When most people think of a cryptocurrency, the first thing to come to mind is probably Bitcoin. But Bitcoin is just one of many. At the moment, there are over 1275 cryptocurrencies, with a total market cap of over $200 billion, each of which offers different values and benefits.
Unlike traditional currencies like dollars and euros, which have a fixed value regardless of how and where you use them, different types of cryptocurrencies and tokens perform differently and are designed to solve various issues and problems in the digital world. A dollar or euro has the same value whether you use it to buy a shirt at Target or a book on Amazon, but the different cryptocurrencies are designed to offer users specific features, like the ability to purchase goods and services anonymously, or to facilitate a particular action, like raising money online.
The current cryptocurrency marketplace has been likened to a “Wild West”, with massive daily fluctuations. It is still in the infancy stage and is likely to continue to grow apace with technological developments and consumer appetite for more decentralised and democratic systems.
ICO’s continue to grow as an alternative to traditional venture capital, as is the number of ICO scams that aim to steal money from investors.
Commonalities among Cryptocurrencies
Although cryptocurrencies have different applications, in general, they have several characteristics in common:
They are decentralised; blockchain, consensus mechanisms and smart contracts govern the cryptocurrency;
They are unregulated; ICO’s and cryptocurrencies are not yet regulated, although some countries, notably China, have banned ICO’s;
They are open source, or so they should be because a lack of transparency and open source should be a red flag;
They have varying degrees of transactional privacy and anonymity;
They have significant faster transaction speeds than traditional payment platforms;
In general, there are little to no transactional fees, although even transaction fees can be very volatile as we have seen with Bitcoin.
Seven of the Most Promising Cryptocurrencies of the Moment (That Are Not Bitcoin)
With over 1200 cryptocurrencies and new cryptocurrencies coming on a daily basis, it might be difficult to see which cryptocurrencies are most remarkable at this moment. There is a handful of up and coming cryptocurrencies that are currently garnering more attention for a number of factors like individual features, trading volume, and market capitalisation. Please note that this is by no means an investment advice and that investing in cryptocurrencies comes with (very) high risks. Always do your research before deciding to buy a certain cryptocurrency. Here are seven of the most promising cryptocurrencies, in no particular order:
Dash is a combination of ‘digital cash’ and it is fairly similar to Bitcoin, DASH has a number of distinct features including:
It uses a two-tier network, where certain functions are performed by miners and other functions, such as governance functions, are performed by ‘masternodes’;
InstantSend facilitates instant transactions and PrivateSend enables anonymous and private digital transactions;
Transactions are more anonymous and less likely to be traced.
Ripple has been developed by OpenCoin and it is a real-time gross settlement system, currency exchange and remittance network. It has the following distinctive characteristics:
It offers real-time instant payments across global networks and real-time traceability of funds;
Boasts greater transparency and lower costs;
Requires less computing power;
It is used by banks, payment providers and digital asset exchanges.
Similar to Bitcoin, Zcash is an open source cryptocurrency that offers selective transparency for transactions. However, it goes further than Bitcoin concerning privacy as it has the option to make certain features of a transaction such as a sender, recipient, and the amount of the transaction completely private. It is a truly anonymous cryptocurrency. Besides, it offers:
Advanced new cryptographic techniques: usage of Zero-Knowledge Proofs to ensure complete anonymity;
It uses a Proof of Work consensus mechanism;
Multisignature transaction functions that enable a transaction to be signed by multiple parties.
Monero’s main claim to fame is the privacy and un-traceability factor: it uses a technique called “ring signatures” that buffers the transaction participant’s cryptographic signature with other signatures to mask it. Other characteristics include:
Stealth addresses to prevent transactions being linked back to you;
Ring signatures that ensure 100 sets of digital fingerprints that are added to each transaction to make it un-traceable;
Built-in scalability; as the number of transactions grows, the size of the blocks automatically adjusts.
Litecoin is also an open source cryptocurrency that offers low-cost merchant-to-merchant global payments with faster transaction confirmations. In addition, some difference to Bitcoin include:
It has a coin limit of 84 million coins instead of 21 million bitcoins;
The mean block time is 2,5 minutes instead of 10 minutes;
A different Proof of Work mechanism that uses the scrypt algorithm instead of the SHA-256 algorithm
At the time of writing, ETH has been the second-most-valuable cryptocurrency since their launch (only briefly being take-over last weekend by Bitcoin Cash). The Ethereum platform executes smart contracts and Distributed Applications (ĐApps). It controls for fraud, censorship, downtime, and third-party interference with running applications. It is predominantly used for ICO’s at this moment. In addition, some key characteristics are:
The protocol is built to enable flexibility;
It will adopt a Proof of Stake consensus mechanism instead of a Proof of Work mechanism in the near-future;
Instead of rewarding miners for validating blocks, as is the case with Bitcoin, validators earn a transaction fee paid for by the party initiating the transaction (called gas).
It is part of a larger ecosystem
IOTA is a completely different cryptocurrency than the above mentioned as it does not use a blockchain, but instead uses a Directed Acyclic Graph, called Tangle. It is developed especially for Industry 4.0 where connected devices have to be able to perform micro or nano-transactions with each other. As such, it offers the following characteristics:
Infinite scalability as it does not use blocks or miners, but every party that wants to perform a transaction has to validate two transactions;
No transactions fees, enabling nano-transactions among connected devices;
Proof of Work consensus mechanism, but one that requires minimum computing power and can be performed by connected devices;
Completely decentralised, compared to the semi-decentralised networks such as Bitcoin.
Initial Coin Offering (ICO)
Depending on whom you ask, ICO (initial coin offerings) is the new IPO (initial public offerings). ICOs are an emerging platform for technology companies to raise digital “cash” for their companies.
Despite the volatility and exponentially higher risk involved in investing in cryptocurrencies and initial coin offerings than in traditional stocks and IPOs, the ICO market has already seen billions of dollars worth of trading volume, with no signs of slowing down. Although it is still early, traditional Silicon Valley venture capitalists are jumping on board and beginning to sing the technology’s praises for its potential to disrupt and democratise the traditional funding model.
There are two types of Initial Coin Offerings: a New Crypto Currency or a New Crypto Project. A new cryptocurrency ICO is used to develop a new cryptocurrency with unique features and selling points from Bitcoin and other cryptocurrencies currently on the market.
A New Crypto Project uses the crowdfunding model to raise equity without using venture capital and circumventing the traditional IPO model to go public and raise capital. Rather than selling shares like a traditional startup does during an IPO, crypto equity projects sell crypto tokens. Investors acquire crypto tokens through Bitcoin or Ethereum transactions for example and offer purchasers a voting stakes in the enterprise’s future development, which differentiates it from a traditional “donation” with straightforward crowdfunding. Just like investing in a promising startup, investors in an ICO are investing in an idea, with no guarantee that the currency or project will get off the ground or become profitable in the future. However, if the project does become a success, the value of the crypto token increases, bringing a reward to the initial ‘investor’.
The guidelines and operating procedures for Initial Coin Offerings are still in the early development phase and do not fall into neat categories like a traditional stock purchase or a straightforward crowdfunding or venture funding model. Because of the high-risks involved with an ICO as well because of the numerous ICO scams, governments around the world are either banning ICO’s, developing regulation for ICO’s or warning their citizens in participating in ICO’s.
As market cap and trade volume continues to rise, and cryptocurrencies become more mainstream as they are adopted by enterprise businesses and service providers, it will become increasingly difficult for doubters to dismiss them as a flash in the pan. It seems that ICOs are here to stay as startups have discovered this lucrative way of raising money and are playing for their own central bank. Cryptocurrencies will fundamentally change how we perform transactions online and build (decentralised) projects and services.
However, like any new and emerging technology, not every player will be a winner or stay the course in the long run, so whoever of the above cryptocurrencies or any of the other >1270 cryptocurrencies will be still around in the years to come, remains to be seen.