Bitcoin Core Developer Gregory Maxwell on Why Altcoins Don’t Work
During his recent introductory presentation about Sidechain Elements, Blockstream Co-Founder and Bitcoin Core Developer Greg Maxwell explained why altcoins are not the proper solution for adding new features to the cryptocurrency ecosystem. In the past, Maxwell has noted that he has “ethical concerns” with altcoins, but he mainly focused on a technical explanation of why they’re a bad idea in this recent presentation. Altcoins and appcoins are controversial topics in the bitcoin ecosystem, although it appears that many of the Bitcoin Core developers do not think too highly of them.
Why do people create altcoins?
Although Maxwell noted that “some [altcoins] have been interesting,” it’s clear to most of the bitcoin community that the vast majority of altcoins are nothing more than scams. For an altcoin to be interesting or unique, it needs to add something of value to the original bitcoin code base. Having said that, those added features should not be viewed as a reason to “invest” in an altcoin. After all, if there is a useful feature in an altcoin, then it is likely that the feature would eventually be added to bitcoin directly.
When it comes to his own theory as to why people want to create altcoins, Maxwell seems certain that financial incentives are to blame:
“Well, when Bitcoin came into existence it was worthless. 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.”
Network effects of currencies
In competing currencies — and perhaps more so competing cryptocurrencies — the network effect is usually the most decisive factor in picking winners and losers. When someone accepts a particular money in exchange for goods and services, they want to know they will be able to trade it with someone else in the future. Maxwell made this point clear during his presentation, but he also took it one step further by stating, “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.”
In other words, creating altcoins is harmful to the entire bitcoin ecosystem because it is breaking up the ecosystem into smaller networks. Truthcoin Creator Paul Sztorc has made similar comments in the past stating:
“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).”
The altcoins will also move slowly
Many altcoin supporters say that alternative cryptocurrencies are necessary due to the fact that bitcoin development moves too slowly, but Maxwell was able to point out a flaw with this theory:
“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.”
Although the excitement around altcoins and appcoins has died down a bit over the past year or so, there are still plenty of individuals out there who believe these new coins and token systems can work. Maxwell left the topics of altcoins with a message for developers working in that area:
“I wish altcoin developers luck, but I don’t think it’s a sustainable way to build technology.”