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I'm struggling to see the importance of alt-coins. It seems to me that one of the major selling points of the various alt-coins is their quicker confirmation times. The common argument is: this is good for merchants and the like, because there is less time for them to worry that the customers' payments are legitimate.

But can bitcoin users not have the same "luxury?" Why can't a merchant run his own node? His node will process the transaction, and the rest of the network can play catch-up.

Another argument is that there are too few bitcoin, and that eventually bitcoin will be the gold of digital currency--what the big transactions happen in--and the alt-coins will be the silver, or the copper--for day-to-day use.

Is that really even good in theory though? The price of bitcoin would need to be in the millions for that to even be a decent worry. I can possibly see it being an issue, but do we really need to consider it now, when the exchange rate for bitcoin hasn't seen more than a few months in the 4-digits?

Am I overlooking a hyper-important advantage?

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It depends a lot on the specific altcoin you're talking about. For the most part, there aren't a lot of major differences between Bitcoin and the alts. Sadly many of them exist only as the leftovers of pump-and-dump schemes intended to make their creators rich, though there are a few that are interesting in important ways.

One of the primary benefits of a thriving altcoin economy is that they often represent the testing of a theory that may eventually benefit Bitcoin itself. Many altcoins, for example, use scrypt as their mining algorithm instead of SHA256. If SHA256 is discovered to be compromised some day, having a drop-in replacement for that subsystem available would be a major boon.

You specifically mention faster confirmation times as a potential benefit, but the most often overlooked part of that statement is that transaction finality is a result of computational cost, not of time. This means that if an altcoin has one tenth the confirmation time and an equal amount of hashpower relative to Bitcoin it will take ten times as many confirmations to reach the same level of transaction security. Faster confirmations are a psychological benefit, not a technical one.

The "silver to Bitcoin's gold" theory, largely pushed by Litecoin proponents, is also fallacious in that the entire reason gold requires a baser partner metal is that it is not adequately divisible. Paying for a candy bar with gold would be incredibly difficult for both parties involved since the amount of gold needed would be absurdly small. Bitcoin is not subject to such physical limitations and as such can be divided into such tiny portions relatively easily.

Taking all of the above into account, it should be clear that while a handful noteworthy exceptions do exist, the majority of altcoins are intellectual curiosities at best and scams at worst. A few make meaningful changes, but thus far none of those changes has really been a meaningfully large improvement over the base system.

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  • And now I just need to wait for all the Litecoin and Dogecoin folks to come downvote me into oblivion.
    – David Perry
    Apr 5, 2014 at 1:11
  • You and me both ;) Good point about the possible future issues of SHA256, and the possible replacement of a hashing algorithm first introduced by an alt-coin--I hadn't thought of that.
    – KJ O
    Apr 5, 2014 at 1:15
  • "If SHA256 is discovered to be compromised some day, having a drop-in replacement for that subsystem available would be a major boon." Well, except for completely obliterating the ASIC mining era and bringing it back to the GPU days. But they are working on Scrypt ASIC's now; maybe they'll have some really good ones soon.
    – user4276
    Apr 7, 2014 at 4:31
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    I would like to point out that one of those exceptions is Namecoin. The blockchain for Namecoin also keeps track of the decentralized .bit top level domains. The concept of using the blockchain technology for something else, such as Namecoin does, is popularly called a decentralized autonomous corporation. It will be exciting to see what altcoins will do in the future.
    – user4276
    Apr 7, 2014 at 4:34
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If you subscribe to the notion that names do not matter, then obviously only technical differences can make any altcoin potentially superior. Most altcoins do not meet this criteria, because they are barely more than a Bitcoin clone (possibly with some minor tunings of details such as the block confirmation time you already mentioned).

Here are some of those differences that are not entirely trivial:

  1. Proof-of-stake: By replacing or supplementing the proof-of-work scheme used in Bitcoin, there is the potential of making an altcoin "greener" (whilst altering its exact security mechanism).

    Example: Peercoin.

  2. Inflation and coin creation schedule: There is a long history of economists arguing whether inflation is necessary in a currency, to provide the incentive to invest rather than hoard. Whilst that argument would seem to only be relevant if you want people to invest even if the expected outcome of the investment is zero, there certainly isn't an agreement in economic circles that an ultimately inflation-free currency is desirable. An altcoin with different characteristics, especially if it includes continued inflation, may be more appealing to many established economists.

    Example: Dogecoin.

  3. Additional functionality: Enabling things not, or not readily, possible using Bitcoin, such as domain name resolution, smart properties, on-blockchain contracts.

    Examples: Namecoin, Counterparty.

There are naturally arbitrarily many other possible differences, such as how bloated an altcoin's blockchain is and if the altcoin actually has its own blockchain or uses another coin's blockchain, as is a natural approach for some of the "additional functionality" type altcoins, namely those extending the functionality or closely interacting with an existing cryptocurrency. Thanks to user CoinedTalk for suggesting an edit to point this out, and sorry for not (yet?) buying into the argument that this aspect matters much in the context of this question.

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A lot of purists and developers won't like this analogy, but look at toothpaste (or any other product). People like different flavours or brands, small differences, no matter if they do basically the same thing. I think that's beginning to apply to crypto, with each coin appealing to different types of people/communities/niches (a lot of people like a number of coins). This doesn't really apply right now though as it's a casino and many aren't really established 'alternative products'.

From an economic/investment/trading perspective, first thing that comes to mind: diversification.

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  • But do we need diversification? Isn't the point of bitcoin to be the go-to-non-governmental choice for exchanging value or services? Doesn't diversification in this sense work against the theory of bitcoin?
    – KJ O
    Apr 5, 2014 at 2:46
  • I don't know if we need diversification, but I think a major point of BTC was to take away the power to create and control money from 'you know who'. The fact he made it open-source and easy to re-create makes me wonder if he cared about the price/'monopoly' of BTC alone. If everyone and their mother can create cryptocurrencies and agree to use them over fiat, well then it doesn't matter how many there are. Edit: In fact it's better, harder to control 10,000 with 100 made a day than just BTC alone.
    – Jason
    Apr 5, 2014 at 2:50
  • Point taken. Albeit a bit philosophical.
    – KJ O
    Apr 5, 2014 at 2:56
  • Obviously I won't deny I'd be biased as I support alts also (and 'run' my own - albeit quite low in cap) and don't own many BTC, but just something I thought worth considering when looking at it from a different perspective.
    – Jason
    Apr 5, 2014 at 3:18
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You should look up Warren Buffet's reasons for not investing in Bitcoin.. something better could come along and take over and Bitcoin is still an infant. Personally, I'm convinced that something better is Nxt. It's written from the ground up, it's proof of stake which is something like 1000 times more energy efficient and 500 times as cost efficient and more secure, with almost instant transaction confirmations coming soon. All of which is important.

There are other reasons, such as dogecoin having long term fixed inflation making it better for the long run.

And just in general, it's better to have a few alternative currencies, so that if say the Bitcoin miners decide to gang up, they can't take out the world's economy. Also, seems very unlikely and Bitcoin has stood the test of time, but let's say a bug was found in the coin itself.. again, it's good to have alternatives.

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  • "...such as dogecoin having long term fixed inflation making it better for the long run." A quick Google search would suggest that's an area of contingency.
    – KJ O
    Apr 7, 2014 at 3:13
  • It is indeed, but the people who like it, will stick with it. Those who don't, will switch coins. Point is there is a coin out there for those who feel that is important.
    – mczarnek
    Apr 7, 2014 at 3:46
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Counterparty is not an alt-coin. It is an extension of Bitcoin functionality. Assets can be bought and traded using BTC in Counterwallet. The Counterparty currency XCP, is not mineable, limited to 2.6 mil forever, and is only an intermediate for many features such as escrow.

It's more like a market for Bitcoin than an altcoin, I wish people would take the time to understand this...

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  • I think whether what you call the "counterparty currency XCP" is a cryptocurrency, and if that makes it an altcoin or not, is just hairsplitting. Characteristics like not being mineable, having a limited supply, or supporting features beyond just being a store of potential value aren't exactly unique features among cryptocurrencies.
    – user6049
    Jun 11, 2014 at 23:21

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