New Altcoins Trying Different Distribution Models to Level the Playing Field

One of the biggest problems with launching a new coin today is figuring out how to fairly and efficiently distribute the coins. Bitcoin worked semi efficiently mostly because people had no idea it would be worth anything at the time and many sold off large amounts over a long period of time. However, bitcoin still does suffer from the fact that some people are still holding a large amount of coins from the beginning and can not only easily manipulate the market, but also pressure development in their favor by throwing around weight.

The main reason why proof of work is being avoided by some is that the mining game is heavily rigged on many algorithms. Even if you choose an entirely new algorithm, there are people who own massive GPU farms that will become the primary owner of your coin, which creates another whale problem. There is little that can be done to stop this however because even if people who own large amounts of money from acquiring a coin on the open market after it launches.

Many altcoins are trying to avoid this distribution problem by ultimately trying to figure out other ways around proof of work. Some coins are choosing to go solely proof of stake so there is no real efficient way of proof of work distribution. Out of necessity most of the new coins are creating ways to not only distribute coins, but also raise developer funds while doing so. There are a vast amount of solutions coming out but I want to talk about the main ones that we see being offered currently.

The obvious number one for new altcoins is offering them through an ICO or Initial Coin Offering, model. I have talked about the dangers that some ICOs have in the past and how some arent even offering equity or are completely centralized. I don’t think all ICOs are a terrible idea because some have worked pretty well in the past well before the term ICO was even coined. However I think a large percentage of them are people who see the amounts being thrown in and choose to jump on the bandwagon. Many of the projects that people are offering through ICOs are not going to work and the investors will get burned. The worst part of ICOs though are the fact that developers are incentivized very little to increase the value of their offers. If they pull in 10 million, they can cash out pay eachother large salaries and bail on the project in a year.

Recently we have seen a few projects distribute coins based on other currencies that are distributed and exist. We sort of saw this happen when ETH hard forked and ETC was distributed to those who held ETH, but that was more of a forked situation which is a bit different. There are a few coins like Stellar which I wrote about earlier, Byteball and a few others which are actually offering you a percentage of distribution based on how many bitcoin/ethereum/ect, that you own. The problem with this distribution method though is that many people who are whales in these other currencies will just become a whale again and the same problem exists.

Similarly there has been the airdrop method which people just distribute coins and you usually only really need to sign up. I have seen a few that also want you to like them on twitter or something like that, but no money is really ever required. The developers will keep an amount for themselves, a bit like a premine, but ultimately it does seem like the distribution is fair. The problem with the airdrop method though is that people will register multiple accounts and get more than one airdrop, in some cases hundreds, and take control of the market. There is a type of work they have to do for this, but it still isn’t as fair as many would like.

In the end there really is no perfect method for distributing a new coin as there are always going to be people that use some way to accumulate a large amount. I think a new coin has to go through an evolution where many of the main whales slowly sell large amounts when they cash out. This is how coins like bitcoin ended up getting distributed. Very few early miners still own the amount of coins they do, because they cashed out some at lower values. It takes this long period of time to actually distribute successfully regardless of what route you end up taking. I just thought it would be interesting to see how other coins are trying to address the situation.