One of the first questions I ask when I evaluate any of the dozens of altcoins is, so what? In the case of Tezos (CCC:XTZ-USD), the “so what” factor appears to be its ability to be a strong contender to Ethereum (CCC:ETH-USD). With the XTZ coin showing recent strength, it’s time to see if there’s anything to this narrative.
In the altcoin universe, the Holy Grail is supremacy over Ethereum. ETH was the first altcoin, but some crypto purists would argue that Ethereum isn’t really an alternative to Bitcoin (CCC:BTC-USD). Bitcoin, for example, is not a platform for deploying smart contracts.
And sure enough, many of the altcoins in existence are not attempting to be store of value coins such as BTC. They are instead trying to provide specific solutions to specific problems.
That’s why I turn to my “so what” question? The decentralized world of blockchain is the literal response to those who would say “build your own (insert name here).” If you can create a blockchain to solve a particular problem, you can create your own altcoin (i.e., token) that is required to use your blockchain.
In that regard, some coins appear to have limited utility. Others, like Ripple (CCC:XRP-USD) and Stellar Lumens (CCC:XLM-USD), appear to be on a collision course.
But many coins, like XTZ, appear to bear similarities with Ethereum. The question becomes whether they can be made different.
The Case For XTZ
Tez or XTZ is the native cryptocurrency for Tezos, a decentralized, open-source proof-of-stake (POS) blockchain network. The network allows users to execute peer-to-peer transactions and serves as a platform for deploying smart contracts. The maximum supply of XTZ has already been reached.
If that sounds similar to what Ethereum does, you would be correct. In fact, as my headline makes clear, Tezos is positioning itself as an alternative to Ethereum. The feature that makes the best case for the blockchain to achieve that goal is the ability to evolve without the need for hard forks. Instead of requiring a major change to the protocol of the blockchain, Tezos describes it as a “self-editing” blockchain.
Is that enough of a distinction? Tezos held its initial coin offering (ICO) in 2018. XTZ initially shot to over $12, but quickly gave up those gains. In 2021, however, the coin is gaining momentum. But is this simply an example of retail investors riding the hot hand? Or is the crypto market seeing something unique about Tezos.
No Lack of Competition
If you simply run an internet search for coins that compete with Ethereum, there are no shortage of choices. Tezos doesn’t make every list. On the one hand that’s not surprising when you consider how many altcoins are available.
On the other hand, it does reinforce the fact that there are a lot of blockchains that are attempting to accomplish a similar goal to Tezos. Cardano (CCC:ADA-USD) is one such competitor that is drawing a lot of investor attention.
I’m sure that a Tezos advocate could provide a long explanation about the many reasons that Tezos is better than Cardano. And that, by extension, would tell me why it’s better than Ethereum. And all the altcoins have websites and white papers that provide great technical detail.
I’m not embarrassed to admit that most of that goes over my head. And I don’t imagine I’m alone. This reinforces a belief that I’ve long held about cryptocurrency. The idea is simple: superior execution is incredibly complex. And being able to achieve both and explain it to investors in a simple, meaningful way that sets your altcoin apart from the competition is the dream.
The problem is that Ethereum has the first-mover advantage. Which brings me back to my headline question. Is Tezos a strong contender for supremacy in this crypto niche? It appears that it might, but like many altcoins it’s still a speculative bet.
Still, if you can handle the volatility, Tezos and by extension XTZ, looks like it has staying power. Whether that’s enough to justify an investment is up to you.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.