The Potential of Altcoins and Other Digital Assets

Imagine it’s 2009 again. A group of technological geeks is introduced to Bitcoin, the first decentralized digital currency that is about to revolutionize the financial world.

Now, let’s fast forward to 2023. The crypto market has evolved beyond anyone’s wildest imagination. While BTC still dominates, a new era of digital assets has emerged – with altcoins, RWAs, and NFTs becoming the hottest topics of web and financial discourse.

What will the next year look like? And what is the potential of altcoins and other digital assets? We decided to outline our predictions and share them with you!

Beyond Bitcoin: A New Era of Digital Assets

No matter how we look at it, Bitcoin is a great innovation. It not only serves as the first real use case of blockchain technology. Bitcoin is also absolutely revolutionary designed – with its controlled scarcity (thanks to the halving mechanism), almost complete decentralization, and nearly unbreakable PoW consensus mechanism.

However, it’s not a monopoly but competition that drives innovation – especially in emerging sectors. Shortly after the introduction of Bitcoin, new, alternative cryptocurrencies hit the market, enabling investors to diversify their portfolios. And, as BTC retained its dominant position and still served as a benchmark for other protocols, all the emerging tokens earned the name “altcoins” (combined from “alt” – alternative and “coin”).

Starting with Litecoin in 2011 and Ripple or Ethereum coming in the years that followed, each of the altcoins addressed different market needs or BTC’s vulnerabilities. Thanks to that, in 2023, we can choose from over 22,000 cryptocurrencies and witness the emergence of such revolutionary technologies as NFTs, stablecoins, zero-knowledge proofs, or the entire world of decentralized finance.

Why do altcoins matter?

Obviously, altcoins can be used to hedge against Bitcoin. Depending on the state of the market, either BTC or altcoin crypto serves as a better choice for investors – often trading in opposition to each other.

However, the field of investments is undoubtedly not the only one where altcoins find their application. That is because Bitcoin’s utility is limited – due to its low transaction throughput, long block times, and expensive transactions. Even though it’s still the most popular cryptocurrency with the highest market cap, it serves more as a “digital gold” and a store of value (at least, in crypto terms) rather than a coin that provides utility.

The most renowned altcoin, Ethereum, drastically enhanced the potential of blockchain technology. It enabled the creation of decentralized applications and programming of smart contracts, making cryptocurrencies much more than just a means of payment. We can also see a lot of alternatives to Ethereum that, for example, focus on transaction throughput (Solana) or the simplification of the technology (Cardano).

Many altcoins also focus on blockchain interoperability which is currently not achievable for Bitcoin. Protocols like Cosmos, Polkadot, or Lisk develop technology that enables coders not only to build applications but also to connect them with each other.

Moreover, the world of altcoins offers yet another essential category of tokens – stablecoins. Cryptocurrencies that are pegged to various fiat currencies (mainly – US Dollar) serve as the primary medium of exchange in the world of web3, making it superfluous to use traditional money. In the past, such a role was filled by Bitcoin. Today, even though stablecoins face their own struggles and challenges, it’s nearly impossible to imagine crypto investments without USDC, USDT, or DAI.

Which altcoins have the most potential?

The crypto space is constantly changing, which makes it challenging to forecast and indicate market opportunities. Moreover, this area is vulnerable to so-called black swans^[1] more than any other category of digital assets.

However, when we predicted web3 trends for 2023 , most were related to altcoins. The continuing development of ZK-Rollups, enhanced focus on interoperability, and short-term trends (like cryptocurrencies & AI) should play a massive role in the coming months. More importantly, these areas can’t be addressed by Bitcoin technology (at least for now), which makes the altcoin crypto space even more promising.

Bitcoin vs. altcoins in 2023 (and beyond)

Does it mean that Bitcoin has zero potential in 2023? Well, one of our 2023 trends indicated that BTC’s future might look brighter than anyone thought.

It’s obviously related to regulations. As the scrutiny in this area intensifies, investors and developers are looking for digital assets that can be less vulnerable to strict legal papers. Bitcoin, the only cryptocurrency not considered a security by SEC^[2], looks to be on the safer side.

Moreover, Bitcoin’s principles and technology are still vital. Even though BTC is not as fast as Solana and not as interoperable as Cosmos, it remains the most popular token and the main driver of crypto adoption. Bitcoin also serves as probably the most decentralized crypto, making BTC inextricably linked to the web3 principles. In addition, investors are also already preparing for the Bitcoin halving^[3] in 2024, which triggers them to accumulate the token and raise its price.

Looking at the bigger picture – digital assets in 2023

However, right now, the world of web3 is much richer than a few years before. Besides Bitcoin and altcoins, we can benefit from multiple types of digital assets, including Non-Fungible-Tokens (NFTs), tokenized Real-World Assets (RWAs), or specific utility or governance tokens.

After the big hype in 2021, NFTs needed to find a new narrative in the following months. People were no longer interested only in quick and high returns on, sometimes worthless, pieces of digital art. If NFTs were here to stay, they must have offered something more than just an investment opportunity.

It’s too early to say that Non-Fungible Tokens replaced hype with real utility, but we’re certainly getting there. Both developers and users focus more on their unique features – such as their ability to prove ownership and authenticity of digital assets – instead of digitizing various images. Hence, they’re used to tokenize the data, create Proof of Attendance, or provide innovations to the emerging phygital economy.

NFTs are followed by Real-World Assets. By tokenizing physical assets and recording them on a chain, it’s possible to create a transparent and secure way to transfer ownership and track the movement of assets. This has applications in various industries, from real estate to supply chain management, and web3 protocols have already spotted this opportunity. For example, only after one year since MakerDAO shifted its focus to RWAs backing, this area accounts for 70% of its gross revenue.

NFTs and RWAs are only a part of the digital assets big picture. It’s also worth looking at specific types of tokens that provide more and more utility or enable the community governance of the protocol. For example, recently, Arbitrum, one of the most powerful and promising layer-2 solutions, decided to decentralize even more and airdropped a token, making its users “co-owners” and “technical officers” of the project. It shows how diverse and valuable the world of digital assets is becoming.

The Future of Digital Assets: Opportunities and challenges

It’s evident that Bitcoin and altcoins, along with other digital assets, excite us a lot, which makes it easier to see their future via pink glasses. However, the lack of regulatory clarity, technological infancy, and the growing threat of cybercrimes remain important risks for the industry.

Whatever the future (or, should we say, regulators…) brings, the innovation rate in web3 should still be thriving. With more and more developers joining the space and relatively high institutional interest, the area is poised to impact the real world. Especially since we are already used to other digital assets, such as digitized documents, money transferred online, or audio files. Cryptocurrencies, NFTs, or RWAs simply serve as the next part of this (r)evolution.

 

^[1] Black swan – usually, an event that was not expected but has a great impact on the market.

^[2] Securities and Exchange Commission – the main US agency focused on investments, trading, and preventing market manipulations.

^[3] Halving – the process of dividing the “reward” for Bitcoin miners by two, which limits the inflation of the token and raises its value (due to the higher scarcity). Halving happens every 4 years and usually indicates the start of the next bull market.