Using an Altcoin to Save a Few Cents May Not Be Worth...

Using an Altcoin to Save a Few Cents May Not Be Worth It

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As the Bitcoin network experiences transaction congestion and higher fees many people have considered alternatives to avoid these issues. During transaction traffic peaks, a few cryptocurrency supporters have recommended using altcoins to save money from bitcoin miner fees and speed up settlement times. However, using an altcoin to save a few cents on a transaction may be more of a hassle than you think.

Also read: Creating Altcoins is Easy, Maintaining One is Not

The Cost, Time, and Risks Associated With Using Altcoins to Speed Up Settlement

Lately, there have been a lot of complaints towards the rising fee market and slow confirmation times when it comes to sending a bitcoin transaction. Some say it’s best to patiently wait for Bitcoin developers to implement scaling solutions, but no one knows when this will happen. Now some people are advocating the use of an altcoin to conduct faster transactions with lower fees. But is it worth it?

Exchanging Bitcoin for an Alternative Token

Using an Altcoin to Save a Few Cents May Not Be Worth ItIn order to use an altcoin, you have to obtain the digital currency from an exchange. Exchanges will trade you an alternative digital currency, but most (not all) require bitcoin for the trade. This means you still have to use the bitcoin network to conduct a transaction, which will require a miner fee and wait time. You also have to sign up to use the exchange, which takes time and can include a verification process. There are platforms like Shapeshift that don’t require a registration process, but for a vast majority of exchanges, the procedure is mandatory.

While using a third party exchange users also expose themselves to the risks of holding funds on a platform that could be compromised at any moment. The list of dead altcoin exchanges like Mintpal and Cryptsy have proved user funds can disappear in the blink of an eye without warning. All that aside, swapping bitcoin for an altcoin will still incur a bitcoin miner fee, the altcoin’s miner fee, and also a fee to execute the trade within the exchange. Furthermore, spreads can be quite different across many altcoin exchanges so a person may lose more money waiting on a buy order to fulfill their sell request.

Altcoin Volatility  

Another reason against using an altcoin for settlement over bitcoin is volatility concerns. Over the past eight years, bitcoin volatility has decreased significantly. However the same cannot be said for the hundreds of nascent alternative cryptocurrencies in existence. Bitcoin has far less market volatility than any altcoin, and this attribute continues to get better. This past December Bitcoin proponent and analyst Willy Woo explained in great detail why bitcoin is less volatile than altcoins. Furthermore, Woo has suggested that bitcoin volatility will match major fiat currencies in two years. “I established that Bitcoin is well on the path to being the most stable currency in the world,” explains Woo.

Using an altcoin to save money could lead to bigger losses if the transactions are not settled quickly. Moreover, leaving a secondary purse of altcoins for spending money may be even more disastrous as price swings can definitely affect a person’s purchasing power. Altcoin volatility can be a huge risk to pay in contrast to paying higher bitcoin transaction fees.

Using an Altcoin to Save a Few Cents May Not Be Worth It
“Bitcoin’s peak volatility is reducing steadily and will enter the realms of fiat currency (below 5.5%) by around July 2019,” explains Woo.


 

Infrastructure and Merchants

Using an Altcoin to Save a Few Cents May Not Be Worth ItBitcoin’s network effect runs deep and it has the largest infrastructure compared to every other altcoin. Merchant acceptance for altcoins is very low compared to the 100,000 plus merchants worldwide who accept bitcoin. So using an altcoin to save money is not so convenient as there are very few places that accept other digital currencies. Bitpay’s merchant services has no altcoin support alongside a great majority of global payment processors and debit cards that only utilize bitcoin.

Additionally, in order to hold an altcoin using a secondary spending purse rather than leaving the funds on a vulnerable exchange, users have to use the token’s limited infrastructure. A great majority of altcoins have very little infrastructure. A person may have to download the altcoin’s QT client because there are very few alternative light wallets. Furthermore, many of the light client wallets for altcoins may not be reputable or vetted enough which could easily lead to a loss of funds.

Altcoin Blockchain Issues

Using an Altcoin to Save a Few Cents May Not Be Worth ItAltcoins can also suffer from the same issues bitcoin contends with, such as slow confirmation times and network attacks. For instance, a few months ago an attacker caused a lot of difficulty for users of the Ethereum network. Throughout the fall months of 2016, the Ethereum network had suffered through many computational DDoS attacks. This caused problems with Ethereum’s GETH client and forced some users to switch to the Parity client. Furthermore, during all of this transactions took hours and even days to process across the network.

Back in 2014, the Dash (formally Darkcoin) community suffered from an emergency fork while trying to implement its new masternode system in a series of forks. During the event, some users found their wallet clients were unable to sync, and popular altcoin exchanges froze Dash deposits and withdrawals. Dash holders suffered a significant loss from market volatility during the emergency fork. The cryptocurrency reached a record high of $15 per Dash prior to the problems and subsequently fell to a low of $5 over the next few months.

Bitcoin Has Its Problems, but Altcoins Seem to Have Far More

Saving money using an altcoin instead of bitcoin to avoid higher miner fees may not be in people’s best interest. Altcoins may be useful for other niche applications like anonymity services, but to save a few cents it may not be worth it. The fact is, there are far more risks involved with opting to use an altcoin for settlement. In many ways, bitcoin’s benefits still eclipse alternative currencies, even with higher fees and slower confirmation times.

However, if the Bitcoin network does not scale and the fee market continues to rise rapidly then an exodus to an altcoin could very well happen.

Do you think using altcoins can help with saving fees and speeding up settlement time? Or do you agree there is a lot more risk involved with that idea? Let us know what you think in the comments below.


Images courtesy of Bitcoin.com, Pixabay, and Woobull.com.


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  • Xadept18 Xadept18

    There are coins that can be bought with fiat without having to use Bitcoin. The choices for places to buy other coins and which coins you can buy with fiat without having to use Bitcoin is only going to increase. Ignoring this fact as the Bitcoin community is currently doing will only hasten the process.

    As the Bitcoin transaction experience worsens it is only natural that merchants will look for alternatives. Keep in mind that the difficulty of getting merchants to add additional cryptocurrencies is much lower than getting them to add their first cryptocurrency. The power of network effects can be overstated. After all,8 track and VHS tapes had network effects too. Now they are ancient technology. It could happen to Bitcoin too. Not today or tomorrow or even they day after tomorrow, but some of the other coins are making significant improvements to their usability. The Bitcoin community could be in for a rude shock if they continue to assume that just because they are the 2000 lb gorilla now means that they will forever be invincible.

    If or when Bitcoin loses its gatekeeper and network effect advantages, it seems likely that it will also lose any volatility advantage as well.

    the saddest part of it is that the Bitcoin community appears to be too engrossed in it’s current civil war to be paying attention to anything else that is happening. Given it’s current size advantage, Bitcoin still has time to adjust and continue growing, but it probably has a lot less time than anyone, including myself would believe.

    • I agree with you, it’s not that you are in the lead position that nobody can take your place. The scaling issue is just drama, that takes forever. Everyday I saw news scaling issue, Segwit or Lightning Network and the miners hold their position and increase the fee

      I believe in Bitcoin, but I hate to wait forever for a decision to make the network more stable and fix the scaling issue with more than 300000 transactions each day.

  • Stacey Buckland

    Dash is worth a look. Especially when they roll out “evolution”.

    • Xadept18 Xadept18

      Insta-mine STRIKE ONE
      They should have fixed the code and relaunched,

      Masternodes STRIKE TWO
      Just another word for covert centralization.

      Optional Privacy STRIKE THREE
      Almost no one uses it. It’s like going to an invited party and being the only person there wearing a costume.

      • Stacey Buckland

        Hmmm…. Number 3 on market cap. Not that I’m expert on this but easy to use, decentralized governance; they were able to scale in no time at all and continually develop ie “evolution”. I’m not bothered about the instamine, still early days. Don’t agree with you about master nodes but you could be right.

        • Xadept18 Xadept18

          Market cap only proves it is currently No. 3 on the popularity chart. If Bitcoin can be vulnerable at No. 1, what is so special about being No. 3?

          “For every complex problem there is an answer that is clear, simple, and wrong.” – H. L. Mencken

          Then there are the Masternodes which make all the decisions. Not exactly the poster child for decentralized governance.

          • Stacey Buckland

            TBH I’m not technical enough to comment on the masternodes…. but why would owners of masternodes harm the currency? Does this not happen on BTC network. As I say you could be right, I’m just a keen amateur investing in most popular crypto currencies.

          • Xadept18 Xadept18

            They could have motives other than economic gain. The point is by creating masternodes a significant degree of centralization occurs and makes attack vectors like 51% attacks easier. My preference is to minimize attack vectors as much as possible.

            edited for grammar

          • Maybe the fact that the Masternodes CAN make decisions will be the benefit that raises DASH above Bitcoin and maybe “consensus” will be Bitcoin’s Achilles heel? Forking is the only solution to a consensus deadlock while a centralized decision maker can make those vital decisions and keep the organization intact. I can’t think of any large consensus based organization and it seems (to me) to be just a philosophy experiment.

  • Tracer289

    In todays world of instant delivery (compared to human experience prior to 20th century) we expect solutions quickly.
    I feel this is naive. Things take time to develop.

    In this case we ARE pushing out marginal users of Bitcoin. We ARE preventing large classes of potential Bitcoin users from using BTC because there are more cost effective ways to send value.

    As this article points out, altcoints may not be a very good solution to this perceived issue. Keep in mind that for merchants, CC settlement can often take a month or longer. Is a few hours an obscene wait time over months? So then how do we pay for our coffees? How do I send $5 worth of btc to a friend without paying a 20% fee (**totally made up % there**)??

    From my perspective these are growing pains. Perhaps we just need to settle down and realize that today Bitcoin isn’t a good tool for micropayments. If we just accept that, for now, and work towards the eventual solution, before we know it bitcoin will a solution for all those on the margin users who today have more efficient means available to transfer value.

    patience is a virtue. Crazy thought in todays world?

  • steve backus

    Its all econ…. although my sister will drive 50 miles to save $6 on an item……..so lets say is mostly about econ……As the market matures wallets will be faster and interconnected so the fastest coin to pay with the lowest cost will get market share…….Hoarding is largest part of market now but as market matures, actual use will increase and speed and fee will beome increasing more important…balanced with security……Remember, movie tickets are not $8…have to add in your hourly rate of pay for a couple hours, plus time and cost to get to theatre…that is the cost of going to see a movie.

  • I’ve started accepting DASH in addition to Bitcoin and I have to say it is refreshing to see normal transaction confirmation times and fees again. The Bitcoin blockchain size debate may never be resolved and that might lead simply to Bitcoin’s superior network and hashing rate causing it (Bitcoin) to become the world’s reserve “CRYPTO” currency while the faster and cheaper alt-coins are used for everyday transactions. Arguments about security are relative to the value being transacted. I don’t need nearly as much security for small transactions so alt-coins work fine. As Bitcoin becomes more expensive and slower it will lose the small transaction volume which may not even be an issue. As a business, though, it is coming to the point where it no longer makes sense to accept Bitcoin. In fact, it is at the point where credit cards work better now than Bitcoin (all things considered). After all, I can still use the “cash” I got through a credit card payment to buy Bitcoin, right?

  • HackSmash

    Do you even use an Altcoin ???

    Every paragraph you wrote has at least 1 Untruth so large I could drive a Tractor through it. Do some research before you post drivel.

    …”but most (not all) require bitcoin for the trade.” – Every reputable Exchange uses at least 2 base coins for each market.

    “Furthermore, spreads can be quite different across many altcoin exchanges so a person may lose more money waiting on a buy order to fulfill their sell request.” – Arbitrage … ever heard of it? It’s the making of profit from the price difference on different exchanges. cant be done with BTC because of long transaction times, but workes WONDERFULLY with other (read faster) coins

    “Bitcoin has far less market volatility than any altcoin…” – Absolute BS

    “Using an altcoin to save money could lead to bigger losses if the transactions are not settled quickly.” .. as compared to what … Bitcoin transactions that can take up to 20hours to process. Blackcoin averages 3 min transactions, and the same for Doge.

    “Merchant acceptance for altcoins is very low compared to the 100,000 plus merchants worldwide who accept bitcoin.” Transaction time means they wont get paid for an unknown amount of time. Whereas blackcoin merchants get paid within 3 min. My coffee would still be hot.

    “Furthermore, many of the light client wallets for altcoins may not be reputable or vetted enough which could easily lead to a loss of funds.” Let me get this straight … your saying the many iterations of the Electrum wallet are not reputable ? vetted ? and susceptible to theft ? Really ?!?!

    Sorry but this ‘Article’ is junk science with no research or balance to support its OPINION.