The criticism leveled at altcoins has been consistent for years: they're dead weight in the bitcoin ecosystem, promising vague improvements but delivering nothing of substance. The landscape is litter
The criticism leveled at altcoins has been consistent for years: they're dead weight in the bitcoin ecosystem, promising vague improvements but delivering nothing of substance. The landscape is littered with tokens claiming to be "bitcoin with feature X or Y," yet credible use cases remain scarce at best.
Rising transaction costs on the bitcoin network, though, may have cracked open an opportunity. A handful of altcoins could potentially serve a limited purpose: moving small amounts of money cheaply. Whether anyone actually wants this remains an open question.
The path to mainstream adoption looks rocky. Bitcoin users experimenting with altcoins for micro-transactions have so far been driven more by conviction than practicality. Erik Voorhees, an early bitcoin adopter and entrepreneur, tweeted that he prefers altcoins for small payments out of principle. He won't touch the US dollar for philosophical reasons. But these ideological purists make up a thin slice of potential customers.
Most people have already solved this problem. Venmo and Circle work better than any cryptocurrency for paying someone back, as Kyle Torpey pointed out on Twitter in February. Those who want a cryptocurrency option can route small payments through custodians like Coinbase or Xapo, without altering bitcoin itself. Software improvements, techniques that reduce dependence on a trusted third party, could tighten these systems further.
Liquidity constraints hold back these coins. Roger Ver, a longtime bitcoin investor, made headlines with a tweet about his first transaction on Dash. He moved $100,000 worth for 0.3 cents and got confirmed in the next block. The network looked promising until the Dash price fell a third in six hours. The episode exposed a real problem: these coins experience sharp price swings on thin trading volumes.
Bitcoin proponents counter volatility complaints by pointing to long-term upside. Altcoin backers will surely lean on the same argument. But the threat that bitcoin itself could eventually claim this low-value payment niche undermines the case.
Network effects cut against new entrants. Each altcoin operates with close to zero real-world users. That could change if adoption picks up, but right now the math doesn't work. Coinbase started exploring merchant support for multiple cryptocurrencies, signaling possible expansion. But building adoption from scratch is slow work.
Bitcoin's store-of-value use case faces no meaningful threat from altcoins. The liquidity premium bitcoin enjoys makes it the preferred asset for those seeking an incorruptible digital currency. If you want to park $10,000 in bitcoin, paying $5 or more to miners feels acceptable. An altcoin, by contrast, becomes less useful for small payments the moment its exchange rate climbs, a dynamic that's now crushing bitcoin's utility.
Which altcoins might actually work?
Litecoin makes the most sense. Charlie Lee designed it while working at Google, framing it as silver to bitcoin's gold. Launched in 2011 with a singular focus on payments, Litecoin has plausibility on paper for this narrow role.
Ethereum represents another option. The ether token powers a smart contract platform, not a payment system. But the market cap dwarfs most competitors, implying deeper trading liquidity and greater price stability. The trade-off: building ethereum as a global computer doesn't optimize it for payments the way a specialized network could.
Monero brings privacy to the table. Privacy coins have actual users, as evidenced by adoption on darknet marketplaces like Alphabay. The catch: privacy features require extra data on the blockchain, creating scalability headaches.
Dash once competed as a privacy coin but pivoted to broader features. Questions about its original launch and token distribution linger, muddying the decentralization story.
These use cases could evaporate. Layer-two systems like TumbleBit and the Lightning Network would let bitcoin handle low-value transactions without touching the main chain. Why accept an altcoin if you could keep everything in bitcoin? A setup where users held bitcoin in layer-two accounts, the way checking and savings accounts work, would preserve the currency while solving the fees problem. If those systems materialize, altcoins lose even their thin claim to relevance.
