Cryptocurrency and the associated blockchain technology is a relatively young and growing industry that has revolutionized the world of financial technology. Today financial technology constitutes a major pillar of the global economy. Cryptocurrency has been adopted as a medium of exchange similar to fiat currency by various countries and different sections of the economy. There are different types of cryptocurrencies, of which the one that has been ruling the roost is Bitcoin. Bitcoin is the first among all cryptocurrencies and, for a long time, was the only cryptocurrency, and the other cryptocurrencies are therefore known as Altcoins. Although Bitcoin is still described as the king of cryptocurrencies yet, there are more than 5000 Altcoins in the market today. Altcoins started to become popular as they appeared to be improved versions of Bitcoin. Let us first examine the reason for the growing popularity of Altcoins.
How Altcoins Gained Popularity
With the evolution of blockchain technology, cryptocurrencies have also undergone an evolution in terms of quantity as well as by bringing in new solutions to old problems. In terms of technology, Altcoins also use the same decentralized technology as Bitcoins but with a few added features. For instance, the altcoin Ethereum, which is the most popular cryptocurrency after Bitcoin, brought in the concept of ‘smart contracts’ “a code that can automatically execute agreements between two partners using blockchain technology.” This feature opened possibilities for a variety of applications of cryptocurrency, taking the evolution of cryptocurrencies a step ahead. Altcoins have also made the overall functionality of cryptocurrencies more efficient, with transactions being processed faster and also bringing in scalability to meet the growing demand for different services. With the growing number of Altcoins, financial market experts and analysts have often wondered whether the domination of Bitcoin would gradually come to an end.
One of the major advantages of Altcoins is that the mechanism they use for mining is more cost-effective and less complex. Relatively the Bitcoin mining mechanism is highly resourced intensive and costly and the transactions through Bitcoin, which uses a ‘peer-to-peer consensus mechanism,’ makes it less effective than other digital payment tools like credit cards. The new coins can process a far greater number of transactions per second and, through smart contracts, can build apps directly on the blockchain network. Altcoins like Ripple and Dash have improved in terms of ‘transactability and payment speed’ like
Ripple is designed to facilitate centralized cross-border transactions between large corporations and institutions. Dash claims to have transaction speeds as fast as 1 second per transaction, focused on superior security, and an easy ecosystem for individuals to manage money.
Therefore it has often been predicted by fintech veterans and industry experts that unless Bitcoin is evolved to meet the new requirements of the industry, which possibly its creator had not envisaged, it would soon be thrown out of the competition by the Altcoins. However, despite such claims, Bitcoin still seems to occupy the top position among all cryptocurrencies. Let us see how that has been possible.
How Bitcoin is still at the Top
Bitcoin could never be sidelined in the crypto market and in fact, with time, it has successfully caught up to the Altcoin market. It has effectively expanded its usability over time and added new tools and functionality, which has helped to maintain its already large user base. Bitcoin comes with a ‘mainstream appeal and substantial interest from developers’ which has given it an edge over its competitors. Besides, Bitcoins can never go scarce in the market, i.e., it has a large fixed supply as it can restrict new issuance and can control unit production as compared to other coins. Altcoins like Ethereum, XRP, etc. have a ‘mutable’ supply and unlike Bitcoin, their value can diminish with increased supply. It is also an ‘apolitical mode of value transfer’ as it is immune to the vulnerabilities of fiat currency like fluctuations in exchange rates. Bitcoin also has a lead over other coins as a ‘store of value,’ as it has existed over 8 years and therefore has a proven usage case.
The security of Bitcoin has been proven far more than its much younger counterparts with usage by almost every metric exceeding that of Altcoins.
In terms of accessibility, Bitcoin leads over other coins as there are far more options of exchange or merchants or hardware/software to support it. Its liquidity is far greater than other coins and it also has the largest developer ecosystem which Altcoins would find hard to match. Many startups and open source projects have thus started to evolve the existing Bitcoin architecture further by adding new and enhanced features that would increase the usability of Bitcoin.
RSK, for instance, gives users smart contract capabilities for Bitcoin, opening the doors for app development. Whereas this was once Ethereum’s major draw, Bitcoin is now encroaching on that territory with expanded functionality from RSK’s platform.
However, Altcoins have benefitted Bitcoins as they have contributed to building a healthy, competitive and thriving ecosystem, which would result in continuous improvements in the cryptocurrencies.
With the dynamic and constantly evolving blockchain industry, Bitcoin would also have to evolve and only then would it retain its top position among the Altcoins. This would not only benefit Bitcoins, but the entire financial ecosystem as blockchain and cryptocurrencies would become more effective and versatile in their use.