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Bitcoin’s rise of smaller rivals poses a new challenge

The weathered hacks, heists, booms and bust of Bitcoin to reign as the king of cryptocurrencies throughout their first decade. But now its dominance of the fledgling market is facing a fresh challenge: some 2,000 smaller digital coins.

Collectively, their bigger cousin is gaining ground by “altcoins.” Individually, they gain traction among users, gathering developer and user communities that are often dedicated to their goals.

Bitcoin now accounts for about 60 percent of the $ 240 billion crypto market, down just over two years ago from nearly 90 percent. That fading dominance has reflected tough times since its late 2017 apex for the original cryptocurrency. This year, Bitcoin has nearly doubled in value, rallying nearly 30 percent over the past few days to reach its peak in ten months on Tuesday. But it lost three-quarters of its value last year.

That volatility has put off mainstream investors from pension funds to asset managers who are perceived as crucial to the growth of bitcoin from speculative token to established assets. Bitcoin also struggled as a means of payment for traction, its intended use. With the digital currency, few but cryptocurrency diehards go shopping.

Binance Coin and Bitcoin Cash, Tether, Monero and Dash: Their names ‘ diversity reflects behind them a myriad of protocols and user groups, traders and developers.

They are also suffering from high volatility and few are being used for mainstream payments. But playing out in their growth is a slow-burn tussle described by analysts and academics as a race to find answers to the flaws of bitcoin. It is one that can shape cryptocurrencies evolution and related technologies such as blockchain.

Together, the two largest altcoins, Ethereum and XRP, represent about a fifth of the coin market, with $ 22 billion and $ 17 billion in circulation respectively. Others are illiquid and rarely used with names such as AnarchistCoin and CryptoPing.

Paolo Tasca, who runs the Blockchain Technology Center at University College London, said.

“Their proliferation is driven by the need to spark new innovation – security innovations, or a new algorithm that allows faster transaction to a new blockchain,”

The emergence of a de facto “Internet money” — a recognized and accepted online digital coin — is widely viewed as a prerequisite for cryptocurrencies to break into the mainstream.

Bitcoin has mostly failed to live up to its billing, seen as the most likely to take that mantle.

It’s the most well-known of its kind, without a doubt. And as far as cryptocurrencies are concerned, bigger investors tend to gravitate towards bitcoin. But high transaction costs and low speed hamstrung its use in commerce. And the volatility of Bitcoin means that it is highly impractical as a store of value for all the claims of its proponents that it is “digital gold.”

“Bitcoin was designed to be the money of the internet, but that was a very early idea,” said Hugo Volz Oliviera, an analyst at trading platform London Block Exchange. “Other projects have tried to fill the gap that exists.”

Some applications based on blockchain power, such as ethereum. Others, known as “stablecoins,” by being attached to fiat currency, look to overcome the problems associated with wild price fluctuations. Larger proportions are still essentially bitcoin clones, offering little in the way of uses that are radically difficult. Some are designed to address some of the weaknesses of bitcoin, such as slow transactions, such as Litecoin.

Bitcoin proponents point to initiatives like the Lightning network — code that can be added to the blockchain that is designed to make payments faster and cheaper — that could help them overcome their structural flaws.

And even as altcoins spread, high-profile supporters like Jack Dorsey, Twitter’s CEO, see bitcoin retain its dominance. In a podcast released in February, Dorsey said that as it was born, developed and tested online, bitcoin will become the native currency of the internet.

According to Cumberland, a major Chicago-based cryptocurrency trader, Altcoins outperformed bitcoin by four percent in the first quarter of this year. And if the burgeoning number of altcoins is a product of technological hunting for responses to the weaknesses of bitcoin, investor interest can be viewed as bets on which altcoin will gain ground for payments or transfers, or as a value store.

“What you’ve had is a maturation of the altcoin market, and you’ve got investors and traders more comfortable understanding the fundamentals around what they’re buying,” said Bobby Cho, Cumberland’s chief operating officer.

Others say that altcoin trading is mostly speculative, with investors less interested in various coins ‘ technicalities and communities than merely their money-making potential.

New York-based Grayscale, the world’s largest cryptocurrency asset manager overseeing $ 1.3 billion in assets, said the year – to-end average weekly investment in altcoin products was $ 1.2 million, compared to $ 3.9 million for bitcoin.

“There is no doubt that as investors become further drawn into the space, they do like to diversify into other digital assets,” said Michael Sonnenshein, its chief executive.

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