Are Altcoins Bitcoin’s Friends or Enemies?
Altcoins have a long tradition in the Bitcoin community, but they tend to cause a contentious divide among those who think they’re useful and those who think they’re all scams. One side of the argument, articulated by the Satoshi Nakamoto Institute’s Daniel Krawisz, is that altcoins have no chance of success and distract possible users from Bitcoin, while the other side, articulated by many Ethereum supporters, believe platforms such as Bitcoin and Ethereum can work together.
Johnny Dilley, who runs strategy at Blockstream, was recently asked for his thoughts on altcoins during an interview on The Crypto Show. Dilley believes the vast majority of altcoins are scams, and he also thinks Bitcoin developers are not threatened by the existence of these alternative cryptocurrencies. The incentive for altcoin speculators to promote uncertainty in the Bitcoin community was also discussed.
The Vast Majority of Altcoins Are Scams
When first asked about altcoins, Dilley echoed recent statements made by Monero developer Riccardo Spagni and stated, “I continue to believe that the vast majority of altcoins are scams. They provide no functionality whatsoever, or the functionality they could provide could very easily be implemented via a sidechain.”
A sidechain is an alternative blockchain to Bitcoin that uses the same Bitcoin currency through a pegging mechanism. The idea is to allow developers to experiment with completely new blockchains without having to bootstrap a new currency network (altcoin). Bitcoin Hivemind and Rootstock are two examples of sidechains currently in development. Blockstream has handled the vast majority of the development work for sidechains up to this point.
Dilley went on to discuss the security concerns associated with altcoins. Critics often point to low network hashrates and alternative consensus models as potential risks of these alternatives to Bitcoin. Dilley added, “If you’re going to fall back to [a weaker security model], you might as well be piggybacking off Bitcoin via sidechains.”
Bitcoin Developers Not Threatened by Altcoins
In terms of whether altcoins are a threat to Bitcoin, Dilley said:
“I don’t think the Bitcoin developers ‒ they’re not doing things from a perceived competitive perspective. Their perspective is: ‘I have this awesome piece of technology, and I want to be able to help develop it and bring it more into what I think is interesting to build on top of this.’ So no, I don’t think it’s from a perceived threat of any of the altcoins.”
In the past, many altcoins have marketed themselves with some sort of comparative advantage to Bitcoin. For example, some altcoins have touted faster confirmation times; others claim to offer privacy enhancements. For the most part, Bitcoin developers have focused on implementing their own innovations rather than responding to what’s going on with the altcoin market.
Although Bitcoin developers may not view altcoins as serious threats, Zcash CEO and longtime cypherpunk Zooko Wilcox-O’Hearn recently warned the Bitcoin community to not become too complacent in the push for Bitcoin.
Does Uncertainty in Bitcoin Fuel Altcoins?
There has been some uncertainty in the Bitcoin market recently due to the ongoing scaling debate. Dilley was asked on The Crypto Show whether he thinks this uncertainty has led to some Bitcoin holders fleeing into altcoins. At first, Dilley responded, “I think there’s some serious, perverse incentives [for altcoin holders to cause uncertainty for Bitcoin], and that’s a broader topic.”
Dilley went on to explain that there are definitely some members of the Bitcoin community who would seize on the opportunity to attack if they saw an opportunity to increase their return on an altcoin speculation. The head of strategy at Blockstream pointed to the large number of scams in the Bitcoin ecosystem over the past few years as a way to explain that there is no shortage of nefarious actors in the space.
In addition to altcoin promoters, Mastering Bitcoin author Andreas Antonopoulos has noted the likelihood of attacks from various government agencies. Online Bitcoin discussions have turned into schoolyard-esque yelling matches over the past year, but it’s unclear how much of the divisiveness in the community has been organic. There are plenty of incentives for a variety of different types of non-Bitcoin users to throw gasoline on the fire.