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Bitcoin’s Fading Dominance and the Rise of Altcoins

May 15, 2018

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Bitcoin’s Fading Dominance and the Rise of Altcoins

Since Satoshi Nakamoto’s famous white paper detailing Bitcoin and blockchain technology kickstarted the cryptocurrency revolution a decade ago, Bitcoin has (understandably) been at the head of the pack, dominating the market from its early days up to the present. No other coin has come close to Bitcoin in terms of market value or market cap

But Bitcoin’s dominance isn’t as secure as it once was: over the last few months, altcoins—alternate cryptocurrencies—have gained unprecedented traction, with some coins like Ripple growth exponentially higher than Bitcoin’s over 2017. So what is causing this shift in market strength, and how relevant is this for the future of cryptocurrencies?

The Numbers: Bitcoin’s Declining Market Share

On the first of January 2017, Bitcoin made up 88% of the cryptocurrency market cap. Fast forward to the last day of 2017, when this dominance had faded to just 39%, with its lowest point in June at 38%.

However, it would be a mistake to see this as evidence if Bitcoin’s declining influence. Bitcoin is still the most popular cryptocurrency on the market, with the highest daily turnover and market cap. Instead, this shift in the market demonstrates the maturation of cryptocurrency investors. As more investors have familiarized themselves with the technology, more have opted for alternate coins.

There are two major reasons that investors have started pumping money into various altcoins (of which there are over 1,400): firstly, the potential for higher returns may be greater if the value of the coin is still in its infancy when the investment is made; and secondly, altcoins present more sophisticated and nuanced technology that Bitcoin’s hardest forks would find impossible to replicate.

Altcoins: The Evolution of Cryptocurrencies

While the technology behind Bitcoin was a technological breakthrough when it was first conceptualized, the goals of Bitcoin itself are pretty simple. Bitcoin has no greater aim than to function as a digital currency, which people can use for its decentralized, unregulated, and borderless advantages.

But Bitcoin is held back by its simplicity and limitations. Already, Bitcoin is experiencing problems with sluggish transaction times and expensive transaction fees, issues which are only expected to worsen as its blockchain becomes more congested. While there are fixes supposedly on the way—SegWit and the Lightning Network—there are still doubts as to whether or not Bitcoin can function successfully as a global currency.

Meanwhile, several altcoins promise to do exactly what Bitcoin can do, with several times more efficiency. Litecoin, for example, regularly markets itself as “the silver to Bitcoin’s gold”, playing off the reality that Litecoin is more feasible as a day-to-day currency, with its faster transaction times and lower fees, and Bitcoin is better off as a store of value, similar to gold.

But Litecoin is only the beginning of what altcoins can offer. The top altcoins on the market have found their way to the top of the pile by offering a feature or filling a niche desired by the community. IOTA, wishes to become the currency for the Internet of Things; Ethereum operates as a platform for decentralized apps which will use Ether as a currency; Ripple tries to do what the other cryptocurrencies fight against, in its push to find adoption amongst banks. All of these coins have various features, while performing the same functions that Bitcoin does, at higher speeds and cheaper rates.

The End of Bitcoin?

While none of this means the end for Bitcoin any time soon, it does open the doors for investors looking to find the next big investment. The altcoin market is inherently tied to Bitcoin’s value—as Bitcoin drops, so do the altcoins. This is largely due to Bitcoin’s popularity amongst the greater audience of investors who are still unfamiliar with the technology.

Bitcoin will likely continue to retain its value, while altcoins will slowly rise up as investors become more confident in the market and the technology. It’s safe to say that the future for altcoins is bright.