If you think bitcoin is the only important cryptocurrency on the market, you are sadly mistaken. For the past several years, new cryptocurrencies have been created for everything from decentralized computing to data storage and transfer. There are now a variety of promising altcoins that provide their own value to users.
What are altcoins? Altcoins are cryptocurrencies created since bitcoin, with their own unique functions and technological backbone. As the name implies, bitcoin was the original cryptocurrency and everything else is an alternative to bitcoin, hence the term altcoins. There are so many altcoins out there it can be hard to keep track. Many of these altcoins have come and gone, only sticking around long enough for the hype. However, other promising altcoins are here to stay.
Disclaimer: Nothing is guaranteed
Before we get to our picks, let’s talk about the uncertain nature of cryptocurrencies and the possibility to lose your entire investment. “Our Picks” are those we find most interesting or compelling to us, and are not recommendations for any individual. This is not to be taken as advice to purchase. It’s important to acknowledge that just because altcoins have promise and strong technology, doesn’t mean they are going to be valuable in the future. In fact, some altcoins might not even be around by the end of the year. This is the nature of cryptocurrencies for the time being: not even the experts know which are the best altcoins for traders.
The best you can do is conduct your own research, identify the best altcoins, trade altcoins on a trusted exchange, and track your trades. This won’t guarantee your cryptocurrency portfolio will increase in value.
With that said, here are eToro’s picks for the top altcoins by volume on the market.
Of all cryptocurrencies, ethereum is the most well-known altcoin on the market, and that’s likely because of its founder. By 2013, wunderkind Vitalik Buterin was already in love with bitcoin. But at the same time, he felt that its technology was lacking, and it would never be able to perform higher level functions. Working together with other programmers, Buterin and his team designed a new coding language that would be better for creating more complex smart contracts and applications on a blockchain network. After securing $18 million in a crowdfunding campaign, ethereum was launched in 2015.
While bitcoin has kept a singular mission — to become the world’s global currency — those at Ethereum believe there is a much wider range of applications for blockchain technology. One of the most important features of ethereum is the creation of decentralized applications, or dApps for short, which are the next evolution of applications. dApps operate on decentralized networks instead of centralized servers, reducing their downtime and chances of being hacked.
Remember the CryptoKitties craze? While it might have seemed like a fad at the time, the collectible digital cats showed just one, small use case for dApps on the ethereum blockchain. Currently, some of the most important dApps run on the ethereum blockchain, such as: aragon, auger, MakerDAO, and gnosis. As you may know, many of these dApps have tokens of their own. Still, the ethereum altcoin helps execute functions and smart contracts on the ethereum blockchain, powering these applications, and giving ethereum monetary value.
Our take: Ethereum is like bitcoin on steroids: there are an infinite number of ways programmers can design smart contracts and dApps on its network. And with the world-renowned Vitalik Buterin at the helm, ethereum will likely remain in the spotlight for years to come as one of the best altcoins in the industry. Ethereum is still about six-times smaller than bitcoin by market capitalization, which seems odd considering its potential. Using this comparison (though there are other metrics that can be used), ethereum would still be undervalued compared to its potential as a global, distributed computing network.
Often referred to as the “silver to bitcoin’s gold,” litecoin is a promising altcoin alternative to the market’s largest player. In 2011, computer programmer Charlie Lee saw ways that he could improve bitcoin. But instead of proposing changes to bitcoin itself, Lee created a hard fork of bitcoin — copying its code with changes to create a new blockchain — and, as a result, created a new, promising altcoin called litecoin.
On the surface, litecoin looks very similar to its predecessor: it seeks to become a global currency alternative to fiat, and uses a proof-of-work (PoW) consensus algorithm for securing its blockchain. Yet, litecoin increased its total supply to 84 million and uses a different algorithm to secure its blockchain called scrypt, which is faster than bitcoin’s sha-256 and requires less electricity from miners.
Using these methods, litecoin solves many of the current issues facing bitcoin. Litecoin’s scrypt algorithm is less resource intensive, and more democratic than bitcoin, while also allowing for much faster transaction times. For these reasons, litecoin is a cheaper and faster way to transact than bitcoin, making it more useful for everyday purchases, like a cup of coffee or movie tickets.
Our take: If bitcoin proves to be a valuable cryptocurrency, then litecoin will follow suit. Litecoin provides a solid altcoin alternative that makes it not only a safe play, but also a possible trade for those who want to hedge their exposure to bitcoin. Alternatively, if the bitcoin network is ever compromised, litecoin could immediately step in as the new global standard. Regardless, even if bitcoin remains the industry leader, litecoin will still have a place as one of the top altcoins for traders.
Most cryptocurrencies use a blockchain to fuel their transactions. IOTA is different. As one of the industry’s most promising altcoins, IOTA opts to forgo the traditional blockchain in lieu of a directed acyclic graph (DAG). Through this model, each transaction posts to the IOTA network once it approves two previous transactions. This links all transactions together in a web — which IOTA has aptly called Tangle — instead of placing transactions in blocks on a chain.
Proponents of IOTA point to the scalability of this structure as compared to the limits of a blockchain. Because there is no longer a need for blockchain miners, IOTA creates faster transaction times and theoretically infinite growth, something that no blockchain network can claim.
With such huge scalability potential, IOTA will position itself as a leader in the internet of things (IoT) ecosystem. With the IoT, billions of devices around the world — from smart cars to mobile phones and everything in between — will be connected with one another, creating a global network of devices. These connected devices need a way to store and transfer data to one another seamlessly. IOTA provides a network with the scalability and decentralization for IoT devices that no other distributed ledger can offer.
Our take: IOTA is redefining distributed ledger technology. Blockchains can be slow, expensive, and hard to scale. That’s why IOTA has created an even more efficient and streamlined distributed ledger, which, if operated at its maximum potential, could become the industry standard and render blockchains obsolete. Even further, out of all the promising altcoins on our list, IOTA might be the most undervalued. It currently sits as only the 24th largest cryptocurrency in the industry, making it smaller than publicly traded companies like travel site Trivago and specialty retailer Zumiez. This makes IOTA one of the top altcoins to buy for those looking to diversify away from the traditional altcoins on the market.
While bitcoin looks to overthrow the entire financial system, XRP is instead opting to revolutionize the system by innovating it from the inside. Unlike bitcoin, which attempts to be a currency in and of itself, the XRP token is used as a bridge to connect currencies together in transactions on RippleNet, a global payment network. With XRP, users are able to exchange one currency for another without going through a currency conversion process.
The applications of XRP are extensive. In theory, XRP has the potential as an altcoin to facilitate all cross-border transactions between currencies, both fiat and cryptocurrency. This could ultimately replace the currently outdated and expensive SWIFT network currently used by major financial institutions. With SWIFT, transactions take days to settle and require high settlement fees. XRP, on the other hand, can settle millions of transactions in seconds through its network, at a minimum transaction fee of less than $0.01.
The project has significant financial backing and support. Ripple, the company behind the XRP altcoin, has already secured close to $300 million in funding from major technology investors, like Andreessen Horowitz, Pantera Capital, and Google Ventures, among others.
Our take: In the year 2020, it still takes days to process cross-border financial transactions. XRP provides a better alternative to the current SWIFT network that is outdated, obsolete, and expensive. In a financial world that is increasingly dependent on cross-border transactions, XRP is a better solution than what is currently available, making it a valuable altcoin for the coming year and beyond.
Much like ethereum, tezos is a decentralized cloud-computing network. Yet, tezos has distinguished itself as one of the industry’s top altcoins, by offering alternative methods of network consensus and governance.
Tezos has three features that help it stand out from other altcoins:
- Proof-of-Stake (PoS) – Token holders stake their XTZ to the network to verify transactions as correct. Those who stake their XTZ earn rewards for their efforts.
- Formal Verification – Ensures each piece of code in a smart contract is written correctly. This ensures all smart contracts are secure, and reduces the likelihood of malicious attacks.
- On-chain governance – All stakeholders vote on proposed updates to the network. Unlike other cryptocurrencies, like bitcoin and ethereum, this ensures no forks of the network.
Tezos opted for an initial coin offering (ICO) to raise funds for its project. The project raised $232 million in its ICO, making it one of the biggest offerings at the time. Yet, the altcoin hasn’t always had a positive relationship with the public, and it has hit a few rough patches along its journey.
Following a successful ICO, it appeared investors might not ever see their tokens. The Tezos Foundation referred to the funds as “non-refundable donations,” which could result in many people losing their money. Eventually, a class-action lawsuit was filed, accusing the Tezos Foundation of violating securities laws. Additionally, there was infighting between the founders of the altcon — Arthur and Kathleen Breitman — and the head of the Tezos Foundation.
Luckily, the project appears to have come out from under the rubble unscathed and continues moving forward as one of the most promising altcoins on the market.
Our take: Yes, tezos has had its fair share of management issues. But, if you wade through the noise, what remains is a promising altcoin with solid backing and impressive technology. Tezos has developed better governance and blockchain consensus that makes its network more secure and stable for users. Because of its negative public perception, tezos has kept a relatively low valuation, which may make it more attractive for some to invest in this altcoin.
Everyone has their own opinion when it comes to the top altcoins on the market. Some people prefer to stick with global currencies, like bitcoin, while others see the importance of altcoins that have their own distinct uses, whether it be to power a decentralized computing network or storing and sending data. Whatever the case may be, there are arguments for the value and growth of many different altcoins in 2020.
Disagree with our list? Did we leave out your favorite altcoin? Think you know better? Give us your picks for the best altcoins in 2020 on Twitter.
eToro USA LLC; Virtual currencies are highly volatile. Your capital is at risk.