How Altcoins Prevent Market Dominance

In the world of blockchain and cryptocurrency, Bitcoin is king. Every layman knows about it and its many uses now, and because of that, it has become synonymous with blockchain. But a less well-known trend of many different cryptocurrencies, often referred to as altcoins, is starting to show a lot of promise.

The term altcoin is short for alternative coin and generally refers to any of the hundred different alternatives to Bitcoin. To many, there is no point to a technologist making an altcoin. There is already a cryptocurrency that has been invented, and it seems to work just fine. However, there are many reasons to embrace a Bitcoin alternative.

No Single Currency

The first can be explained through an analogy. There are lots of different currencies in the world; why don’t we just use one? We don’t do this because each of these currencies is tied to a different country and the policies and values they put forward. The whole point of a cryptocurrency is that it is decentralized and doesn’t depend upon the decisions of one group or individual, but that doesn’t mean that there is only one right way for a cryptocurrency to function. The people who go out of their way to establish an altcoin are essentially saying that they have a better way of doing it.

We don’t do this because each of these currencies is tied to a different country and the policies and values they put forward. The whole point of a cryptocurrency is that it is decentralized and doesn’t depend upon the decisions of one group or individual. That doesn’t mean that there is only one right way for a cryptocurrency to function. The people who go out of their way to establish an altcoin are essentially saying that they have a better way of doing it.

This better way is often referred to as a “fork,” which is where a certain decision divides the people who established the original coin, and the currency becomes two separate currencies in order to reflect the two separate ideals. Think of it the same way you would think of Christianity being divided into Catholicism and Protestantism. These are all just “forks” based on different ideas.

One example of this is how there is a large debate in the Bitcoin world over whether there should be a lower limit for the size of a transaction in order for the coin to be able to transact at a sufficient capacity. The idea is that if the Bitcoin system can only handle a certain number of transactions in a short period of time and it is becoming more popular, something is going to have to change. Yet another example of where an Altcoin could be established.

Avoiding Monopolies is the Key

In the long-run, it is expected that many of these coins will die out since the coins are only as good as the amount they are used. Network effects will manifest over time and it will come down to a select few coins that still exist and are used by the public.

But what is important to note here is that there should never be just one coin. Having just one coin to represent all of cryptocurrency would be insane on many levels. The lack of diversification and overinvestment in a single technology would create a world that was overly dependent on one choke point. The world would become more fragile and many of the positive effects of cryptocurrencies would be reversed.

So in a way, the second reason why altcoins exist is to protect the world from market dominance. Similar to an anti-trust law, there shouldn’t be just one leader; there should be a few who then compete in the market, thus giving the most consumer surplus.

Bitcoin may have been the first cryptocurrency, but every time someone invents a new one they are saying that theirs will become the better cryptocurrency. There are many ways to interpret this, but the most important is to remember that it isn’t always the first mover who wins; it is the most popular. And hopefully, the most popular cryptocurrency is also the best one.

Options for Altcoins

There are many different options for altcoins, all based on the strengths and weaknesses of that coin. Ethereum may be one of the most well-known altcoins because of its market capitalization briefly overtaking that of Bitcoin’s, despite being founded many years after Bitcoin. This did not sustain, but it showed that there is a lot of interest in Ethereum due to the strength of the design.

Another lesser known altcoin is Zcash, which does a better job of cloaking the origins of payments using the coin and allows users to preserve their privacy more wholly.

To sum it all up, altcoins exist because having one single cryptocurrency would be inefficient and go against most of what Bitcoin stands for. To have a decentralized system that serves the people, there need to be multiple options.

There are hundreds of different coins and they will have to duke it for a while before several coins emerge and all the necessary forks are satisfied.

Like any other new industry, there will be a bloodbath of competition, but that is how capitalism is meant to work and it usually results with the best possible situation. After that, it will be about avoiding a monopoly situation, since that would also violate the goals of cryptocurrency.

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