What are popular alternative cryptocurrencies (altcoins) to invest in?
Some definitions to help
The mainstream media can get confused when they’re talking about “cryptocurrency”. Do they mean anything built on blockchain technology, or an actual digital currency? These things are very different.
A blockchain is a public ledger that records all transactions. Trust is established because the ledger is published across an entire network and can never be retrospectively changed.
This is revolutionary because it removes the need for a third party – like a country’s central bank – to guarantee the validity of the transaction.
Transactions are irreversible because the blockchain no one is ever able to go back and change the records after they’re made.
A digital currency is technically only the digital coin or token that’s used in an exchange of goods or services. There are blistering array of these, and many can only be used on proprietary platforms.
Companies are able to create their own coins whenever they want without any regulation. Many are getting very rich by doing precisely that.
There are also many speculators using “pump and dump” tactics to make quick profits by hyping the coin and selling it after the price has shot up. Beware the bubble.
The main competitors to Bitcoin
There are only a small number of contenders that really compete with Bitcoin in terms of popularity – Ethereum, Litecoin and Bitcoin Cash/Gold.
Ethereum (and Ethereum Classic)
Ethereum (code: ETH) is widely touted as the biggest challenger to Bitcoin and there are numerous predictions it will overtake the leader in the near future.
Ethereum is actually an entire platform built on blockchain technology – the currency is called “ether” and exists on the Ethereum network. Ethereum improves on Bitcoin in a number of ways.
Where Bitcoin is inflexible and limited, and is only a digital currency, Ethereum allows others to build apps, raise money and vote on projects, as well as transfer value. It has a good reputation and has a well-funded team behind it. It can handle twice the number of transactions per day as Bitcoin, has lower fees and faster confirmation times. Ether is the most popular coin behind bitcoin and widely accepted.
Ethereum Classic (ETC) exists as a result of a June 2016 hack in which US$50 million was stolen. Ethereum underwent a hard fork, meaning the code was split – Ethereum Classic reversed the hack, while Ethereum accepted the stolen value and moved forward regardless. The majority of merchants followed Ethereum, meaning Ethereum Classic’s future is uncertain.
For more about Ethereum and how you can trade it, see our other article.
Litecoin
Litecoin (LTC) is often called “digital silver” to Bitcoin’s gold. It’s almost as old as Bitcoin and was created as an improvement on Bitcoin’s technology. Its transactions are quicker, it’s more secure, and it has more coins available for mining.
On the other hand, it’s not as widely accepted as Bitcoin and isn’t seen as being different enough compared to the newer kids on the block. Due to this similarity, its price tends to follow Bitcoin. Most of the smart money doesn’t seem to be betting on Litecoin as the crypto of the future.
Bitcoin Cash and Bitcoin Gold
Both these cryptos were created by hard forks in Bitcoin, in August and November 2017.
Bitcoin Cash was created by a breakaway group of the Bitcoin community in frustration at the increasingly slow transaction times of its parent.
As well as making processing times quicker, Bitcoin Cash also allowed easier mining, which in turn meant larger profits for the miners. However, Bitcoin Cash has not yet achieved the broad adoption of Bitcoin and its future is unclear.
Bitcoin Gold didn’t aim to make transactions quicker, instead focusing on making mining more productive for the average computer owner – mining Bitcoin has now become an incredibly expensive business.
All owners of Bitcoin were awarded Bitcoin Gold for free at a rate of 1:1, but whether it moves beyond its origins and becomes widely adopted is yet to be seen.
The best of the rest
There are literally thousands of cryptos, but a small number do stand out both in terms of market capitalisation and potential. We’ve excluded any that are too new or unproven to be worthy of consideration.
Here are our top picks:
Monero
Like many other alternative coins (also called “altcoins”) Monero (XMR) solves a problem with Bitcoin. It’s a common misconception that Bitcoin transactions are completely anonymous – they can in some cases be traced back to real-world owners.
Monero’s transactions are always completely untraceable and therefore guarantee complete privacy. As a result, it’s the leading anonymous crypto and adoption is on the rise.
Sia
Sia, and its currency Siacoin (SC), are worth noting because of its innovative approach to cloud storage.
Unlike the traditional cloud where data is basically stored on servers in warehouses – making it “centralised” – Sia splits data into small parts, encrypts it, and stores it across a decentralised network. Users who “rent out” their PC get paid in Siacoin while those doing the storage pay for the privilege.
Sia was started in Boston and drew significant investment. It aims to disrupt platforms like Google Drive, Dropbox and Amazon’s cloud services. The market for cloud is obviously only set to grow, and Sia seems set to be the leader in the decentralised space as adoption increases.
Raiblocks/Nano
Raiblocks (XRB) – rumoured to be rebranding to “Nano” at the time of writing – tackles the problem of transaction delays. While Bitcoin is seeing growing frustration at slower and slower transaction times, Raiblocks is almost instant.
It does this by giving each user their own blockchain. Because there isn’t only one blockchain (it’s this factor leading to delays on Bitcoin), it has therefore picked up a reputation as one of the most efficient cryptocurrencies around.
Its proponents tout the team’s singular focus on speed and reliability. It also offers zero fees and many believe it will become more widely adopted as it rebrands and becomes listed on major exchanges.
However, at the time of writing there are no guarantees Raiblocks will gain enough acceptance quickly enough to survive. Other coins are quickly solving the problems alongside Raiblocks, which means that competition is increasing. It’s even possible that the biggest benefit – that it’s “only” a currency – may start to hurt it as it can’t be used for anything other than transfers. There’s a possibility it’ll get overtaken by emerging technology as time goes on.
NEO
China has a history of taking Western technology and more or less adapting (copying) it to create its own version. NEO follows in this vein and is therefore sometimes called the “Chinese Ethereum” or “Ethereum 2.0”.
So is it better than Ethereum? The biggest plus is that the Chinese government has officially embraced it while distancing itself from other cryptos like Ethereum and Bitcoin.
However, there are downsides which make its future uncertain. The biggest is its complexity – it has two kinds of coins, called “NEO” and “GAS” – and holding NEO means you automatically generate GAS, ie. it doesn’t need to be mined.
It’s impossible to divide NEO into fractions, so if you transfer 4.35 NEO into your wallet, the 0.35 is simply lost. Users also complain that it’s currently extremely slow. These problems may be fixed in the future but its current systemic problems mean it’s worth watching – its success may depend on if and when these are ironed out.
Basic Attention Tokens (BAT)
BAT is built on the Ethereum network and the concept is unique – people get paid for their attention while publishers receive revenue directly from users. The traditional middlemen get cut out of the picture.
Advertisers, on the other hand, could pay for people’s attention if users opt in to receiving their ads.
BAT’s CEO created JavaScript and co-founded Firefox and Mozilla and the company received its funding from a range of large, well-known venture capital firms.
The risk comes from the fact this all needs to run on BAT’s custom-built browser, called “Brave” – so all of this depends on whether the browser becomes widely used by the public. The success of the tokens will depend on the success of the browser, which is anyone’s guess.
