Cryptocurrencies, like Bitcoin, are poised to disrupt and decentralize money, banking, investing, lending, voting, public registries and so much more. The underlying technology, the blockchain, an automated distributed ledger, is one of the most exciting inventions for human freedom. It can unravel the centralized control of vital parts of society by efficiently replacing bloated institutions that currently guarantee trust in ownership of anything.
Anyone familiar with Bitcoin has likely heard about its recent scaling challenges. Transactions have become slow and expensivein the Bitcoin network due to its cap on the block size (number of transactions that it processes every 10 minutes). Additionally, Bitcoin's public blockchain is turning out to be not as private as once thought. And there is no one group assigned to fix it and no set way to pay the developers.
Multiple solutions to these problems in Bitcoin are being worked on by very smart people. However, they reveal weaknesses, or opportunities, that other blockchains have improved upon. Most of the hundreds of digital currencies that came after Bitcoin, commonly called “altcoins,” have been little more than pump-and-dump schemes. Clones with few measurable improvements over Bitcoin. Even if a new coin appeared to be unique, many good ideas were solutions looking for a problem instead of the other way around. They were ahead of their time and fizzled out for various reasons.
Yet a few projects have emerged as genuine innovations that are using blockchain technology in unique ways. If you're interested in investing in altcoins, it's important to learn how to identify quality projects. Bitcoin itself is risky enough to invest a lot of money, and these altcoins should be viewed as even more speculative.
As I was researching for this article, I saw a tweet by Charlie Lee, founder of Litecoin and developer at Coinbase, explaining how he evaluates new cryptocoins.
He writes:
I agree with Charlie. Analyzing those factors is a great starting point to determine which blockchain assets have enough upside to invest in them.
On innovation, does the cryptocurrency solve a problem? Is it more efficient than current solutions? What features make it unique? B, C and D in Lee's tweet determine if the project is sustainable.
Finally, it is also important to understand the history and future of the asset supply creation as governed by its algorithm. How was the coin founded? Was there a premine, crowdsale, or distributed mining?
What makes any asset valuable is its scarcity relative to its demand. For instance, only 21 million bitcoins will ever be created. Over 16 million (77%) have already been mined. Every day 1728 new bitcoins are created until 2020 when that amount is cut in half. The huge network effect of Bitcoin combined with its fixed scarcity makes it an attractive investment.
Here are 5 more promising cryptocurrencies beside bitcoin:
DASH
Summary: Formerly Darkcoin, Dash (DASH) is digital cash with fast transaction times and built-in coin-mixing for privacy. Only an estimated 19 million Dash coins will be created, with a 7.1% decrease in the number of coins generated per year. Dash uses a chained hashing algorithm called X11 for the proof-of-work (Bitcoin uses SHA-256). Dash is the first self-governing and self-funding protocol with an excellent development and marketing team.
Innovation: Compared to Bitcoin, Dash has faster confirmation speeds (under 15 seconds), lower transaction costs, privacy, and funding and governing features built into the core code.
Developers: While some cryptocurrencies don't list any of their developers, Dash proudly displays 36 team members in its experienced core development team. Dash sponsors many live crypto and liberty events and they also have a popular YouTube news show hosted by Amanda B Johnson. Dash is best in class at marketing out of all other altcoins.
Incentives: One of the chief innovations of Dash is its uniqueincentive structure that compensates not just the miners, but also the core development team, masternodes, marketing, and any other project voted on by the users. This structure could make Dash much more sustainable than other projects.
ETHEREUM
Summary: Ethereum (ETH) is a blockchain computing or application platform that makes it easier to execute smart contracts and launch new digital assets. It has the second largest market cap, behind Bitcoin at around $1 billion. Ethereum contracts can be implemented in various Turing complete scripting languages. The project was funded by a crowdsale. Ethereum had a controversial hard fork to its code creating a second coin called Ethereum Classic which is also ranked as a top-10 asset in terms of market cap.
Innovation: Ethereum is a distributed blockchain with a more user-friendly coding language (C++, Go, Rust) for potentially more diverse range of applications than Bitcoin.
Developers: Vitalik Buterin is a highly respected early developer in Bitcoin before proposing the idea for Ethereum in 2013. Buterin and the rest of the Ethereum core team work under the non-profit Ethereum Foundation.
Incentives: Development is funded by 12 million Ethereum from the initial crowdsale and donations. A total of around 90 million Ether will be created and then the network switches to a more efficient confirmation process called proof-of-stake. Currently only the miners are compensated in Ethereum, not full nodes, developers or marketing.
MONERO
Summary: Monero (XMR) is a secure, private, untraceable currency and open-source payment system. Since Monero has become the gold standard for darknet markets, the value has surged putting it in the top ten ranked cryptocurrency market cap. There are currently around 14 million XMR with a slowly decreasing block reward that levels out at a minimum of 157788 XMR annually, less than a 1% annual inflation.
Innovation: Increased fungibility compared to Bitcoin: “From an economic point of view, a currency needs to be fungible. Fungibility is a property of money that makes all units "equal." Without fungibility, money flows can be tracked and tainted, making it very difficult to use the digital tokens as money.”(Source) Monero payments do not appear on a public blockchain making it as untraceable as can be.
Developers: Monero is not governed by any foundation or central body, but ongoing development, maintenance, and research is primarily directed and often funded by a core team of seven individuals.
Incentives: Monero implements a "permanent block reward" for miners of 0.3 XMR per minute, making it a disinflationary currency. Monero has not set up a formal way to fund development.
AUGUR
Summary: Augur (REP) is a digital token for a decentralized prediction market platform built on Ethereum that pays you for correctly predicting real-world events in the future. Currently in beta, Augur raised $5.2 million in a crowdsale of all 11 million REP in 2015.
Innovation: Augur was inspired by Friedrich Hayek's The Use of Knowledge in Society, James Surowiecki's book The Wisdom of Crowds, Robin Hanson's concept of "Idea Futures", Paul Sztorc's "Truthcoin" whitepaper, and others to be used as a distributed oracle system. Augur allows you to buy virtual shares in the outcome of events with the idea that the crowd will determine free-market odds and an event confirmation network. All funds are stored in smart contracts and distributed automatically, eliminating counterparty risk.
Developers: Augur has a very celebrated team of developers and advisers. One of the lead developers, Joey Krug, was chosen as a Thiel Fellow. Augur development is well funded and run by the Forecast Foundation.
Incentives: Besides the crowdsale, Augur will charge a trading fee to secure the network. Additionally, 20% of the fixed supply of 11 million REP is held in reserve to secure future growth.
STEEM
Summary: Steem (STEEM) is one of the most interesting uses of blockchain technology to date. It's a social blogging platform that pays you to participate. Content creators, curators, and comments are rewarded in STEEM at the website Steemit.com. The inflation rate of STEEM is 9.5% per year, reducing by 0.5% per year.
Innovation: One of the key features of blockchain technology is that it's counterfeit-proof, or censorship-proof, which makes Steemit a unique social media service especially as Facebook continues to manipulate news feeds. And the diverse reward
system is handled by code.
Developers: The project was founded by Ned Scott and Dan Larimer, creator of BitShares. In the four months that I've been using Steemit, I notice that they constantly improve the features and functionality of the platform.
Incentives: This project may have the best incentives, though they are complicated and can change slightly. Developers, tutorial makers, artists, writers, photographers, philosophers, vloggers and news curators can now make money from sharing their work on the Steemit social media platform. Users get STEEM when others vote up their content or comments. Votes weigh more from users with more STEEM stored in their wallets incentivizing keeping coins on site.
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