In this post I want to share what I feel are the top ten weighing factors for choosing alt coins for your crypto portfolio.
This won't be a shill post for any of my favorite alts. No, in fact, this post will show multiple major drawbacks to all alts, including my own favorites, and even to Bitcoin. There is a lot of room for improvement in the crypto universe, so much that I strongly advise against going full-in on any one alt at the moment.
- The thug factor?
- Ninja-mining attributes?
- No-surprises curves?
- Quantum resistance attributed?
- GHG emission footprint?
- Transaction costs
- Exchanges
- Inflation use
- A dev community
- Smart contracts and NFTs
The thug factor
If the chain is effectively run by people who have proven themselves to be criminals, scammers, or thugs, stay the hell away from the coin. A prime example of coins with a high thug factor are $STEEM and $TRX. $STEEM and $TRX used to be competing platforms, until the company that started $STEEM sold its ninja-mined stake to the founder of $TRX. Then, when the $STEEM community revolted, the acquired ninja-mined stake was used in a consensus-attack blockchain heist, robbing a number of large stake-holders from their funds. As such, Tron founder and Steemit Inc owner 孙宇晨, has shown the careful alt-coin investor they should stay away from anything with his stamp on it.
Ninja-mined coins?
Strongly related to the thug-factor is ninja-mining. Coins, especially POS coins with a huge percentage of ninja-mined coins are highly vulnerable to becoming thug-factor coins. The $HIVE blockchains is a community fork from the $STEEM blockchain that reduced (not eliminated) ninja-mined stake from the chain. Remember that ninja-mined stake in a POS blockchain is bad, but it's particularly bad if it makes up a huge part of the total market.
No-surprises curves
Let's stay with $STEEM and $HIVE for a moment. As an investor, you really need to know what you are buying, and you need to know that what you buy doesn't change essential attributes you believed to be immutable after you bought it. $STEEM changed curves a number of time during its lifetime. The last time it did was the EIP fork. That fork basically devalued the voting value of a stake owned by anyone without at least an orca-level size in the chain. This basically is the financial POS equivalent of a two wolves and a sheep democracy.
POS based voting is great, but things like reward curves should be a stable factor or at least a deterministic factor of any blockchain. If you buy a coin today and you look at the source code that determines the reward curves, and a few whales could then go and vote on a new curve so they get your piece of the pie as well as their own, then that coin isn't the most reliable investment. Not unless you are one of the whales.
As a fan of $HIVE, I hope the $HIVE community will rid itself of this part of old $STEEM legacy soon.
Quantum Resistance ?
Now we come to an issue with most alts that also affects $BTC. Lack of quantum resistance. Quantum computing currently seems to be advancing with pauses and leaps. It is hard to tell how long it will take before QC is powerful enough (has enough qubits) to basically slice through an ECDSA signature or public key to acquire a copy of a private key that could be used in a quantum blockchain heist, but we know the day will come when this becomes a possibility. It might be as soon as 2025, or as late as 2031, but the day is definitely on the horizon. There is a date on the horizon that is much closer though. The day the market starts realizing that slicing through ECDSA with quantum computing will become a risk factor is the day a lack of quantum resistance for a blockchain, and/or the lack of at least a roadmap towards quantum resistance will start to be reflected in the price of the coin.
- When it comes to quantum resistance, the best thing are blockchains that started out quantum resistant, and that never actually used quantum vulnerable signatures.
- If a blockchain didn't start off quantum resistant, but added support for quantum resistant signatures later on, then only part of the funds on the blockchain are quantum resistant.
- If only part of the blockchain is quantum resistant, and there is no market isolation between these parts, then from an economic perspective even the quantum resistant part of the blockchain isn't actually quantum resistant.
- If funds are left in unspent outputs that are linked to signing keys that have already been used for signing a transaction in the past, then these funds are most vulnerable to a QC attack, and without market isolation, so is the whole blockchain.
- If signing keys have never been reused but non-QR signatures are used, then involved funds are vulnerable in transit only.
- If the blockchain in question uses zero-knowledge-proof, then incident-response patches might be possible if #5 becomes relevant.
- If today, February 2021, an alt-coin still has no roadmap for quantum resistance, realize that time is getting short. We might not need quantum resistance just yet, we definitely need well-thought-out road-maps for quantum resistance.
Today $QRL is at one, quantum resistance from its start. $NEO seems to have had a roadmap from day one, but I'm not sure if it includes market-isolation (please comment if you know about the $NEO roadmap). Many coins are at the #5 level except for maybe long-term donation addresses for things like charities, no roadmap, but no key-reuse, so safe from the most likely first wave of possible quantum computing based attacks. $BTC, but also blockchains that by design reuse keys, like $HIVE, are most vulnerable, and thus most needing of a roadmap right now.
A little side-note for $QRL. At the moment $QRL seems lonely at the top of quantum resistance, but there is a possible issue of concern with $QRL and quantum resistance right now, IMHO. The $QRL folks currently have enQlave as prime priority. While it's a technically interesting project, it is a system running on Ethereum that doesn't actually address market isolation in an any way relevant way. And this of cause apart from the gas-prices hell that $ETH is currently suffering what is a separate issue. Without market-isolation, enQlave seems like exactly the type of non-solution that the original $QRL isn't. Maybe $QRL will soon shift its priorities back to $QRL with features such as POS and smart contracts, we'll have to wait and see. For now, the prioritization of enQlave I would say should caution us from going all-in on $QRL right now.
GHG emission footprint
So far, my by far most favorite blockchain, $HIVE, hasn't done very well in this top ten of things to look out for. With this one that is going to change. Proof of work coins, such as $BTC, $ETH, $QRL, etc, tend to turn units of global warming and greenhouse gas emission into units of monetary value. POS blockchains have their own problems as we have seen above, but high GHG footprint isn't one of them. Look at coins like $HIVE and $NANO for innovative alts with a relatively low footprint.
Transaction costs
Cryptocurrency is supposed to be, well, currency. Something you can buy stuff with. Not just a house or a car, but also a pizza. If the transaction cost of a single transaction $30,- as it was a few days ago for $BTC, or $25 as it was a few days ago for $ETH, then that blockchain might offer value storage, it doesn't effectively offer you a currency that you can use for everyday purchases.
Cheap transactions are great. Transactions that are functionally free because they are paid with POS derived resource credits, like $HIVE gives us, that is even better.
Exchanges
This one is a tricky one. If a coin is listed on only one reputable exchange, like for example $QRL is, or if it is only listed on exchanges that have shown not to care too much about the thug-factor, and list shady coins such as post-blockchain-heist $STEEM, like $HIVE is, then this should be considered a risk factor.
One is fragile, and so large holdings in $QRL, that is only listed on Bittrex right now, is fragile as well.
On the other side, how reputable can an exchange truly be if it failed to delist $STEEM after the consensus-attack blockchain heist. All of the exchanges CoinGecko lists as having $HIVE listings have $STEEM listings as well.
Two of my favorite coins and both have issues with the fragility of their listings.
Inflation use?
Does the alt have inflation? If it hasn't, that is cool. If it has, how is this inflation used? Is it used to fund utility functions? Such as the content rewarding system, or the developer funding system of $HIVE ? That's pretty cool too. If it's neither, then your alt is probably not a good store of money. It might be great for pocket money, but if there is inflation, and you have no way to try and make mart of that inflation flow your way, then don't stack up on that coin.
A dev community
Have a look at github, query pypi, look around if there are people writing code for the blockchain who aren't founders or company. An alt coin with a dev community is a living blockchain. One without is, well, a big flag.
Smart contracts
Now for the last one of our top ten of attributes to look for. Smart contracts. Turing-complete smart contracts. And, given what we have seen recently with $ETH based DApps going belly up due to gas prices, preferably a smart contract infrastructure with lowish, or at least somewhat long-term predictable gas prices. Ideally something like a resource credits POS system like $HIVE uses for transacting.
Help your favorite crypto check more boxes!
As you might have notices, you should be happy for any one crypto to check five of the ten boxes right now. If you have the time and the skills, consider weighing in and helping out your favourite crypto to check an extra box. For example, if you, like me, are a fan of $HIVE, subscribe to the Quantum Resistance HIVE community, and weigh in to help create the dire needed roadmap towards quantum resistance.
Help your favorite alts to get a listing with more than one reputable exchanges. Become part of a dev community and open source your work. Find ways to create a crypro market where maybe, one day, your favourite alts could all have nine out of ten instead of five or less boxes checked.