The altcoins and other "investments" I like, Part II

Author's note: This article is part of an ongoing blog about my adventures in the world of alternate currencies.

In Part I, I wrote about a few interesting Bitcoin growth opportunities. This article will be all about altcoins that I believe to be promising investments as well as a few that are worth at least considering.

Before getting into specific altcoins I like and am currently accumulating, I need to first state my disclaimer and second, share some general principles which guide my altcoin investment choices.

First, the disclaimer

I am not a financial adviser, so nothing I write here should be taken as financial advice. It is your responsibility to do your own due diligence and only invest what you can afford to lose. This is, after all, crypto. It carries extraordinarily high risk, and no one really knows what the long term rewards will be. Treat this as information; now you know about some interesting altcoins that you might not have heard of before, then go read up on them yourselves, come to your own conclusions, and make your own decisions.

Second, the basic principles

2013 and 2014 saw a massive amount of altcoins launched, most of which have failed. I personally have had two of my altcoin investments blow up on me when people stopped mining the coin and when I'd try to run the wallet, it could not connect to any nodes, making it impossible to either send or receive transactions. Although I may technically still have the coins inside, I can't do one thing with them, and even if someone were willing to buy them, I'd have no way to send them. That is ultimately the risk you take when investing in altcoins. However, I believe the altcoins which follow these three principles are more likely to succeed over the long haul.

Principle 1: The coin must come with solid infrastructure

At this point, it doesn't have to be a huge amount of infrastructure, but there does have to be something beyond the coin itself. Otherwise, the coin's value is tied to mere speculation and subject to the whims of the pumpers and dumpers. By infrastructure, I mean both value added products and entities designed to increase the coin's adoption. One of the very first altcoins to have added infrastructure was Devcoin, the infrastructure being the Devtome, a wiki that users could contribute content to in return for a share of the following month's mining rewards, which generated some ad revenue. Another early coin with infrastructure was Namecoin, with its associated website domain name service. The very first cryptocoin, Bitcoin, now has infrastructure such as trade exchanges and online wallets and payment gateways, but that infrastructure has been added by third party entities, not by the Bitcoin development team itself. Altcoins need to have their infrastructure provided by their development teams until third parties are willing to step in.

Principle 2: The coin must come with incentive for buyers to hold onto it, keeping it off the market for months or years at a time

Due to the way cryptocurrencies are mined into existence, the vast majority of the time, the coin's supply increases more quickly than the value-added infrastructure can be built. This tends to lead to a noticeable price decrease, making the coin less attractive to speculators and other investors. To counter that a coin needs to have a built-in incentive for holders to keep it off the market, making the available supply substantially less than the total supply. The most obvious way is for the coin to earn interest while it is being held. This can be built right into the coin's code, as it is with proof of stake coins whose wallets “mint” or generate new coins based on the balance. Some examples of minting coins are Diamond, Neucoin, and Piggycoin. The ability for a coin to earn interest can also be built into the coin's supporting infrastructure, though not part of the coin's code itself. One example of this is the DNotes vault retirement accounts, which provides users with a monthly return on coins of 0.7% to 1.0% depending on how long the user is willing to tie up their coins. Either way, the coins that are held in a wallet to mint or in an online interest bearing account such as the DNotes vault are coins that are not being dumped on the market.

Principle 3: The coin must be systematically and consistently bought on the open market

In addition to an incentive for coin holders to hold onto their coins, there must be a consistent and systematic removal of coins from the market through buying them. At the beginning, this can be done by the development team, but a third party can also do it, as long as it is being done. If coin holders know that the price of the coin is being supported, this helps them feel better about owning and holding the coin, especially during periods when the price is low. Since coin developers rarely have super deep pockets, it's more than just a matter of them buying their own coins every day. There needs to be some sustainable reason to buy the coins. One way to do this is to provide the opportunity for users to buy shares in a profitable company and have the dividends be paid in the coin. In the early days of Devcoin, you could purchase fractions of pass through shares of ASIC Miner in Devcoins. As the actual share paid weekly dividends, the pass through dividends were also paid weekly, but in Devcoins. This meant that every week the administrators of this asset had to buy the Devcoins in order to pay the dividends. For a while, there was a share on the Next asset exchange that was a pass through share for LTCGear mining shares. Its weekly dividends were paid out in Next, meaning the asset issuer had to each week convert his dividend payouts from Bitcoin to Next, supporting the Next price in the process. Unfortunately, both the Devcoin and Next pass through shares are no longer valid (and illustrate that these pass through shares are only as good as the people issuing them), but they still make for good examples. Creating a pass through share of an existing asset is probably the simplest way to do this, but it's also possible to create an entirely original asset, particularly if the coin has also developed some truly profitable infrastructure.

It is not always necessary for a coin to follow all three of these principles at all times, but it is important to the potential investor to know which ones are being followed and which ones are not.

An overarching principle that makes an altcoin a good investment is that it needs to have a solid core development team which provides clear vision and leadership for the direction of the coin. Without such clear leadership, it will be all but impossible to implement the other three principles. Although not enough by itself, a good initial indicator of a coin's strength is a frequently updated Bitcoin Talk thread where the leadership is active and communicative. I would consider a thin and infrequently updated thread to be a red flag.

With the principles for a solid and long lasting altcoin established, I will now share my personal favorites.

Altcoins to buy

DNotes (NOTE)

DNotes launched in February of 2014 and was partially a response to Founder Alan Yong's observations of the dysfunctionality inherent in the cryptocommunity largely run by geeks and computer nerds with poor social skills. Yong realized that even with Bitcoin's tremendous first mover advantage, it could be surpassed by another cryptocurrency if that coin had a solid business model with good executive leadership and professional communication. He also recognized that a coin couldn't stand alone, but needed to have value added to it through surrounding infrastructure.

DNotes probably has some of the most advanced value added infrastructure of any altcoin and continues to add more. The CryptoMoms forum was launched shortly after or perhaps at the same time as the coin itself. The purpose of CryptoMoms is to engage women in the cryptospace with top notch information and a pleasant and professional online community. DNotes also owns the DNotes vault, a full service online wallet with some additional features including a whole line of retirement accounts which earn interest, providing that necessary incentive for DNotes holders to keep their DNotes off the market. DNotes recently launched DCEBrief, a news and information service on developments in the cryptospace. The founder is currently writing a book to assist small business owners, and there are plans to launch a for profit company sometime in 2016. Not only that, an emerging third party company, PayServices, designed to be among other things an efficient payment gateway that uses as many cryptocoins as possible, already supports DNotes, giving it a bit of third party infrastructure. DNotes has plenty of infrastructure to go with it.

The only principle that DNotes does not follow at the moment is a systematic way to consistently remove DNotes from the market. This has no doubt contributed to DNotes' recent price decline. The DNotes team believed that the value added infrastructure would be sufficient to keep the price steadily increasing, and that should normally be the case, but the cryptoworld is filled with fickle speculators so in the short term all the infrastructure is still not quite enough to fully support the price. However, it appears the DNotes team is taking steps to rectify this. One of the core developers is working on an automated trading bot that DNotes investors can use to both support the price of DNotes and acquire them at a predetermined daily amount.

DNotes is currently way undervalued, making this a good time to buy it, and then grow it by opening up a retirement account in the DNotes vault.

Diamond (DMD)

Diamond has been around for a couple years and got off to a rough start with an apparently not entirely ethical development team. However, the coin was forked and taken over by the current development team, which is committed to this coin for the long haul. Diamond is a rare coin. The most there will ever be is 4.38 million. The coin is set up as a dual POW/POS coin. This means that new coins are put into the supply both by mining (Groestl algorithm) and minting. This hybrid system is credited with keeping the network secure and free of technical problems which often plague coins relying on POS only. The development team is very active on the DMD forum thread and works hard to continue to develop and move the coin forward.

Diamond's infrastructure is simple, but effective. The development team offers a cloudmining service where investors can contribute Bitcoin to buy shares and in return receive regular dividend payments in Diamond delivered directly to their QT wallets. Dividends are not guaranteed to pay out at a particular interval and can sometimes go as long as a week between payments. However they typically pay out once a day or five times a week. All proceeds from cloudmining which are to be paid out in dividends are first converted to Diamond, meaning there is consistent DMD buy pressure on the market, keeping the price stable. Diamond is also wrapping up an auction for ten special addresses which will mint at twice the current rate as well as record the owners' names in the block chain (for posterity). These special addresses are named after real life valuable diamonds. The auction has already raised considerable funds for the development team to continue working on developing and promoting Diamond.

Stakeholders who acquire Diamond either through direct purchase or through cloudmining dividends have a strong incentive to hold onto them. The extremely stable QT wallet mints new coins at an annual rate of 25% of the balance. Coins have to be a minimum of nine days old in order to mint, and the wallet handles everything associated with minting. Coins that are older than thirty days are automatically gathered into larger piles and minted. All that the wallet owner needs to do is leave the wallet running and unlocked for minting. Minting proceeds can either be sold for a bit of income or saved for additional minting.

The DMD price has been quite stable over the past few months, ranging from twenty-five cents to nearly thirty cents a coin. The recent Cryptsy theft resulted in a large number of Diamonds getting dumped on the market, but with that dump over, it is likely the price will begin to climb in the next few weeks. Diamond has been promoted as a good store of value, and for a cryptocoin, I would agree that it does a good job of it.

NeuCoin (NEU)

Neucoin formally launched this past October with big names, big plans and big investors. Neucoin's goal is nothing less than to be the cryptocoin that mainstream (and generally ignorant of cryptocoins) people adopt in large numbers. To that end, Neucoin has established a partnership with Internet music site Jango where Jango users are given some Neucoins to tip emerging new artists. In return, the users are given some Neucoin of their own and encouraged to open up an online wallet to receive them. They are also resupplied with Neucoins for tipping. Neucoin has also set up a Facebook based game that people can play to earn Neucoins. The Neucoin team now claims to be supporting 50,000 new accounts. More games and partnerships are in the works.

Initial investors in Neucoin were given large amounts of coin in exchange for their contributions. However, those coins were to be tied up, only releasing a few each month for a period of several years. This was to both prevent investors from immediately dumping their stake as well as motivate them to participate in the Neucoin community and work to benefit the coin so that when their entire stake did become available to them it would have even more value. For this reason, out of a total current coin supply of nearly four billion coins, only 180 million of them are available.

Neucoin has an additional incentive for regular stakeholders to tie up their coins. On the same site where users can set up an online wallet, they can also transfer their coins to three different growth accounts. A five year growth account will earn an unbelievable 1600 percent interest rate while a three month growth account will grow by 20 percent. Coins can be withdrawn at any time from these accounts, but the penalty is that all interest is forfeited.

The ability for Neucoin to provide such amazing interest rates on the growth accounts comes from the fact that it mints at a near 100% annual rate. This rate gradually decreases over time, and the return rate of the growth accounts will eventually also decrease. Although one could theoretically earn more from minting coins in a QT wallet, the minting algorithm is set up such that minting is really only feasible for those wallets which contain at least 100,000 NEU. If you have any less than that, you are better off just using the growth accounts.

I am not aware of any provision that the Neucoin development team has for deliberately removing coins from the open market, and that may explain the current low price of 650 satoshis apiece down from over 2000. It could also be that the close to 100 percent minting rate is simply adding coins to the supply too quickly. I do believe that the coin is currently undervalued, though, especially considering the rate at which Neucoin is gaining new users among people who aren't already involved in the cryptospace. As long as it keeps growing its user base and continues to create new ways for mainstream people to acquire Neucoins, I believe it's only a matter of time before the coin's value begins to trend upwards. I am currently taking advantage of the low price to acquire as many as I can and then I'm socking them away in various growth accounts.

One important thing to know about the Neucoin online wallet is that in order to access any of the Neucoins earned or won from Neucoin sponsored games and activities, you will need to verify your account. Part of that verification process involves registering your cell phone number, then typing in a code that is sent to your phone by text message. Unfortunately, their system does not accept all cell phone numbers. If your phone number is not accepted, you will not be able to access coins from playing the Neucoin games. Support, no doubt overwhelmed by 50,000 new accounts, is also quite unresponsive lately. Any investor of Neucoin needs to know this, as often what makes or breaks a business is good customer support and a completely working product. This glitch with the wallet verification does not affect coins that you buy yourself and send to your wallet. You will have complete access to all those coins and can send them to growth accounts or elsewhere at will. You are even supplied with your wallet address's private key. I am assuming that the phone verification issue is only affecting a small percentage of account holders; for this reason it is not a deal breaker in my decision to invest in Neucoin, despite the fact that it affects my own account.

Altcoins to watch

New Economy Movement (XEM)

I want to mention this one briefly as it holds a lot of promise. However I am not sure if it's a good buy right now. The New Economy Movement is an entire platform on which once completed many different types of assets and coins can be supported. XEM is the specific currency that automatically comes with it. It began as a clone of Next and then the development team decided to build it from the ground up. New Economy Movement is essentially its own block chain technology and it does require far less power (by orders of magnitude!) than the Bitcoin network and its underlying block chain technology. The block chain technology itself (under the name Mijin) is currently being adopted by a number of Japanese banks, and this news has resulted in the recent tripling in market price. Further major announcements are expected this year.

I was an early investor, back when they were selling stakes for 0.03 BTC. I bought one stake and have held onto it except that I sold some of it to take profits in the recent price hike. I was hoping to buy back in when the price dropped but that hasn't yet happened. It's a bit tough to tell at this point if the current price is the new level for XEM or if it will eventually drop back down, making for a better buying opportunity down the road. This is a determination each investor has to make for himself.

Minting (knows as “harvesting” in the XEM ecosystem) is currently not very rewarding. This type of 2nd generation cryptocoin requires that the entire supply is minted in the genesis block, so the only rewards left to harvest are transaction fees. Since there aren't many transactions, most of the blocks are empty. This will change once people get to the point of using XEM to buy and sell but as with all cryptocoins (except Bitcoin) we're probably several years from that. For the technically oriented, there is a node rewards program for those who set up and maintain a node. Since you need three million XEM to run your node, that is an incentive for keeping large amounts of XEM off the market. In addition I personally am hoping that XEM will be opened up for margin trading on Poloniex so that I can grow my stash by lending it out. If XEM does become available that way, then that will act as another incentive for people to keep their coins off the market.

There is no system I'm aware of for taking XEM off the market. The price is supported entirely by XEM's infrastructure and the value speculators place on the coin. Right now that value is trending upwards, but we all know how prone they are to changing their minds at a moment's notice. The entire supply of XEM, since it was released from the beginning, has already been priced into the market, so an increasing supply is not an issue as it is for many other coins.

My take on XEM is that it definitely was a good buy for early stakeholders. I am not sure if it is a good buy now. I do believe it is worth watching and learning about, and making one's own informed decision about. Considering the potential XEM and its backbone has to be adopted and useful for many different types of entities, it is probably grossly undervalued at this point, but there are also a lot of unknowns, for example, if the open source technology is copied and improved by a team of people who turn out to be better marketers. It's definitely a coin to watch.

Paycoin (XPY)

This is also another coin to watch. It is not one I am trying to accumulate. I hold a stake in it because I was one of the Zen Cloud customers who was compensated with a MicroPrime address. The MicroPrime churns out a few Paycoins every so often. There are also two generous faucets, FreeXPY and XPYBits, so accumulating Paycoin isn't difficult. I find it interesting largely because of its controversial beginnings and subsequent recovery. Paycoin started off as a scam coin to cover up a mining hardware scam known as GAW Miners/Zen Cloud. The current Paycoin development team essentially took over the coin from its founder Josh Garza, and once Garza was out of the picture the new team set out to clean up the mess and make right with the Zen Cloud customers as much as possible. Although it's always great to compensate customers when something goes wrong no one expects to be compensated in the cryptosphere when the “something goes wrong” happens to be a fraud to begin with. You expect to eat your losses and move on. So it was clearly going above and beyond the call of duty for the current Paycoin developers to award each former Zen Cloud customer with a MicroPrime address which would mint coins at a comparable rate to what the Hash Stakers were touted to produce. Paycoin has since enjoyed a nice price recovery as well.

Paycoin has some infrastructure, mostly through the website, which potential investors can check out. It is also supported on Payservices, lending it some third party support. MicroPrime owners have an incentive to at least keep their MicroPrime addresses stocked. The wallet itself also mints at a lower rate than the MicroPrime addresses, creating an incentive for people to hold onto Paycoins in their QT wallets. I am not currently aware of anything systematic to provide Paycoin buy support, but I believe there may be some kind of dividend paying assets starting off on, which would fulfill that requirement. It is another altcoin to watch and learn more about.

Butterfly Bits (BFB) Butterfly Bits is the coin associated with the extensive PayServices platform. PayServices seeks to enable users to bring together all different kinds of currencies, including cryptos, in one place and then be able to spend those currencies anywhere you can spend a credit or debit card. PayServices even issues a debit card called the Butterfly card. Those who buy Butterfly cards will get some Butterfly Bits added to their account as a reward.

Butterfly Bits currently has a supply of 100 million coins, with 1440 per day being added by scrypt mining. PayServices believes the value of one BFB to be one Dollar and awards them accordingly. This value is based on an earlier estimate of the total company valuation of one hundred million Dollars. Butterfly Bits has not been listed on any open markets yet, so we won't know the market rate until that happens. Many times a coin's value will drop for a while once it gets listed before going back up to something closer to its true value, so some possibly amazing buying opportunities may lie ahead. This is a coin I am planning to watch closely with the intent to buy in when the time seems right.

This list of altcoins I think are worth at least taking a look at represents my favorites at this time. It is by no means a complete list of all the good altcoins out there, just the ones I know about. If you believe I have missed any, please let me know by leaving a comment.

Next entry: I can do it better with Bitcoin, or at least smaller

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