We focus primarily on Bitcoin here because it’s the most prevalent, the most awful, and the most hilarious, but since it was released as an open source project, other developers were free to use its source and create their own versions of the cryptocurrency, offering what they considered to be improvements or extra features. Most of them are more or less pump and dump schemes and don’t actually provide anything useful or act as a viable alternative.
The general lifecycle of one of these altcoins is as follows (thanks to SA forums poster eames for the easily digestible info):
1. Copy-paste bitcoin-, litecoin- or similar code from github and slightly modify it, maybe even hire a coder to add an actual feature. The latter is optional because but it may make the marketing in step 4 easier.
2. Hire a professional web and logo designer… to make the whole deal look “trustworthy” to buttcoin investors. (MS Paint would likely suffice)
3. Start mining the new currency privately with a few… buddies until you all have a couple hundred thousand or whatever. This is called “premining”.*
4. When you have a large enough headstart, publicly release the coin, telling everybody that now is the time to become an early adopter. Your new coins are the future! Marketing! Hype! Since the community is full of people with more Buttcoins than brains, you’ll have no problem finding adopters who will gladly buy your useless coins. **
5. Once the coin has gained some momentum, tell btc-e.com you may accidentally send them hundred thousand of your coins if they start trading the coins on their site in return.
6. Very slowly dump your hundred thousands of coins after the IPO on btc-e.com, trading them into hundreds or thousands of BTC which you can sell for actual money.
7. Weeks later, by the time people realize that it is all a huge pump and dump, you have hopefully sold off a good chunk of your coins for BTC.
8. btc-e.com removes your new coin because the trading volume is too low and nobody is interested in it anymore. People forget about it and move on. You convert your BTC to USD and buy a nice house and car. A very nice house and a very nice car.
* Step 3 may not work anymore because the buttcoin community has realized that premining is not cool. You could still rent mining power for the very rewarding period right after the launch and/or DDoS any mining pools that may pop up during the first “land rush” to make sure the currency is not evenly distributed and you get all the initial coins.
Now that we’ve established how to make your own *coin, let’s take a look at a few of the notable failures.
Solidcoin was an alternative to Bitcoin in which the developer (going by both CoinHunter and RealSolid) forked Bitcoin, pre-mined several million “coins,” and included a killswitch that could halt the entire network, ostensibly to protect against the dreaded 51% attack. Of course, bitcoiners adopted it in droves until someone broke its blockchain with “low-fee large-sized transactions.” It was given up on and shut down by RealSolid on September 13, 2011, after backlash from the Bitcoin community and the aforementioned exploits. Someone has revived it, but it’s more or less dead.
Litecoin is the current favorite of those who missed the Bitcoin boat and can’t afford to throw their dirty fiat at MtGox to buy any. It was designed to have a faster rate of block generation (one every two and a half minutes) and to decrease the effectiveness of GPU mining (and eliminate the resulting hardware arms race that’s brought us such gems as Butterfly Labs) by using scrypt for the primary hashing. Currently Litecoins can be had for about $3.50, and many bitcoiners seem to think that it would work better for smaller transactions, as a sort of penny to Bitcoin’s “dollar.” Note that this view is often espoused by advocates of Litecoin. It really adds nothing to the scene, aside from another pointless thing to excite nerds.
Feathercoin is just Litecoin at quad speed. Watch it pump and dump here.
Terracoin appears to just be Bitcoin with a cap of 42 million “coins” and faster difficulty adjustment. Yet another attempt to capitalize on trading a worthless thing for a slightly less worthless thing.
I don’t even remember this one being announced. According to the Bitcoin wiki, it’s the “first known implementation of a combined Proof of Stake/Proof of Work system,” which, if I’m reading all this garbage correctly, means those who have more PPCoins will generate more PPCoins than those who have fewer. I could be wrong though, and chances are nobody cares, because who’s even using this?
Namecoin is an attempt at decentralizing and distributing DNS, which is what makes the web convenient. DNS happens to already be distributed to a degree, and is incredibly well-established and widely used, making namecoin seem kind of pointless and arbitrary. Its primary use appears to be allowing nerds to create website domains with the “.bit” TLD.
IxCoin was just Bitcoin with the FastForward button pressed. The block reward was 96 instead of 50, and the creator mined over 400,000 “coins” for himself. As originally designed, once the network reached 21 million coins, it would just shut down. It’s since been abandoned and appears to have been a pump and dump scheme.
Freicoin is a special case, and we’ve actually had the opportunity to speak with one of its developers. According to the person or persons who created it, “Freicoin is a decentralized, distributed electronic currency designed to address the grievances of the 99% movement and correct the excesses of the 1%.” The project aims to disincentivize hoarding and act as an actual unit of exchange, by “destroying” coins that are saved for too long and then redistributing them to the miners.
Freicoin was brought to our attention when one of its developers stopped by our IRC channel, linking to an entry in the “Your Kickstarter Sucks” tumblr and incorrectly assuming that the FYAD posters mocking him were in fact secret bitcoiners. After totally misinterpreting their mockery, he went on to explain how he co-opted the language and mission of the now-defunct Occupy movement, going so far as to display images from Occupy events on Freicoin’s website and claim affiliation with Occupy when it appears more like they were trying to pitch their knockoff bitcoins to protesters, much like Bruce Wagner before them.
In the course of speaking with this gentleman, we found that not only is Freicoin not connected to or endorsed in any way by Occupy, but that the developers are misrepresenting other aspects of the project. Half of the funds collected by the Indiegogo campaign were donated by none other than the developer himself, who then worked for free, as the small amount of funding that was collected through misrepresentation went to another dev in another state.
Furthermore, it was found that our guest’s Sonichu Coins are totally not a copy or fork of Bitcoin even though it’s just a version of Bitcoin with various tweaks to punish hoarders. Instead it’s a TOTALLY ORIGINAL CHARACTER DO NOT STEAL and we should feel bad for even considering that, even though it uses Bitcoin’s technology and terminology, it’s tied to or related to Bitcoin at all. After, during the course of our conversation, it was shown that the Bitcoin Foundation had no members who were women, we posited that “since Freicoin is left wing and endorsed by the occupy movement [we] assume it has 50% women on board.” Of course our dev doesn’t know if that is true or not, and then slipped up, admitting that the hilarious and awful “Men’s Rights” movement is justified.
At this point he backpedaled furiously, realizing that he’d made a fool of himself and his project. Do not use Freicoin: the misrepresentative, Kickstarter-defrauding, MRA currency. Don’t use any of the other pump and dump currencies either. Hell, don’t even use Bitcoins.