The cryptocurrency industry is always changing at breakneck speed. It’s an exciting place to be, where fortunes can be made and lost in the blink of an eye. For years, Bitcoin (BTC) and Ethereum (ETH) have been the kings, the undisputed royalty of this new decentralized world. Are their regal crowns safe and secure? Innovative altcoins, including Ethereum, signal emerging power shifts to the new crypto market. This suggests that BTC and ETH won’t always be the perennial leaders as everyone assumes, including, in many cases, BTC and ETH holders themselves.
As a reporter focused on the financial markets, I’ve seen up close the sort of frenetic but largely empty cyclical disruption that technology can buy. History is filled with stories of the market leaders who were soon overtaken by faster, nimbler and more innovative upstarts. While BTC and ETH enjoy significant network effects and widespread adoption, the emergence of altcoins offering compelling advantages cannot be ignored.
The most intriguing munition propelling this possible sea change is the rapid maturation of blockchain technology itself. Even these early blockchains, revolutionary as they were in concept and design, came burdened with frustrative drawbacks such as slow transaction times and exorbitant costs. Newer altcoins are already working to solve all of these pains, providing transactions that are faster, cheaper, and more scalable.
Take Alephium (ALPH), for example. This multiyear initiative aims to make blockchain transactions significantly faster and much more scalable and secure. In an impatient, high-speed world, efficiency and rapid response are of utmost importance. These innovations create opportunities to attract users and developers away from the growing established behemoths.
Aptos (APT) is another strong contender, built from the ground up for the next generation of Web3 applications. The decentralized web is working to change the dynamic. Platforms such as Aptos emphasize scalability and user experience, branding themselves as the bedrock for building the next big thing.
Scaling solutions, led by Arbitrum (ARB) and Optimism (OP) are taking off as well. These Layer 2 solutions operate on top of the Ethereum mainnet, allowing users to complete transactions more quickly and at a lower cost. That’s because they depend on Ethereum’s security to operate peacefully themselves. Yet, by improving the user experience, they likely bring new activity to the wider Ethereum ecosystem, perhaps even at the expense of the main ETH token.
Ethereum’s long-awaited move from proof-of-work to proof-of-stake was completed in September 2022. While this change was a big step towards improving scalability and energy efficiency, it’s still not without significant challenges. Falling transaction fees, as pointed out by Grayscale, have caused ETH to underperform this market cycle so far. The third part of their statement that should make us worry is the drop in fee revenue. At the moment, Ethereum sits in sixth place, below Circle’s USDC and Solana, per data from Token Terminal.
Furthermore, data from Ultrasound.money indicates a concerning trend: the projected ETH burn rate has declined, while its supply growth has risen. All of this indicates that the deflationary pressure applied to ETH may be dissipating, which could adversely affect ETH’s value proposition in the long run.
In addition, aside from BTC, ETH is probably the most heavily influenced/restricted crypto by macro. Now, as old world financial markets anoint themselves with new world power, the crypto markets are suffering—big time. This sort of instability is enough to make the value of even the most solid cryptocurrencies plummet.
While muse on rapidly advancing technologies all you want, the reality is that regulatory landscapes are playing a major, pivotal (and sometimes underappreciated) role. Jurisdictions worldwide are grappling with how to classify and regulate cryptocurrencies. Illinois provides for digital currency exemptions under Illinois’ Uniform Money Services Act. In stark contrast, Brazil is moving aggressively to legalize their use as a form of payment. These evolving legal frameworks will undoubtedly shape the future of the crypto market and could favor altcoins that are more compliant or adaptable to local regulations.
Web3 startups dominated, at one point capturing a staggering 57% of all blockchain investments in 2022. This dramatic increase underscores the threat they pose to destabilize the industry. These startups are exploring new use cases and applications for blockchain technology, and their success could hinge on platforms other than BTC and ETH.
I remember a candid conversation I had with a venture capitalist at a blockchain conference last year. He underscored the need to support projects that are technologically visionary but solve real-world issues. He contended that most of the altcoins being launched are very focused on niche areas. This provides them a distinct edge in competition against the far more general-purpose blockchains like BTC and ETH.
The increase of ThoughtAI (THT) is a classic case in point. Building a new-age technology like AI on top of even newer-age technology like blockchain is a visionary move. This deeper integration would open up brand new worlds of opportunity. These vertical solutions have the potential to take meaningful market share away from the incumbency, thereby posing a threat to the larger competitors.
Naturally, BTC and ETH continue to enjoy notable competitive moats. Their developing networks, active dev communities, and name recognition give them an enormous head start. Displacing these benefits will be a herculean challenge for any altcoin to overcome.
The history of technology is full of stories where dominant incumbents were unseated by disruptive new entrants. The secret is knowing where to find and how to exploit those chinks in the armor of the incumbents. All of these points represent meaningful weaknesses for BTC and ETH. These range from scalability limitations and high transaction costs to an inability or unwillingness to prioritize certain use cases.
Whatever the future of crypto may hold, it is not yet clear. Indeed, Bitcoin and Ethereum are responsible for the evolution of this industry. Today, with the emergence of creative new altcoins, their dominance is truly being challenged. Blockchain technology, like any other technology, is evolving rapidly. At the same time, increasing regulatory scrutiny and the emergence of new Web3 startups are signs that the next chapter of crypto will be a more decentralized and competitive ecosystem. The underdogs are nipping at their heels, and the race is far from over.
