Altcoins have two main purposes. Firstly, they are a way for people to make money by trading. Secondly, they are used to test out new features that could prove too risky for Bitcoin to implement straight away, essentially turning altcoins into a testnet for Bitcoin.
People may argue that they have a third role in that they are exciting and revolutionary pieces of technology that will change the world, but that is certainly debatable.
The majority of altcoins fall into the first category, as much of what they provide is either unimportant or unnecessary. When there are over 200 altcoins, it is not particularly surprising that not many of them are actually necessary.
Altcoins such as Litecoin and Monero however do provide a useful testnet. Litecoin was the first coin to implement SegWit, thereby rendering the FUD surrounding the new technology redundant, which removed much of the doubt for implementation into Bitcoin.
Monero has long been testing privacy features within its code. In the future, much of Monero’s interesting technology will probably be adopted by Bitcoin. Monero itself is looking at implementing a sidechain of Mimblewimble that theoretically could one day be used on Bitcoin. This doesn’t mean it will be implemented, but it is a useful experiment either way.
However, with the current state of regulation, adding Monero’s features could become much trickier as it is unlikely those regulators would like companies such as Chain Analysis becoming irrelevant through added privacy. One of the key features that has allowed more mainstream companies to get on board with Bitcoin is the traceability of the blockchain. This has been to the ire of many Bitcoiners.
Even though many would not like to admit it, Bitcoin is still a fragile beast. The wrong piece of code or a rushed upgrade could have devastating effects on the network that so far has performed extremely well. Perhaps Bitcoin maximalists should be a little more generous in their views when they believe every altcoin is worthless.
Monero and Litecoin as well as a few others show that having these new and different technologies that can be tested before being implemented into Bitcoin deliver value to the Bitcoin network. Let’s hope they continue.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.