Cryptocurrency investors are constantly looking for the next rocket-to-the-moon investment. Many of those who got involved in the industry early made an absolute packet by taking exposure to Bitcoin and other digital currencies before others caught on. Newcomers to the technology are now hoping for similar success stories and 1,000x gains themselves going forward.
There is certainly a lot of hype surrounding the digital currency industry. However, choosing one or more of the over 2,000 crypto assets available today is pretty tricky. Aside from a couple of clear favourites, the success of the rest is literally anyone’s guess. Will the market favour XRP, Tether, Bitcoin SV, or even efforts like Facebook’s Libra as a micropayment’s technology? No one can say for sure. Alternatively, Bitcoin itself could deliver on the Lightning Network, forcing these other projects into obscurity.
For most potential use cases – micropayments, machine to machine payments, programmable money, etc. – there are now several projects vying for investor attention. Pointing to one above the others is a fool’s errand and backing just one in a particular niche is a serious gamble that might well be an all or nothing play.
There’s also the fact that no cryptocurrency today has a guaranteed future for investors. Codebreaking errors, technological issues, regulatory resistance, and competition from other digital assets could mean that one or all digital currencies end up a losing bet.
With that in mind, it’s always best to do your own research – read project’s whitepapers, inspect the team behind them, and see what problem they are trying to solve whilst assessing whether they seem to stand a chance of solving it. Remember that any digital currency could plunge to $0 overnight with the right black swan event. Therefore, never invest more than you can afford to lose.
All that said, there are a couple of digital currencies that are well positioned for future investor gains. They might not offer the potential for the super-sexy 10,000% gains that many cryptocurrency investors dream of but we couldn’t recommend any microcap crypto to you with good conscience. The risks are just too high!
Without doubt, the digital currency with the most chances of success going forward is Bitcoin. As the first crypto asset, it is by far the most well-known digital currency and benefits from a large first mover advantage.
Unlike other digital currencies, which focus on cheap, fast payments, or becoming a platform for the creation of decentralised applications, Bitcoin is all about sound money. For this niche, it’s by far the best positioned too.
Bitcoin was created just after the 2008 financial crisis struck. Like many digital currencies since, it was designed with a hard cap on its total supply and doesn’t rely on any financial institution to facilitate transfers. Dubious banking practices were blamed for the Great Recession and Bitcoin, with its bank-less and inflation-free design, was a direct response to it.
Unlike most digital currencies though, Bitcoin exists without any founder. Whoever designed it kept their identity hidden and their online presence totally disappeared shortly after it came into being. The network just exists. The only way to change it is through united miner consensus. The network rules and the ever-increasing value of every Bitcoin creates a powerful incentive for the miners to act honestly. In fact, if miners colluded to create more Bitcoin, they would be doing themselves the greatest disservice. The entire value proposition would be gone overnight and their huge outgoings on computing hardware and electricity would be for nothing.
Over Bitcoin’s existence, the meteoric price gains have only strengthened its value proposition. The higher the price, the more miners flock to work the network. This increases network security and makes Bitcoin even sounder. Just before the recent Bitcoin halving, the BTC hash rate (the measure of all the computing power combined securing the Bitcoin network), was the highest it has ever been.
Bitcoin’s hash rate dwarfs that of any other cryptocurrency. Many other networks have been attacked, hacked, or had coins stolen through some other flaw. Bitcoin has existed with almost 100% uptime and never been successfully attacked for more than 11 years. There isn’t a single other payments network that has served its users with such consistency ever.
For many investors and industry observers, Bitcoin’s design lends itself to similar uses as gold – a store of value and safe haven asset. It’s strictly digital so storage and security is much easier and cheaper than gold. It has no physical presence – Bitcoin can travel around the world in minutes. Moving gold costs big money and requires logistics efforts that can take weeks.
Finally, Bitcoin is absolutely limited in its total supply. The planet’s most powerful network of computers, the Bitcoin network, enforces the rule that there will only be 21 million Bitcoin. Compare this to gold, which is in abundance on Earth (at depths we can’t yet mine) and even more so in the wider universe. There will never be a sudden discovery of enough Bitcoin to seriously hurt its price.
Since it’s obviously best positioned to fill the digital gold niche, Bitcoin’s future success depends on enough people seeing the value of a completely fixed supply asset. It faces little in the way of competition from other projects thanks to its unique creation and robust security. If the market wants digital gold, Bitcoin will probably succeed.
The Ethereum network is a much different beast to Bitcoin. As a network for developing smart contract-based decentralised applications, Ethereum has far more technical hurdles to overcome than Bitcoin. So too does any other smart contract platform. Ether is the name of the cryptocurrency native to the Ethereum network. Those optimistic for the network’s future invest by buying Ether tokens, which also power the applications on the network.
Thanks to its relative technical complexity, as well as its ambitions to become a decentralised world computer, an investment in Ether is even more high risk than one in Bitcoin. However, of all the other 2,000+ cryptocurrencies in existence, it seems to stand the best chance of long-term success.
Like Bitcoin, the Ethereum network benefits from first mover advantage. It’s was the first of the designated smart contract platforms. Although Ethereum faces competition from the likes of TRON, Cardano, and other projects, how much further along in its development Ethereum is, the number of developers building on the network already, and an exploding decentralised finance sector are all good reasons to be optimistic about the platform’s future.
The project has also attracted a lot of interest from many of the largest companies on the planet. The Enterprise Ethereum Alliance had people very excited in 2017 and continues to develop using the technology.
That said, Ethereum is no stranger to massive technical issues. Early in its existence, the very notion of decentralisation was stripped from the network when a smart contract vulnerability saw investors in a decentralised governance project out of pocket by millions. The Ethereum Foundation actually managed to convince investors to fork the chain, deciding to erase history instead of preserving censorship resistance. Many believe the same thing could happen again at any point today.
However, if Ethereum does manage to securely increase its own transaction capacity with a much-anticipated upgrade, Ether could rise in value quickly. The scope of the applications that could be built on the network is nearly limitless.
Houseless casinos, with no operators whatsoever, and only open source games are already proving popular on blockchain networks. Users make bets in various cryptocurrencies and can play games with literally zero house edge. The fact that there are minimal processing fees results in better bonus offers and RTP ratings for players too. Since blockchain technology is all about reducing the need for unknown parties to trust one another and enables almost free global value transfers, it’s a perfect fit for the casino industry.
Another early success of the Ethereum network is with so-called decentralised financial applications. Again, these operate without a trusted central entity and allow much greater access to financial markets than ever before. Previously, trading at futures exchanges and the like was reserved for accredited investors with amounts of capital to play with. With decentralised finance, anyone can access such financial products.
These kinds of applications are just the beginning too. There are hundreds, if not thousands, of projects being built on Ethereum as you read this. Many of them will fail. However, if a few get major traction, demand will rise for Ether and the price will follow.
With Ethereum’s proposed shift to proof of stake, there will be a clear reason to hold onto Ether too – to earn by validating transactions on the network. Even with the small numbers of functioning applications and their miniscule userbases today, analysts are expecting a lot of the circulating supply of Ether to end up locked in smart contracts. If this is the case, any increase in buying pressure will result in a larger price spikes thanks to the constricted supply.
What About [insert any other cryptocurrency here]?
Most other major cryptocurrencies represent an even greater gamble than either Ether of Bitcoin. None enjoy the same level of adoption for a start. Others suffer from unclear use cases, major competition, questionable technology, or dubious past security records.
We’re by no means saying that none of these projects have a future. It’s just very difficult to say if the global market will see enough value in them for them to want to hold the coins. Is there enough room for TRON if Ethereum corners the market for smart contract platforms? Does Litecoin have any reason to exist at all? Will regulators come down incredibly hard on privacy coins? These are the kind of issues that make all investments into cryptocurrency extremely high risk.