I already said in the past how I consider altcoins as the promising-yet-undervalued part of the cryptocurrency ecosystems. Altcoins are frowned upon, as "profitors", trying to steal honest people money out of BTC.
I beg to disagree. Altcoins follow a Darwinian evolution. And everywhere Darwinian evolution is at work, make sure to keep an eye.
Altcoins are very similar to Linux distributions. Much like Linux distributions are based around a core (the Linux kernel), the altcoins gravitate around a basic concept (the blockchain). Granted, the altcoin ecosystem has its share (or even more than its share) of scams. It also has a lot of sincere-but-failed attempts. And, finally, several lessons, successes and innovations.
Here, I will try to list them:
- Initial distribution issue is of paramount importance. A currency considered as unfair won't succeed (except if it Bitcoin, for historical reasons)
- No IPO, no premine. These two are free entrances for scammers. Sometimes IPO and premine are sincere (like NXT, maybe), but the market doesn't know
- No PoW (or Groestl PoW/PoS). Proof-of-Work is bad for the environment, particularly the oldest one (SHA-256); like Accelerando's Charles Stross said it, "Mining BtC has a carbon footprint from hell" (read bitcarbon.org). Plus, I read that in order to sustain its price, PoW requires more coins every day (a criticism of Dogecoin) - I don't understand this argument, but this is a recurring one. Pure PoS (proof-of-stake, i.e. interests)has proved reliable (although I think it had not yet been cryptographically proven), but the issue of initial distribution still occurs. One way around it is Fast PoW (MintCoin and later BlackCoin, only five weeeks and one week, respectively), but the shorter the PoW phase, the less fair it is; the longer the PoW phase, the more polluting it is and the more it encourages rich mining rig owners. PoW has its shortcomings, what about the alternative? At least, use a less consuming hash algorithm, like GroestlCoin does with Groestl (less energy-demanding than X11 or Keccak, themselves less energy-demanding than Scrypt, itself less than SHA-256); the added value of Groestl is that the "richer advantage" (owning several GPU) is less interesting with Groestl; so fairer.
- The simple answer is: look at http://coinmarketcap.com/ after filtering out the heavily premined coins. I will give only some
- LiteCoin: the original "for the rest of us" currency. The idea was that BTC had moved in the realm of the riches, since SHA-256 is only minable with expensive purpose-made machines (ASIC). Litecoin moved to the Scrypt algorithm.
- Blackcoin. Nugh said. +7400% in one month (due in no small part by the fact that people want to leave the "bitcoin trap" now that the price is falling). Before reaching the 10k satoshi barrier, it suffered heavily from price manipulation, which in turn lowered the confidence of all but day-traders. It remains to be seen if it will continue that way. Any sane mind would say it cannot. But a sane mind would not be on the crypto world.
- PoS. Initiated by PeerCoin, turned into a power of its own by MintCoin (and later BlackCoin but in much smaller way), PoS avoids the environemental issue of PoW (see above). Pure PoS production would tend to favour high interest (like PoScoin, GhostCoin and MintCoin do with 50%, 50% and 20% annually respectively). Other coins consider PoS should not "compensate" for PoW but just be a nice addition for a coin that has a value of its own (this is the route BlackCoin is taking, with a x74 increase in one month, almost Bitcoin-like)
- Proof-of-Transaction. FlutterCoin's innovation is to reward people for actually spending the money. That's an interesting idea: after all, a money has long-term value only if it is being spent. This has similar implementation in real economy, where people receive fiat for buying something in fiat, effectively becoming a discount.
- Merged mining. To enforce security, some coins are created on top of other - this also lowers the environment footprint of the coin to almost zero (out of the cost of the parent coin, of course). Dogecoin is taking this route.
- Plugable coins. Similar to merged mining, some coins are meant to be extensions of another coin. The best-known is Mastercoin.
- Non-currency use of cryptos. Namecoin is the best-known of them, but not the most versatile. Namecoin plans to be used as a decentralised DNS. But other new use of the blockchain technology are being considered. NXT is definitely the most talked about, with smart contracts (also a Mastercoin possibility), coloured coins (coins that the sender may be sure it will be used for what he wanted it to be), decentralised voting, cost-cutting for directories maintenance (this is what the real banks are the most interested about at the moment)
- Greater anonymity. Give an IBAN to someone, this person won't know how much money you have and the history of your bank account. Give a cryptocurrency address to someone and this person will now everything. This may be both a good thing (sousveillance) and a bad thing (loss of privacy). That's why some currencies like Darkcoin, Anoncoin and Zerocoin have improved upon this.
- Resilience to concentration. As mentionned earlier, ASIC are a plague for the "rest of us" who can't afford them. Litecoin was the original "anti-ASIC" coin. Unfortunately, ASIC are coming to the Scrypt algo. The answer was double-sided: on one hand, move to other hashing algorithms (I already mentionned why Groestl is the most interesting one for the moment); on the other hand, use difficulty retargeting, since ASIC, being so specialised, cannot adapt to such a change - this was the reason for the initial success of Vertcoin, the first "anti-ASIC" coin. This lead to Kimoto's Gravity Well and later on Darkcoin's Dark Gravity Well. Notice that these anti-ASIC strategies are simple useless for pure PoS coins: no mining, no problem Other attempts at getting a fair distribution are Faircoin's 100% quick giveaway and FaucetCoin's long giveawat by the use of faucets.
- Multipools. Less an innovation than a strategy. A multipool automatically switches mining from one PoW coin to another and usually autosells in a given currency (BTC most of the time, but there are a BlackCoin and a MintCoin multipool). It is a parasistic attitude, in that such multipool destroy the value of the said coin and is pretty similar to what happens in life science (botany and zoology particularly): a predatory behaviour and more exactly an apex predator attitude, with all the risks involved in it (an apex predator can die because it exhausted its food ressource). Think also of the ecology of vulture and lions in the wild: when a gnu is dead, common vultures come but cannot pierce the skin. Greater vultures with stronger peak can pierce and they feed. Once they are full, they leave and the common vultures can take the rests... until the lion come and only after he left will other animal be allowed to eat what is left of the gnu. Here, multipools are the lions - they usually do not come first, but when they come, the come in force. That's why several coins resorted to Fast PoW: PoW is over before any big player had a chance to notice. In real world economy, there is a proverb for this: "giant or dwarf". Giant survive, dwarf get unnoticed and everything is between is getting crushed.
To sum it up, the innovations are about lessening the environmental footprint, increasing fairness of distribution, encouraging spending and exploring non monetary uses. Except for the last two, these are domains where the historical Bitcoin falls flat and shows no sign of getting any better.
Altcoins, the future of bitcoin!