Monthly Archives: March 2017

Altcoins Rally on Back of Bitcoin Blockchain’s Limitations

A number of popular Alt coins have posted significant gains over the past days and weeks, rising dramatically in both dollar terms as well as price against Bitcoin.

Notably Ethereum and Dash have increased in price considerably, with Litecoin having literally exploded in price a few days later, ending March more than 350% higher over last month.

While this Alt coin rally may be based in part on so-called pump-and-dump action in large Crypto coin exchanges, a deeper look reveals a more serious and fundamental background to these moves in various Alt coin prices.

Bitcoin’s ability to process transfers of value, while ingenious in its decentralised nature and overall technical implementation as a prototype, appears increasingly weak in light of payment volume. Recent weeks and months have shown significant delays caused by these shortcomings in “bandwidth of the Bitcoin blockchain” and resulting “traffic jams’ in payment confirmation (or clearing transactions).

Other decentralised Crypto coins based on Bitcoin’s model use different “block sizes” and also shorter “block time” intervals and are capable of processing much higher volume. This lets the do a much better job at processing payments. As a result, overall transaction confirmation time — which has always been particularly slow for Bitcoin — is usually much better with other coins sporting faster block time and, therefore, faster confirmation (completion) of payments.

These features which are different from the original Bitcoin model make Crypto coins like Litecoin, Dash, or Ethereum more attractive and are an increasingly important selling point on the overall Crypto coin market. Users of Bitcoin are aware of this, often from own experience, as issues with confirmation times for Bitcoin payments have become more frequent over the past few months. Price moves boosting the price of popular Alt coins like Litecoin, Ethereum and Dash are therefore a normal market reaction to these coins’ being more future-proof and their better ability of clearing transactions fast.

On top of the above factors, Litecoin is also likely to receive an important modification, called Segregated Witness or “SegWit” and csv support, allowing new features to be added in the near future. Litecoin’s price increase — which has been particularly sharp, catapulting LTC from roughly BTC 0.00190 to over BTC 0.00850 or from about $3.91 up to $9.29 — signals that these new features would be warmly welcomed by worldwide Crypto coin users. SegWit support in Litecoin would make the “second Bitcoin” actually the first to support these features. They are even likely to also be added to Bitcoin itself, albeit at a significantly later date.

These facts show that many of the Altcoin price moves most notably seen during the last months are, indeed, based on fundamentals rather than technical price factors, let alone questionable pump-and-dump action on Bitcoin exchanges.

Bitcoin Mempool Shows BTC Blockchain Lagging

Bitcoin’s Mempool, or the measure of transactions waiting for confirmation or “payment completion”, has been increasing steadily over the last few months and is at very high levels since the end of 2016.

Mempool or “traffic jam” information for the Bitcoin blockchain is publicly available at the blockchain.info website and gives information on how likely it is that transactions in bitcoins may suffer a delay.

Bitcoin mempool growing to all-time highs
BTC Mempool or volume of “transactions waiting”

The extent of possible delays in Bitcoin has already resulted in other Crypto coins like Litecoin, Ethereum or Dash to gain more attention by worldwide Crypto coin users and merchants. Both groups are likely to suffer when payments are delayed and will be looking for better, as in faster, solutions for transmitting payments. This has already given a number of the more popular Alt coins significant price moves because of better expectations of future mass adoption.

Delays in Bitcoin payments can also be avoided by adding higher transaction fees to payments and gaining priority over other waiting transactions this way. Recommended fees are increasingly over 100 satoshis per Byte. Figuring out and using the correct fee for payments in Bitcoin is unpopular though and not likely to be used by most regular users.