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Investing in cryptocurrencies

2 weeks ago Bill Still, producer of 'Money Masters' and veteran of monetary reform, likened the cryptocurrencies to the myriad depression era scrip currencies, saying the situation with the US dollar is so bad that people are taking matters into their own hands, and that these tools are the best we have for now. I took this as my cue to diversify from Bitcoin and dived in.

The cryptocurrency exchanges are pretty exciting places to be. They work just like conventional exchange web sites. You have a series of wallets, one for each currency, you pay from your existing Bitcoin wallet into your wallet in the marketplace, and then you create and execute orders to buy and sell between the currencies. Charts and tables are provided so you can see the prices moving against each other. Then you can pay 'out' into wallets elsewhere.

But that's not the only reason they are exciting. Many of them seem to be run by teenagers from their bedrooms, and things like this happen all to frequently, as we have seen many times in the first 2 years of Bitcoin's uptake. Also, like penny shares, their daily price movements exaggerate what is happening to the bigger stocks - namely Bitcoin.

At the moment these currencies have very little use; while Bitcoin is starting to become accepted as medium of exchange, these new currencies can be nothing until speculation has driven up their market capitalisation. So there is a frenzy of activity going on because if cryptocurrencies are here to stay, and as a monetary reformer I very much hope they are, the gains to be made are spectacular. Max Kaiser has been saying that if Bitcoin is successful, it will go to a million dollars, but there will be some surprises.

The new cryptocurrencies are all variations on Bitcoin and make slightly different propositions. They are all vying for position. It can be hard to find out what each one is about and whether there is more than one teenager involved. In a bull market it is easy to just play charts and try to catch the ups and skip the downs. But to pick a winner you need to know more.

So here are the main features that the coins are competing on:

Speed
One of the problems with Bitcoin is that it take 10-60 minutes for the transaction to clear. That's great compared to 4 working days in a bank transfer, but lousy if you are trying to buy a burger. So some currencies clear faster than others.
Issuance
It has been argued that Bitcoin mining is not very democratic, and has become increasingly specialised. So some currencies like Litecoin and Feathercoin aim to spread out the rewards.
Waste
The Bitcoin mining process makes the blockchain practically un-hackable, but at the cost of a lot of computers doing a lot of arbitrary calculating. Primecoin combines the blockchain validation process with calculating large prime numbers, creating a secondary benefit for humanity!
Deflation
Bitcoin is criticised for having a fixed supply - the quantity is inelastic, and as Bitcoin becomes more valuable the incentives are more for hoarding not spending. Freicoin tries to remedy that, encouraging circulation and stabilising the price with a demurrage fee. Peercoin aims for 1% inflation, by gradually releasing more into circulation.
Asset value
Bitcoin is backed by nothing, but Namecoin is backed by rights to use domain names - like internet real-estate.
Privacy
The Bitcoin blockchain is public, so if you know someone's wallet address you can see all their business. Other currencies, like Anoncoin, make it very difficult to track wallet activity

And there are various other innovations and combinations of the above. Anyone can clone Bitcoin and start a new one, and most clones will come to nothing. The winners will not only need a solid technical foundation, but PR support as well. As we've seen with Bitcoin, expect more fraud, hacking, sabotage, agents provocateurs, and market manipulation. In the free-for-all market, the winners are rarely the most deserving, so spread your bets!

Comments

I just heard the interview you did with James Corbett. Excellent interview.

I think what most people want is recognition. That's the right reward. After that, it's up to all of us to give people what they need based on what they have done. WE THE PEOPLE must take responsibility for economic justice. Justice is about allocating rewards as well as punishments. We've neglected our responsibility, lazily believing that money would do the job of justice.

Money is fundamentally a system for INJUSTICE. It concentrates wealth in the hands of the few who already have it.

Please check out my groups on Facebook, especially Economic Solutions and Exposing Money.

http://stevemoyer.us/groups

Blessings!

Steve Moyer

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