How Many Cryptocurrencies Do We Really Need?
At this point, most people have probably heard of Bitcoin. And maybe Ethereum or Litecoin.
These are by far the most widespread cryptocurrencies, but what many people miss is the fact there are actually over 1300 on the market today according to CoinMarketCap. Now, consider the fact that there are only 180 fiat currencies (government currencies) in the entire world. The crypto universe suddenly starts to become way more intriguing… and confusing.
Right now, very few of these cryptocurrencies have widespread adoption. In fact, less than 15 cryptocurrencies have a market cap that is even 1% of Bitcoin’s market cap. But as blockchain technology becomes more popular and useful in our daily lives, many of these 1300 cryptos, along with plenty of others which have yet to be created, will become absolutely critical in determining the future of finance as well as plenty of other industries.
The Importance of Altcoins
An altcoin can be defined as any cryptocurrency that is an alternative to Bitcoin. While some altcoins are essentially just clones of Bitcoin, many others differentiate themselves through their technology and/or purpose.
For example, Litecoin uses a more efficient hashing algorithm (called Scrypt) that allows blocks to be mined in one fourth the time that it takes to mine Bitcoin blocks. By utilizing modern technology, Litecoin has created a faster and more energy-efficient alternative to Bitcoin.
PowerLedger is another interesting altcoin to look at. Supported by the Australian government, PowerLedger has created a peer-to-peer marketplace for renting energy, similar to how AirBnB created a marketplace for home rentals.
And the list goes on and on, from Steem (a reddit-like community that pays users for upvotes) to SALT (cryptocurrency-backed cash loans) to Siacoin (decentralized cloud storage marketplace).
Hundreds of these altcoins have made use of blockchain technology for projects that may ultimately disrupt just about every field we know today. Bitcoin started with finance, but other cryptos are reaching into all sectors including healthcare, supply chains, and even governance. Each coin or token is specially created to serve its purpose, which means you couldn’t just replace something like PowerLedger with Bitcoin, and vice-versa.
The Problem: Too Many Cryptocurrencies
While we may very well need all of these cryptocurrencies in the future, it’s not really reasonable to expect people to own, or even keep track of, more than one or two different cryptos at a time.
As ICOs boom and the market continues expanding, we can expect to see the total number of cryptos reach 2000+ in the next year or two. Compare that to the 180 fiat currencies that exist today, and you can really see how bloated the crypto market is becoming. At this moment, Bitcoin alone has a market cap of over $187 billion and makes up over half of the entire market cap for all cryptocurrencies. This uneven market cap distribution makes it all the more difficult to focus on smaller-cap altcoins whose purposes may still be extremely useful and important.
It makes sense — people don’t want to worry about holding potentially volatile cryptocurrencies they’ve probably never even heard of. So in a future world where we use Dash (instant, cheap transactions) to pay for our food, FunFair (online casino) to legally indulge our gambling needs, and Bitcoin to pay tuition for our childrens’ education, we will need a new solution for storing and keeping track of our various cryptocurrencies.
The Solution: Atomic Swaps
Imagine you can hold only Bitcoin, but still have access to all the perks and functionalities of every altcoin. That is what atomic swaps intend to make possible by allowing you to hold just one cryptocurrency and instantly exchange it for another whenever you need access to the other coin or token for its specific purpose.
Atomic swaps work by allowing swaps between two different blockchains, enabling you to instantly exchange one crypto for another (eg. swap Bitcoin for Ethereum) with just one blockchain transaction. This works by using hash time-locked contracts (HTLCs), which means that when two people make a transaction both parties must be able to prove they have paid their promised amount by a certain deadline, or any transferred currency will be returned to the original owner.
In an ideal future, a person would hold only one crypto, such as Bitcoin, and would then be able to seamlessly transfer that coin to another such as PowerLedger at the specific time they wanted to buy some energy to power their home. From the outside, it would appear that this transaction took place using only Bitcoin. But technically the user actually transferred their Bitcoin for a precise amount of PowerLedger, and then immediately traded all of that PowerLedger in return for electricity.
In this sense, we could use atomic swaps in a similar way that we use debit cards to pay for things in a different country without the need to withdraw cash in a foreign currency. The transaction is instant and effortless from our end, with the bank (or blockchain network in our case) taking care of everything behind the scenes.
Right now, the Lightning Network, a proposed solution to Bitcoin’s scalability problem, serves as the most popular atomic swap solution on the web. As altcoins become more and more relevant, we expect to see the Bitcoin community move towards putting the Lightning Network into action.
The Future of Cryptocurrencies is Wide Open
As with any emerging technology, the most exciting part of blockchain and cryptocurrencies is to see how they will actually be used to impact our lives. One day, every financial transaction you make, and everything you do over the internet might run through blockchains powered by cryptocurrencies. Many of these altcoins are still ahead of their time, but as the communities and the technologies mature, they will begin to disrupt fields like we have never seen before.
Even beyond blockchain, other cryptocurrencies have big plans for the future. IOTA, which uses a blockchain-like variation called “the tangle”, is working with Microsoft and other big-name companies to connect the Internet of Things. Using this network, your car would be able to interact with a smart solar grid along with sensors and devices all around the city that you live in. There are endless possibilities for the impact that this technology will have, and as we watch the battle progress between all these different cryptocurrencies we are also watching our future unfold right in front of our very eyes.
