Understanding Bitcoin: Cryptography, Engineering and Economics

CHAPTER 11Alt(ernative) Coins

Alternative coins or alt-coins are cryptocurrencies that copy many of the features of Bitcoin. Most of the alt-coins are based on Bitcoin’s source code with some changes. As Bitcoin’s code is released under an open source license (section 1.2) it is acceptable to take a copy of the code, modify it, and release a new cryptocurrency. Many developers have done exactly that, creating many alt-coins.

Development in Bitcoin has been conservative and value-preserving, focusing on avoiding the introduction of errors. On the other hand, alt-coins often do not have the restrictions of a production system like Bitcoin, or the requirement of backward compatibility, allowing them to test new tweaks and features. However, Bitcoin can opt-in some of these features if the developers consider them worthy.

One controversial feature of some alt-coins has been pre-mining. Pre-mining refers to the fact that the developers of some alt-coins kept a large portion of the coins prior to the launch. The often-cited rationale for pre-mining is to create a reserve to pay developers to maintain and extend the alt-coin. However, a large percentage of pre-mined tokens is often counterproductive as it deters potential users, thus thwarting adoption.

Alt-coins can suffer from a multipool entering their network. Multipools are mining pools that switch from one alt-coin to another opportunistically, always mining the most profitable alt-coin at the time. Mining profitability depends ...