Greg Maxwell recently presented Blockstream's Sidechain Elements while laying out a technical case against altcoins as a solution for Bitcoin's continued evolution. The Bitcoin Core developer and Bloc
Greg Maxwell recently presented Blockstream's Sidechain Elements while laying out a technical case against altcoins as a solution for Bitcoin's continued evolution. The Bitcoin Core developer and Blockstream co-founder has said before that he holds "ethical concerns" about alternative cryptocurrencies, but he focused this time on technical and engineering arguments rather than ethical ones.
Bitcoin Core developers broadly dismiss altcoins and appcoins as worthy endeavors. Maxwell himself granted that "some [altcoins] have been interesting," but most of the broader cryptocurrency community sees them as scams. For an altcoin to achieve meaningful significance, it needs to add something of value to Bitcoin's existing capabilities. Even when one does, however, that doesn't justify buying it. If a feature proves valuable in an altcoin, the Bitcoin developers who maintain the protocol will add it to Bitcoin itself, so everyone benefits rather than just altcoin holders.
What drives people to launch altcoins? Maxwell attributed it to financial incentives. "Well, when Bitcoin came into existence it was worthless," he said. "Over time as people saw the potential value, they started trading bitcoins for larger and larger amounts of money. So this creates the potential for a speculative race where people want to get in and hope that it becomes valuable in the future. And this has incentivized the creation of many altcoins, even ones that have no other reason for existing other than creating problematic pump and dumps." The basic economics are clear: early Bitcoin investors made enormous profits, encouraging others to launch their own coins and hope they achieve similar success.
**Network effects in currency competition**
In competing currencies, network effects determine the winners. When someone accepts a payment method, they want confidence they can spend it elsewhere. Maxwell emphasized this point during his presentation and extended it further. "The value of currency comes from the network effect, and if you're starting up new cryptocurrencies all the time, all you're doing is fragmenting the network effect," he said. Every new altcoin splinters the ecosystem into smaller pieces. Instead of one powerful network, you end up with dozens of fragmented networks, each weaker than the whole.
Paul Sztorc, creator of Truthcoin, expressed similar concerns. "I think the 2.0 space has, frankly, screwed up the 1.0 space by distracting talent, diverting money, misallocating infrastructure, and — most of all — confusing our message to the public (regarding bitcoin's ability to store value, as the unique Internet money)," he stated. The altcoin ecosystem has drawn away the best developers and resources from Bitcoin itself.
**Altcoin development faces the same constraints**
Altcoin proponents argue that Bitcoin develops too slowly and that alternatives are necessary for faster innovation. Maxwell disputed this. "If you build a new system, a widely distributed system becomes hard to change. So the reboot is left with the same problem that Bitcoin has, that it's difficult to adapt and change," he explained. New cryptocurrencies face the same fundamental challenge as Bitcoin when upgrading and adapting their protocols.
Interest in altcoins and appcoins has waned over the past year, though supporters remain. Maxwell offered this final thought to altcoin developers: "I wish altcoin developers luck, but I don't think it's a sustainable way to build technology."
