It’s telling that one of the most popular colloquial terms for a cryptocurrency is “altcoin”, a portmanteau of “alternative” and “bitcoin”. Bitcoin, the original cryptocurrency, has become so ubiquitous that it is the definition of its own category. But the future of Bitcoin is currently in question and, because of this uncertainty, many traders are switching to other cryptocurrencies.
2. Cryptocurrencies
It’s telling that one of the most popular colloquial terms for a
cryptocurrency is “altcoin”, a portmanteau of “alternative”
and “bitcoin”. Bitcoin, the original cryptocurrency, has
become so ubiquitous that it is the definition of its own
category. But the future of Bitcoin is currently in
question and, because of this uncertainty, many traders are
switching to other cryptocurrencies.
3. Bitcoin
On March 10, Bitcoin hit an all-time high trading value of
$1,325 as investors banked on a US proposal for a bitcoin-
backed exchange-traded fund (ETF). However, the proposal
was rejected by US authorities, which happened to coincide
with a crackdown on bitcoin exchanges by Chinese
regulators. Together, these two events caused Bitcoin’s
value to drop by over $300.
4. A Closer Look
The root of the problem putting the future of Bitcoin in question is scaling:
Bitcoin is becoming too popular for its own infrastructure. The number of Bitcoin
transactions that can take place at any given time is limited, which is causing a
backlog of transactions in queue for processing, slowing down the whole
system. This is because of the limited computing power of the blockchain, a
distributed database that records all transactions and serves as a public ledger.
In some cases, the backlog becomes so great that some Bitcoin transactions
are not confirmed for hours or even days, and in some cases, the bitcoins
being sent never reach their intended destination.
5. The Rise of Cryptocurrencies
Blockchains, invented in 2009 by the anonymous developer of Bitcoin,
would prove to be a core technology of all cryptocurrencies. Blockchains
are the key software that allows digital currencies to break the double
spending problem by timestamping transactions into a public ledger on
a peer-to-peer network. Without this solution, double spending
represented a flaw in which the same digital token can be spent twice,
rendering it useless as a currency. This technology allowed bitcoin and
other digital currencies to be decentralized.
6. Cryptocurrencies are a subset of digital currencies, distinct in that
they are decentralized: they are not tied to any real-world assets, not
backed by any government or central bank, and no one is required to
accept them as valid forms of payment or exchange them for any real-
world currencies. Nonetheless, Bitcoin became so successful that it is
now accepted by major companies such as Microsoft and Dell. You can
even use Bitcoin at some brick-and-mortar stores and coffee shops
around the world. In fact, there’s a coffee shop in Prague
that only accepts payment by Bitcoin!
7. Naturally, Bitcoin’s success inspired imitation. Many copycat
coins failed, but those that refined and built upon Bitcoin’s
model attracted investors looking to capitalize on the
technological innovation promised by these new altcoins. While
some digital currencies like Litecoin and Dogecoin may have
already hit their high water mark, there are still lots of intriguing
cryptocurrencies that have something new to offer.
8. Here are the up-and-coming Bitcoin
alternatives to keep an eye on in 2017.
Today’s Top Altcoins:
Ether (founded 2015)
Zcash (founded 2016)
Dash (founded 2014)
Monero (founded 2014)
10. Shortly after Bitcoin’s crash in mid-March, Ether, the cryptocurrency
that powers the Ethereum network, reached an all-time high trading
value, surpassing $55 on March 16. Ethereum is an interesting case,
as 2016 saw its value rise and fall erratically due to the same scaling
problem Bitcoin is currently facing. To solve it, Ethereum split their
blockchain into two parallel streams, a solution bitcoin has sought to
avoid.
11. Known as Ethereum and Etherium Classic, these two cryptocurrencies
both trade in Ethers, but they can have two different values depending
on which stream they belong to, which can rise and fall independently of
each other. Microsoft, the Royal Bank of Scotland, and J.P. Morgan
Chase are all investing in proprietary software built on top of the
Ethereum blockchain, lending credence to Ether’s reputation as a
preferred network for digital software applications.
13. Zcash is one of the highest-valued cryprocurrencies today,
currently trading around the $65 mark. The success of Zcash in
what is now a very competitive landscape is due to its
revolutionary, totally anonymous blockchain. The public ledger
reveals no information about the parties involved or the amounts
transacted; no other cryptocurrency provides complete privacy and
anonymity.
15. The third most valuable cryptocurrency by market capitalization behind
Bitcoin and Ethereum, Dash hit an all-time high of $108.32 on March 20.
This is a huge leap in value from its 2016 peak of $14.42.
After two different name changes, it appears Dash has finally taken off,
driven by its proprietary InstantSend technology that allows transactions to
be verified without the longer confirmation times of Bitcoin and other
altcoins.
17. From the beginning, Monero set itself apart from other cryptocurrencies in a
way that is proving very important: scalability. Unlike Bitcoin and most
altcoins, Monero has no hard-coded limit on its block size, meaning that it
will never face the slowdowns that provoked Ether to split its blockchain and
that are causing Bitcoin’s current existential crisis.
This scalability is key because the popularity of cryptocurrencies has now
reached epic proportions. Bitcoin’s inability to handle its own popularity has
led one of its key developers, Mike Hearn, to state that bitcoin is a failure as
more altcoins rush in to take its place.
18. Nothing is certain in this crowded, complex market, and cryptocurrencies
should still be seen as experimental and high risk in terms of an
investment, but their potential power within the digital economy cannot be
understated. More and more people are investing their real-world money in
Bitcoin and altcoins, while businesses of all sizes have begun to accept
cryptocurrencies in exchange for goods and services both online and in-
store. If you’re curious about digital currency, now might be the time to
start trading, and it’s still possible to find coins that have not reached their
full potential yet and still have room to rise in value.
19. We’ve only skimmed the surface of the history, complexity, and
capability of cryprocurrencies, but this is a subject we at Payza
will be following closely in 2017. Subscribe to the Payza Blog to
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20. About Payza
Payza is an award-winning online payments technology platform used by licensed entities
around the world. Payza's highly secure platform provides businesses and consumers with
convenient and flexible solutions for sending and receiving payments worldwide. The
company offers access to payment services in both traditional and emerging markets, as
well as a host of tools and services including: fraud screening, dispute resolution, currency
exchange, global payouts and disbursement services. With millions of members, Payza
offers its services around the world in 21 currencies, and is proud to provide its merchants
around the globe with a complete solution for accepting payments and managing their
businesses.
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