A Gateway Crypto is one used as an intermediary when buying alt-coins with fiat currency like US Dollars. Most alt-coins don’t trade directly against fiat currency and so typically buyers have purchased Bitcoin with their fiat currency and then bought the alt-coins they want with the Bitcoin. Almost every alt-coin currently has a Trading Pair with BTC and up until now this is pretty much how the Crypto market has worked. Unfortunately the big fiat exchanges don’t trade a lot of alt-coins and the big alt-coin exchanges do not trade fiat and so there is a transfer between these exchanges which is often required. The workflow looks a bit like this.
Fear my awesome MS-Paint skillz!
This is basically how the alt-coin market has been functioning up until now and it is one of the reasons that alt-coins often sell off whenever Bitcoin sells off. They are linked by the trading pairs and so while the price of an alt-coin in BTC might not change, if BTC goes down in fiat value then the alt-coin goes down in fiat value too. This is one of the major issues in the way the crypto market is currently structured and it is amplified by the current problems with Bitcoin.
While some might argue that Bitcoin has been wildly successful, it has not really improved at all and it is not keeping pace with the broader Crypto market from a technology perspective. I have been concerned about Bitcoin Core moving away from promoting BTC as a Currency and positioning it more as a Store of Wealth. While I fundamentally disagree with this, my opinion is pretty irrelevant. However, the undeniable fact is that fees on the BTC network are soaring and what that means is that it is not very attractive to use Bitcoin as a Gateway Crypto any more due to Step 3 in my workflow above costing potentially a $50 USD transaction fee. For many alt-coin buyers that trading fee is prohibitive. However, many fiat exchanges have started trading Ethereum and the fees to transfer Ethereum are a fraction of Bitcoin so here is a workaround.
There is an extra step here but in many cases the trading fees for the new Step 3.5 plus the transfer fee of Step 3 is still cheaper than the cost to transfer Bitcoin. So while it takes a bit more effort it makes sense to do it this way. You can see where this is heading now right?
This is already starting to happen with many exchanges expanding the number of ETH trading pairs they offer. Bitfinex has recently created a new platform called Ethfinex which is specifically for trading ETH pairs. Binance (which is one of the new big alt-coin exchanges) offers almost as many ETH trading pairs as BTC. If we do a quick count of the number of trading pairs at the main alt-coin exchanges you can see this emerging trend is becoming clear.
| Alt Exchange | Founded | BTC Pairs | ETH Pairs | Percent |
|---|---|---|---|---|
| Poloniex | 2014 | 67 | 12 | 18% |
| Bittrex | 2014 | 198 | 58 | 29% |
| Binance | 2017 | 97 | 95 | 98% |
I had originally thought that Bitcoin Cash would be the main threat to Bitcoin and it still might be the case. I had been watching to see if exchanges added support for BCH and whether they would add trading pairs for BCH but I have noticed that the Bitcoin war is very politicised and it is probably bad business for exchanges to be picking sides. But while all this kerfuffle has been going on ETH has been making steady gains and ETH has none of the internal conflict of the Bitcoin communities.
I’m not saying ETH is perfect. Far from it. I am a pragmatist though and despite the security concerns, the lack of a coin cap, the risk of Vitalik leaving and some of the congestion caused by those crazy Crypto Kitties, ETH is still a better performing blockchain technology than Bitcoin. ETH now has enough market adoption to seriously challenge Bitcoin as a more effective medium of exchange in the Crypto world. ETH might not take over the Market Capitalisation of Bitcoin but it can usurp it as the preferred Gateway Crypto CURRENCY, which is kind of ironic because ETH was never designed to be a currency.
It just goes to show how badly Bitcoin has strayed from its original design.
If these trends continue it is going to lose all the utility it once had and it’s fall from #1 is almost certain.
Images and Credits
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https://www.investbitcoincash.net
http://cryptorials.io