PonziCoins?

Quote from the movie: "Mice that roll barrels. Mice that stack coins."

After the relative success of BitCoin a lot of new alternative crypto currencies have been introduced. It is very hard to differentiate between the actual valid coins and coins that are better described as a Ponzi scheme.

In a Ponzi scheme the money of new investors is used to pay the old investors. This pyramid system works as long as new investors can be attracted.

Crypto currencies need to attract active users in order to keep the network alive, when a lot of nodes of the network is no longer working, the transactions will stop, rendering this currency worthless.

In order to attract these new users, a reward system needs to be in place. This reward can be obtained by mining, when calculating new blocks in the system is rewarded by new coins and/or to reward with transaction fees. There is an issue with both reward systems with regards to attract new users.
In the first system witch is usually proof of work, each user needs to add a lot of processing power in order to obtain new coins. The second system, usually based on proof of stake, the biggest reward is for the users with the highest bankroll.

But in the end we are talking about money. And the main purpose of money is to trade goods and services. So the acceptance of the crypto currency as a means to make payments is the most important and it seems the most overlooked property.

The main purpose of any new crypto coin should be to become the most accepted payment system, Not a get rich fast for the start-up crew, early adopters or users with the highest processing power. In that case parallels with a Ponzi scheme are easily made.

The more things change......

Quote from the movie Inception: "This is great but I'm telling you, if you keep changing things like this..."

In my previous blog entry I introduced the NXT coin as the new crypto currency. It seemed that this coin was so new that even the logo was not fixed yet when I created the QR Code Walled ID.

Back to the drawing board :-)

Here is the new wallet, I hope this one is fixed... for the moment.

Crypto Currencies, what's n(e)xt?

Quote from the movie How to Train Your Dragon: "Out with the old and in with the new"

After the success of Bitcoin during the last four years, especially during 2013 a lot of alternative crypto coin, or altcoins have been introduced. Most of these coins have a system that gradually generates new currency during it's lifetime. A process that can cause inflation during this generation phase. For the most common currencies this generation protocol is build upon a proof of work principle. This means that a lot of computing power is needed to generate a new block, and if in the system the amount of computing power increases, the difficulty is raised to keep an predetermined block update rate.
A couple of months ago when the Bitcoin crossed the $1000 value, a mined block could generate a value of $50.000. This generation of money out of thin air seems to good to be true, and when something seems to good to be true is usually is. The cost of estimated power consumption of the worldwide computer network calculating these new Bitcoin blocks was valued higher then $50.000.

This waist of energy does not fit the 'green' concept. So based on a different principle called proof of stake the latest Crypto currency created is the NXT Coin.

Proof of stake has a nice short description on Wikipedia, that is better served with a link then a quote.

In this system the Computers connected to this currency network do not have to compete to find the next valid block, so the total global computing power doesn't have to run full speed. This limits the energy required to keep the network up and running.

So what can be improved for NXT coin?
Currently the source code is not open source, this requires a high level of trust in the developers.
With all coins of this system already in circulation, generated at start-up this raises the question who had these early coins? And the proof of stake looks at the number and age of the coins to grant an online NXT-wallet owner to generate a new block and claim the transaction fees.
The most filled and oldest wallets-owners will profit the most of this proof of stake principle.
It is still a system with an increasing block-chain, that will grow in size over time, in my opinion not suited for mobile phones.
I do think that the proof of stake is a better system with regards to energy consumption and yes, for this currency I also have generated my own wallet..... just in case....