins.



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