Altcoins have long been ridiculed as useless aspects of the bitcoin ecosystem that dont offer much in terms of real value to anyone who uses them. While they often make vague promises about how they are bitcoin with feature X or Y, the number of them that offer any real use cases today approaches zero.
Having said that, the increasingly higher transaction fees on the bitcoin network may have opened the door for a few of them to achieve some sort of purpose in the form of low-value payments. Its unclear how how many people desire this particular use case, but lets take a closer look.
While its clear that some bitcoin users are interested in switching to altcoins for lower-value payments, its unclear how much adoption will take place here. Using bitcoin for small-value payments has mostly been something done by people who were already bitcoin users up to this point, so its unclear if any altcoin will be able to bring new people to the cryptocurrency ecosystem around this use case.
In short, the people who wish to use a cryptocurrency for small-value transactions are mostly driven by ideology than anything else. As early bitcoin adopter and entrepreneur Erik Voorhees explained on Twitter, hes interested in using an altcoin for small-value transactions because he simply refuses to use US dollars for philosophical reasons.
For better or worse, most people are fine with paying back their friend for a beer at the bar via something like Venmo.
Those who like bitcoin as a currency can choose to make small payments via centralized bitcoin banks, such as Coinbase or Xapo, and improvements that lower the amount of third-party trust involved in these sorts of transactions can be implemented with no further alterations to the bitcoin protocol (more on this later).
Lack of liquidity is another issue for altcoins. For example, longtime bitcoin angel investor Roger Ver recently tweeted that he made his first transaction on the Dash network for an amount of around $100,000 worth of Dash. The price collapsed by a third of its initial value in a matter of six hours on the same day Ver made his tweet, which illustrates the volatility risks that come with these sorts of coins.
One of the common responses to the price volatility issues when it comes to bitcoin is that the price volatility is in the upwards direction over the long term. Altcoin proponents will undoubtedly use this argument as well, but the fact that bitcoin may eventually usurp this low-value transaction use case puts this argument into question (again, more on this later).
Network effects are another issue when moving to different cryptocurrencies. The fact of the matter is that every cryptocurrency that isnt bitcoin has roughly zero real-world users. This could obviously change in the future if enough people decide they wish to make small-value transactions on these networks. For example, Coinbase is currently looking into allowing merchants to accept alternative cryptocurrencies.
One last point to make here is that bitcoins digital gold or store of value use case is mostly not threatened by altcoins. The liquidity in bitcoin makes it a preferred store of value, and those who wish to store value in an incorruptible digital bearer asset are willing to pay high fees relative to where bitcoins transaction fees have been in the past. If youre looking to put $10,000 into bitcoin, youll likely be willing to pay $5 or more to bitcoin miners to do so.
Ironically, an altcoins usefulness for low-value payments declines as the exchange rate of that altcoin increases (much like the current case with bitcoin).
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