Saturday, October 26, 2013

Cryptocurrencies: Are they here to stay? Bitcoins, Litecoins & Alternative coins

As I have mentioned in my previous post, I believe that Cryptocurrencies are here to stay, and that Litecoins are a good buy right now. Before I explain why so, lets go through a little introduction on cryptocurrencies. Since Bitcoin's rise to fame, a myriad of alternative cryptocurrencies (altcoins) have come into existence.
There are over 30 altcoins available on Coinmarketcap.com, but most have meagre market capitalization as compared to Bitcoin. Litecoin is currently leading the altcoin market and is the coin to watch, as I will explain.
Alternative Crypto-Currency Market Capitalization Alternative Crypto-Currency Market Capitalization (Coinmarketcap.com)
Once that threshold is crossed, the difficulty in 'switching over' to an alternative cryptocurrency is minor for all parties.

One of Litecoin’s most significant claimed improvements over Bitcoin is that it allows transactions to be confirmed as legitimate much more quickly, says Charles Lee, who designed the currency, which is now maintained by him and a small group of other enthusiasts. It is also notable that Charles is currently working in Coinbase, which could mean that Coinbase may announce Litecoin integration anytime soon. In fact, Coblee (aka Charles Lee), posted on trollbox that Litecoin support will be available on several exchanges next week (see the post here).
Litecoin prices have been steadily declining since it boomed alongside Bitcoin earlier this year, and many people do think it will continue on this downtrend to its oblivion. However, it is interesting to note the similarity of Litecoin chart compared to Bitcoin chart right before it started climbing up to it's current level. See the comparison in this video below.
So what determines whether or not Litecoin prices will increase?
I believe that this is largely dependent on the availablility of services built ontop of Litecoin. As long as there remains no significant usage of Litecoins, it's price will continue to decline, possibly to the level of other altcoins. Hence, an example of good news for Litecoin would be trading platforms such as BTC China, or online wallets such as Coinbase integrating Litecoin into their systems.
In this recent Youtube video, the team at 'Let's Talk Bitcoin' discussed Litecoin and its potential which I highly recommend watching.
They mention two main problems faced by Litecoin, namely an infrastucture problem, and an adoption issue. In terms of infrastructure, the number of resources available to trade Litecoin as compared to Bitcoin is currently very minimal. Hence, Litecoin prices have been sliding (or stagnating) since its boom in April 2013. On top of that, adoption of Litecoin by major trading platforms has been non-existential. Even though trading platforms like MtGox have announced Litecoin integration back in May, it still has yet to do so. Until Litecoin sees an enhanced utilization and utility, we will unlikely see Litecoin prices grow. However, my guess is that once large trading platforms or wallets start to accept Litecoin, we may see a great boost in Litecoin prices.
Lastly, they also discuss how the future of cryptocurrency lies in the ability of the payment infrastructure to be cryptocurrency agnostic, that is, that one infrastructure will be allowed to accept different kinds of coins. Much like a packaged solution where vendors can integrate and accept every altcoin. This will allow markets to exist on its merits instead of its perceived value.

This is also in line with much of the discussion I have found on Bitcointalk, such as this one titled "Why the loss of confidence in Litecoin". Some of the comments by users are highlighted here:
hulk: "There isn't any good news for Litecoin. Wait till you see "MtGox Litecoin has arrived". Booom, litecoin at $20."
kokjo: "If an altcoin is to be able to coexist with Bitcoin, it must be different enough."
pankkake: "As long as there is no significant usage for litecoins available, it's eventually going to decline to the level of other altcoins."

Furthermore, this Quora discussion titled "Do other crypto-currencies have a chance or is Bitcoin too far ahead?" generated more than a few interesting comments, as shown below:
Ben Mordecai, Bitcoin Hopeful (See the full comment here: http://qr.ae/NmnvS)
"The biggest hurdle is making it artificially scarce in a manner that is for all purposes, impossible to counterfeit. Also, there needs to be a way to ensure that you can't backup a copy so that you can spend it twice. The solution is the P2P bitcoin network. The divisibility is better than the dollar, so no problems there. Physical size isn't an issue, since it's digital. It doesn't deteriorate over time, provided you keep adequate backups and never lose them. The only real factor that's missing is an actual non-monetary value. Is it really possible to make a cryptocurrency that has a commodity value? Probably not. Yet then again, the United States uses Federal Reserve notes, which have no commodity value, along with almost every monetary system in the world. In my view, this is a mistake, but nonetheless, for all purposes the lack of a commodity value doesn't make them less spendable."
Ben Solmar (See the full comment here: http://qr.ae/Nmnsv)
"Any P2P cryptocurrency alternatives to Bitcoin need to offer a substantial improvement in order to justify their existence at scale.
Litecoin illustrates this principle well and in many ways is superior to Bitcoin. The most interesting difference is that LiteCoin's proof of work algorithm is Scrypt. Bitcoin uses SHA-256. This is a major change.
Litecoin's algorithm focuses on CPU oriented tasks, negating the advantages of the kind of custom hardware being created to mine BTC moving forward. An additional difference between LTC and BTC is the substantially shorter transaction time in LTC. This may prove critical for real-world transactions."

Lastly, I'd like to end off this post with a more controversial video, linking FIAT currency and a decreasing trust in Governments and Banking corporations, to the rise of Cryptocurrencies.

Cheers & have a great week trading. All the best, and stay tuned!

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