When I first got into crypto trading, this theme completely baffled me. While I understood that Bitcoin was the heart of cryptocurrency and many times reflected the sentiment of the industry, the graphs and charts of the altcoins mirrored that of Bitcoin in an almost eerie fashion. Although it’s perplexing to understand at first, the root of this confusion comes down to not truly understanding how the values of your altcoins are calculated. Let’s break it down.

How to Calculate Fiat Value of Altcoins

Understanding the value of Bitcoin is pretty logical. Someone opens their wallet and pays for it. Whatever value society is willing to pay for Bitcoin is the price. However, 99% of the altcoins in existence cannot be purchased with fiat (USD). Therefore, the value is calculated by their price, in RELATION to the coins that CAN be purchased for fiat. I love fruit; here is an analogy.


Let’s say you go to a grocery store that sells apples for $5.00. One day, you forget your wallet, and do not have any money. You make a deal with the store to give him 10 grapes for every apple they provide you. In theory, 10 grapes equal 1 apple. Or, 1 grape equals $0.50, relative to apples. Fair enough.





One month goes by and suddenly there is a shortage of apples at the store, and the price per apple goes to $10! You go back to the store, and on your original agreement, trade your ten grapes for one apple. Same trade, except one major difference; the fiat value of your grapes is now twice as much. Your grapes, relative to the apple is the same; but relative to USD, they are worth twice as much ($1.00).

The crypto industry works the same way. When we cannot calculate a USD trade, we value the altcoin in relation to the pairs which are available. With this stranglehold, many other projects are at the mercy of Bitcoin. At the time of writing this, Bitcoin dominates the market with 35% total dominance. Even with this staggering number, the number does not truly reflect how much it controls the market. While its difficult to get accurate data online, Bitcoin holds 80-95% of all trading pairs on top exchanges like Binance, Bittrex, and Poloniex. If you want altcoins, usually, you have to go through the beast.

If things were to change, how would it be possible?

Imagine if every time your spouse ate a cookie, you gained a few pounds as well. Wouldn't really be motivated to workout, would you? This co-dependency on one major currency also adds a lot of unnecessary risk and volatility into the space. For us to break out of this pattern and create a more independent market, a few major things needs to happen.

More Trading Pairs

Binance is my favorite exchange to use at the moment. Not because of the super snazzy name of the founder, but because of the amount of ETH/ALT pairs they let me use. As more and more companies adopt this pattern, and diversify the ways in which you can trade, this will spread out capital connections a bit.

Atomic Swaps

While Blockchains are an amazing technology, we haven't quite figured out how to get them to properly communicate with each other in an efficient manner. In real life, if I wanted to trade you watermelon for oranges, there wouldn't be a problem. While this is not currently possible to do in the crypto world, a lot of people much smarter than I are working on something called an Atomic Swap. Edgy name, I know.





Atomic swaps, or atomic cross-chain trading, is the exchange of one cryptocurrency to another cryptocurrency, without the need to trust a third-party. A relatively new piece of technology, atomic cross-chain trading is looking to revolutionize the way in which users transact with each other. For example, if Alice owned 5 Bitcoins but instead wanted 100 Litecoins, she would have to go through an exchange, i.e. a third-party. However, with atomic swaps, if Bob owned 100 Litecoins but instead wanted 5 Bitcoins, then Bob and Alice could make a trade. In order to prevent, for example, Alice accepting Bob’s 100 Litecoins but then failing to send over her 5 Bitcoins, atomic swaps utilizes what is known as hash time-locked contracts (HTLCs).

Conclusion

There are a lot of great companies attacking this problem. TenX, Ethos, and Bancor just to name a few. While it is frustrating at times to see a project you really enjoy seem to be cut in half when Bitcoin drops, I am a firm believer this obstacle will change in the coming months/years as the industry matures.

My name is Zachary Dash, a crypto enthusiast and entrepreneur from Austin, TX. Everyday, I publish exclusive and original crypto content onto steemit. If you find value in this information and would like to support my mission to inspire the mainstream adoption of crypto, please upvote this post or donate directly.


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