Thoughts on Darkcoin

Darkcoin is a new cryptocurrency that was launched on January 18th 2014 with the intention to create a coin that offers completely anonymous transactions. It is also one of the 8 digital currencies that we track on our homepage. We have watched it go from mere cents to the nearly $10 per coin that it is today, in a matter of weeks.

alt text for image

Darkcoin is argubably the hottest altcoin on the market right now. Everyone is taking notice of its extremely fast price rise, and it is now the fourth most valuable coin when sorted by market cap. Trailing only Bitcoin, Litecoin, and Peercoin. However, I believe it is overvalued and due for a sharp correction.

The Problems with Darkcoin

Essentially Premined: When Darkcoin was first released, there was no windows client, only a linux one and that client had a glitch in it. That glitch allowed anyone mining in the first 24 hours to instantly receive DRK with no processing power necessary. Essentially, the result was the same as a premine, with the developer and early adopters receiving a ton of DRK before anyone else. The developer insists that this was a glitch and that it wasn't intentional, but it is awfully suspicious, since him and his buddies are in a position to make a ton of money.

Over 60% of DRK in circulation is controlled by the richest 100 addresses

alt text for image

This is troubling, a few people are in line to make a killing. It also means that if these few people choose to hold their coins (which they currently have been doing), it extremely reduces available supply for trading, resulting in artificially higher prices

On top of that, DRK has a system called Masternodes, that act as the mixing agents that enable Darksend, the anonymous transaction protocol at the center of Darkcoin. These Masternodes require 1000 DRK to setup and then they payout 10% of mining reward for each block they mix. This means that the guys holding lots of DRK are continuously earning more DRK for just holding coins, the game is rigged in their favor. It also means that available supply of DRK for trading is even further reduced, resulting in even higher prices.

Last but not least, there are a bunch of new coins coming out with anonymous transactions built in. So Darkcoin won't even be unique in that respect. One of the main new entrants at this point is Monero. Also programs such as Dark Wallet will enable better privacy within the Bitcoin ecosystem itself, through the use of coin mixing and other techniques.

Quick Summary A select few own the majority of DRK in circulation. By not selling their coins they artificially reduce supply. Masternodes require 1000 DRK to run, further reducing supply. Due to the properties of supply and demand, the reduced supply has artificially pushed the price per coin up. There are a lot more coins coming out with anonymous transactions built in, that will compete with the main value proposition of Darkcoin. New programs and web services will allow a sliding scale of anonymity when using Bitcoin, depending on what type of transaction is being conducted.

Disclaimer: This post is intended solely to provide information. As I have no knowledge of individual circumstances and technical level, readers are expected to complete their own due diligence before proceeding with anything mentioned in this article. The topics discussed in this post are advanced and readers proceed at their own risk. Readers are expected to complete their own due diligence before purchasing or selling anything mentioned or recommended.