Bitcoin Misconceptions – The way to get bitcoins is by mining, Crime, and AltCoins

A friend writes:

I know some people in the crime commission who say that bitcoin is rife with crime. It seems pretty interesting but be aware that there is an undeniable shady element to it. Personally, I’m eyeballing litecoin and maybe feathercoin, the mining difficulty on those seems much lower at the moment (bitcoin has ramped up too much for me to be interested in it).

It’s a great comment filled with common misconceptions. To say bitcoin is rife with crime is to say cash is rife with crime – yes there are criminal exchanges going on with bitcoin, but they are generally traceable. The concept of paying for crime with money is simply nothing new.

The governments of the worlds understand bitcoin can be used for crime, as can every other currency, and are supportive of bitcoin regardless of the criminal uses. Which is logical. Litecoin and feathercoin don’t solve the problem of criminal usage in the slightest.

To judge a cryptocurrency based on the mining difficulty is backwards because the higher the difficulty, the more secure the currency. You shouldn’t think of “mining” as a way to “get coins”, it’s just transaction processing for which professionals with a lot of infrastructure are rewarded.

The 2.5 minute block speed of both LTC and FTC is too fast, inflating the blockchain 4 times faster than bitcoin, and scrypt is a less proven hashing algorithm than SHA256, and therefore more likely to contain flaws. The limiting co-efficient of feathercoin is disastrous when considering scrypt ASIC’s aren’t far off, and all feathercoins will be mined out in a matter of a few short years because the maximum difficulty increase is limited at the protocol level. So if hashing power quadruples, the difficulty can still only rise by 40%, resulting in a block being produced every minute rather than every 2.5 minutes. This is compounded by further doubling and triplings of hashing speed.

Litecoin is only a refuge for former bitcoin GPU miners and offers no extra feature over bitcoin, and to make things worse, it isn’t widely accepted at all. Both LTC and FTC are merely a copy of bitcoin with a few minor tweaks which actually make both currencies worse than bitcoin, and further, neither has the network effect bitcoin has achieved.

Your interest in bitcoin shouldn’t be based on the mining difficulty, it should be based on the core technology. Mining is a massively hardware, power and labour intensive task which should only be undertaken by a few dedicated professionals, it’s not a way for joe bloggs to get involved. Also on every day in history people have made more profit by simply buying bitcoins rather than buying mining hardware.

One thought on “Bitcoin Misconceptions – The way to get bitcoins is by mining, Crime, and AltCoins

  1. Chris Johnson on

    Fair call.

    To respond, I wasn’t implying that Bitcoin’s involvement in crime was a matter divorced from the usual marriage of crime and currency. If anything, noting that it was intertwined with crime, despite it’s marketing as a secure, traceable currency. Where there’s money, there’s crime.

    Nor was I implying LTC or FTC mitigate the flaws of Bitcoin in this regard. Merely stating my preference for them from a mining perspective. With 1st Gen FTC ASIC mining rigs on the horizon, being a FIFO adopter of the technology should represent a solid investment.

    The advantage to FTC and LTC lies in the fact that you can jump into trading/mining them at a lower initial investment. I’d advise people to use them to bootstrap into Bitcoin stocks, as at least then you have the option of cashing out into USD.

    Agreed, mining on a desktop CPU is almost always going to be a losing equation (especially with Australian electricity rates. Unless you get free juice or have a solar panel rig) but a good mining rig (6x GPU or an ASIC miner) should give good absolute ROI, even as it drops off due to difficulty curve and competition with newer mining technologies over time.

    While buying coin is predicted to be good ROI, if the stock ever crashes or otherwise becomes insolvent, you’re left with a bunch of electrons that aren’t worth the USB device they’re sitting on. A mining rig, at least, has an option for cashing out and liquidating the assets (as far as one can sell an item purpose built for a single task). Both are valid options for the dedicated ‘player’, it’s the fellow that sticks his toe in and nothing more who won’t gain anything.

  2. Pingback: The Compounding Risk of Alt-Coins and the Impending Alt-Coin crash. | Vince Samios

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>