Kickstarter Coins

There’s No Reason

Why are cryptocurrencies valuable? In the case of Bitcoin, because it was the first and is by far the largest, receiving the majority of monetary and media attention, with the one harmoniously building the other. Look at the second most popular coin, Litecoin, and the value is not as clear. The technical changes made compared to Bitcoin are slight. Unless you really value a larger monetary base (4x more than bitcoin) or faster confirmation times that provide illusory benefit (you just need 4x more of them for the same amount of certainty), there isn’t much you can do with Litecoin that you can’t do at far more places or with far more people than Bitcoin.
This is because the only reason to buy Litecoin is an expectation that its value will increase over time due to more people buying them speculating the same thing. Lacking a good reason or first-mover and earned-press advantage, you’re relying on the greater fool theory of investing which is a recipe for long-term disappointment. Indeed, the great hope for Litecoin or any standard alt-coin (any cryptocurrency that is not Bitcoin) is to find its way to an exchange that benefits from easier trading than in forums or chat rooms, where trust can be hard to find.
The thing we’re missing is a reason. The greater fool suffers from there always being a limit to the number of fools before the gains start to slide and buyers turn to sellers trying to lock in gains. Once upon a time the value of dollars was secured by gold. You could trade in a minimum amount with the issuer of the currency (the federal government, or private banks depending on the time period) and this secured the purchasing power of the dollars. Fixing a price to gold isn’t because gold is the only thing you can peg it to, but rather because it’s thought of as something valuable and can be universal in nature. But not everything needs to be universal in nature, and some things that are universal in nature don’t need to be valuable themselves as money.
Goods and services are valuable in monetary terms but not in a monetary sense. By fixing issuance of a custom cryptocurrency to a good or service, with a company ready to accept it at a fixed or floating rate, a single individual or group — even only capable of local distribution — can support a globally tradable cryptocurrency should the story be compelling enough or the private issuance small enough.

Why We Mine

So the question is, why mine alt-coins instead of just creating them and selling them into the market? Because of the excitement of the gold rush. The people who mine the first of your currency will be your distribution channels and have a huge incentive to sell them for as much as possible. It’s easy to mine in the beginning, that’s the elegant way it sucks in those who become the biggest advocates as they have the most to gain from mass adoption. In the case of greater-fool investing, this leads to dishonesty. But for genuinely useful things it’s fierce and unapologetic advocacy and education.In a deflationary currency with a predictable rate, everyone gains and so there is incentive to tell everyone you know and get them involved. The more of us in, the more valuable each one is.Unlike a currency, you want to issue new alt-coins fast: two months with difficulty scaling based on the number participating. After all have been issued, you want a period of time where they are tradable but not redeemable so the future value can be speculated on. After a certain point they should become redeemable at a fixed high rate that drops over times.This means that even in a currency with the entire money supply in circulation, you can have a long-term controlled deflationary trend simply by lowering the exchange rate at predictable intervals allowing people to buy or sell in advance of the change based on their situation.
So mining really is a marketing decision; you pay the price of not being the first seller of the currency, instead relegating yourself to 50 percent while allowing those doing the work to run away with wild profits. They’re the ones who get to tell everyone how great it was doing it.

By Adam B. Levine
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