Altcoin creators and promoters exploit the inner-scammer in everyone
Okay, I know what you’re thinking. You’re tired of hearing the word scam used so often. Why label all of these altcoins as scams, and their creators and promoters as scammers?
Since the very early days of Bitcoin, people have been creating altcoins for the purpose of experimentation.
Many of the first altcoins created actually tried some interesting experimentation: Namecoin, Peercoin, Primecoin, Bytecoin, Mastercoin, and others. Mastercoin is today the OMNI protocol which is a token protocol on top of Bitcoin most famously used by Tether for USDT. Bytecoin was the first CryptoNote protocol and the Monero team forked the codebase and created their own cryptocurrency which they continue to add features to and market today.
After some of these interesting experimental ideas came out, it was not long before the floodgate of altcoins opened. It quickly became apparent that anyone could make an altcoin, brand it, and start marketing it to newcomers in crypto as “the next Bitcoin”, and probably make a lot of money convincing people to buy it.
There was Worldcoin, Dogecoin, Catcoin, DarkCoin, KittehCoin, SuperCoin, FeatherCoin, SexCoin, LottoCoin, CannabisCoin, and the list goes on… I could spend all day informing you about the hundreds… no… thousands of altcoins that I have witnessed rise and fall over the course of 6 years in the space.
At one point, I thought altcoins like Ripple and DarkCoin (now marketed as DASH) were interesting. It didn’t take me long to realize these were just centralized projects that would live or die through the marketing efforts of centralized corporate entities, which has proven to be true. They survive by rent-seeking on their own “investors”.
What are people “investing” in anyways? There’s an unlimited number of altcoins. Why are hashes marketed by a centralized entity any more valuable than those other hashes marketed by a different centralized entity?
Ironically, the altcoins that faded away were those that didn’t have centralized entities emotionally attached to maintaining a facade. The altcoins that have maintained relevance did so through their creators actively making an effort to brand and market them with catch phrases and buzzwords.
In other words, the altcoins that are actually decentralized are already practically dead: they have no dedicated devs, no community, no market liquidity, and are highly insecure.
Let’s talk about Litecoin — one of the least interesting altcoins ever created
By the time that Litecoin was announced on Bitcointalk, there were already a number of alternative protocols being experimented with. Litecoin was not one of these experimental projects to innovate. No, it was a marketing project.
Litecoin was created by Charlie Lee for no purpose other than to be an alternative crypto-money. It is literally nothing more than a copy of Bitcoin with some changed parameters and a different hashing algorithm. There have been hundreds of altcoins just like it, and there will be hundreds more.
In pursuit of this scam, the most sinister marketing Charlie ever came up with was to call Litecoin the “silver” to Bitcoin’s gold. The comparison to silver is intellectually absurd. The reason that silver existed as a monetary metal was because gold was simply less divisible than silver for small amounts. This problem of divisibility does not exist with Bitcoin. You can divide a Bitcoin down to 1 satoshi and use the Lightning Network to transact amount this small with practically zero fees. You can even transact in sub-satoshi amounts in a payment channel.
Understanding everything we know about money and network protocols, it is very safe to say that Litecoin is just a marketing scheme in competition with every other altcoin marketing scheme out there.
Litecoin is one of the more atrocious scams in the space because its’ creator and promoters take advantage of human ignorance and use ethically questionable marketing tactics to present it as something novel and innovative, when it is definitely not. Charlie has introduced zero innovations to the crypto space and instead simply copies all innovations from Bitcoin developers.
But didn’t Litecoin help Bitcoin activate SegWit? Not exactly.
A lot of people credit Litecoin with helping SegWit activate on Bitcoin but the fact is that this is not really true. For starters, the UASF/BIP148 code was not used to activate SegWit on Litecoin. Instead, Charlie flew to China to make a deal with Jihan and other mining pools to activate SegWit on Litecoin as long as he agreed to raise the blocksize in the future.
Here is a brief explanation of how SegWit was actually activated on Bitcoin.
In the spring of 2017, a Litecoin developer named ShaolinFry developed the UASF code as a way to activate SegWit on the Bitcoin network by users. UASF stands for User Activated Soft-Fork. This code was proposed as BIP148 but it was never merged into Bitcoin Core.
So, users took it upon themselves on social media to spread the word about running UASF nodes for personal and business usage in order to bring the situation to a head and force the activation SegWit on the Bitcoin network. Thousands of users and dozens of influential businesses within the Bitcoin community ran UASF nodes.
Ultimately though, it was not BIP148/UASF that activated SegWit on Bitcoin though. It was BIP91 by James Hilliard which was run by miners that activated SegWit in a last ditch effort to prevent any possibility of a chain-split or network disruption.
BIP91 was code proposed as a compromise to miners in order to activate SegWit until a blocksize could be increased with a 2mb hard-fork later.
I think it is safe to say that users running UASF nodes had the effect of putting an enormous amount of pressure on miners to activate SegWit or risk splitting the Bitcoin network, so in that regard it is possible that the UASF did have an effect.
This does not excuse the fact that Litecoin is still a marketing scheme promoted by Charlie Lee that uses very questionable tactics historically and currently to spread misinformation and confusion to newcomers.
Aside from the fact that Litecoin is just a clone of Bitcoin with a different mining algorithm, everyone should know by now that Litecoin is garbage for these reasons:
- Nobody is going to build the Lightning network on top of Litecoin.
- Litecoin is effectively centralized. It is run and marketed by a centralized leader, Charlie Lee, who runs the centrally controlled Litecoin Foundation.
- It will never generate enough fees to sustain security after the block subsidy is deprecated.
- If the blocks were full on Litecoin, the blockchain would grow at significantly greater rate than Bitcoin due to the fact that it would be producing ~ 8.4mb+ of data vs ~2.1mb of data in the same amount of time. The chain would grow 4 times as fast as the Bitcoin blockchain and eventually users would have trouble synching nodes from scratch and maintaining synchronization due to a steep growth rate in node costs (storage, CPU, and bandwidth). The two most important of these costs is CPU for validating transactions in blocks, and bandwidth to synchronize blocks across a broadcast network. Users currently need a good broadband internet connection to run a full node that receive and serve block data, transaction data, and other metadata to peers. The ability for everyone to be able to trustlessly and privately download the entire blockchain from peers and validate the entire history is one of the core value propositions of Bitcoin. This would be unsustainable especially for the populations that are most in need of Bitcoin in developing countries.
The promoters of Litecoin lie about all of the facts presented above. Does Charlie know what he’s doing?
This blog post is not meant to pick on Litecoin and Charlie Lee specifically, it is meant to highlight that altcoins like Litecoin are essentially social trojan horses. They are marketed as a legitimate alternative to Bitcoin, but they are not alternatives to Bitcoin. They cannot become a viable store-of-value, and therefore cannot be reliably used for low time-preference capital formation which is a fundamental building block of capitalism and social scalability.
If Bitcoin were to be supplanted by any altcoin, then “crypto” would be a never-ending game of financial musical chairs where new chairs are constantly introduced and people would need to rotate value from one network to another depending on the way the wind blows in the social sphere on a particular day.
Hal Finney pointed this out in May 2011.
“Any successful replacement of the Bitcoin block chain will forever undermine the credibility of any successor. How is an investor to know that it won’t happen again?” — Hal Finney, May 2011
This blog post was inspired by hundreds of shitcoins, as well as the popular piece by Michael Goldstein titled ‘Everyone’s a Scammer’.
