Quote from: Melbustus on July 11, 2014, 02:33:57 AM

That said, there *are* potential niches to be filled by alt-coins. The only one I can clearly identify is anonymity. It's clear that bitcoin does not offer meaningful anonymity unless the user is technically skilled enough and motivated enough to obfuscate their transaction chains sufficiently. Furthermore, bitcoin is becoming a global asset class, fit for corporate balance sheets and HNW portfolios. It's also obviously seeing high-profile merchant adoption, and tacit acceptance/approval by various governments and regulatory bodies. If bitcoin offered technically pure anonymity that required zero user effort, governments would probably be a lot more directly hostile towards it. Thus, it seems unlikely that the bitcoin community would embrace full-anon tech in bitcoin core; lest governments react harshly and reduce existing ecosystem investment value dramatically.

So that leaves the anonymity niche open to an alt. As I've previously noted, ever since Zerocoin was published, I thought that when it came out as a functional implementation, it'd be the first actually interesting alt-coin. Well, it looks like these CryptoNote coins have beaten it to the punch of functional anonymity. Which CN coin will win is a different matter. XMR seems out in front, but the waters are muddy still.

I don't see any other obvious niches for alts. Turing completeness is interesting in theory, but I wouldn't trust the security of such a chain for a quite a while, and much of the benefits may be possible in bitcoin anyway. Other than that.... ?

I believe there will be room for another niche. I will call it a "catastrophic hedge niche." This niche would be filled by a coin that would be a hedge against some sort of crippling vulnerability in bitcoin. This coin would need to meet three main requirements: 1) high liquidity, 2) a different codebase, and 3) a different hashing algorithm in( addition to the general requirements of no-premines, instamines, and a fair distribution).

Litecoin partially qualifes based on its high liquidity and different hashing algorithm, but shares basically an identical codebase with bitcoin. Therefore, It fails.

Counterparty uses the bitcoin blockchain so it also fails.

Namecoin, Dogecoin, and Darkcoin use the bitcoin/litecoin codebases so they fail as well.

Peercoin passes (questionably). Peercoin, being a proof-of-stake coin is a hedge against a PoW failure. It has good liquidity and a different codebase. However, a crippling potential weakness has already been identified with pure proof-of-stake coins, which is the "nothing at stake" attack. I am not technically minded enough to say whether this attack vector can be eliminated, but Vitalik Buterin and others have described some potential ways to minimize this problem, so I won't rule Peercoin out as potential leader in the catastrophic hedge niche on this ground.

Another issue is the fastmine:
"Currently, as of April 22nd, 2014, Peercoin has 21,343,191 coins in existence. One really has to look at how nearly 4 million Peercoins were created in the week of August 16-23rd, which comprises nearly 20% of the coins in existence nearly 16 months later."
http://www.devtome.com/doku.php?id=a_massive_investigation_of_instamines_and_fastmines_for_the_top_alt_coins#peercoin1

A fastmine is not a pre-mine or an instamine and Peercoin seems to have retained legitimacy despite the fastmine. So I'm going to let Peercoin pass.

NXT, Ethereum, Ripple and Fuelcoin are all pre-"mined"(centrally distributed), so they fail.

Again, we come to XMR. Good liquidity. Different codebase. Different hashing algorithm. Pre-mine? None. Thus, XMR meets all three requirements, and isn't disqualified on other grounds. It is second only to Peercoin because of Peercoin's superior liquidity. XMR also lacks the PoS "nothing at stake" attack vulnerability.

A potential issue with XMR is blockchain bloat which is a potential threat to scalability. However, ever cheaper storage, ever cheaper RAM, lightweight clients, and other developments will lessen this problem. Thus, I will let XMR pass.

I am not considering other altcoins as serious candidates due to inferior liquidity.

Conclusion: Currently, only Peercoin and XMR can serve as legitimate catastrophic hedges. We can see that XMR is not only a very strong candidate to be #1 in the privacy niche, but also a very strong candidate to be #1 in the catastrophic hedge niche. A small proportion of funds in XMR will occupy two important niches at once (neither of which can be adequately addressed by bitcoin). If we assume that these two niches together should account for 5% of the total cryptocurrency marketcap, XMR seems to be an incredible expected value (EV) play.