3 cryptocurrencies with clear competitive advantages
In 12 days, the curtain will close on 2021 and cryptocurrency investors will likely uncork the champagne after another record year. Amid volatile trading, the overall value of digital currencies rose 185% year-to-date, through the late evening of December 16.
Without a doubt, the “Big Two” – Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) – have played an important role in increasing the total market value of cryptocurrencies. This dynamic duo accounts for 62% of the crypto market’s $ 2.2 trillion value.
However, 2021 was also a year when cryptocurrencies with clear competitive advantages shone. When I say ‘competitive advantages’ I am referring to blockchain projects that demonstrate a competitive advantage over the more than 15,700 other cryptocurrencies listed. Differentiation is absolutely imperative for digital currencies to stand out in an increasingly crowded space.
The crypto space is full of suitors
Unfortunately, there are also a lot of suitors. Two good examples being the ultra-popular dog-themed pieces, Shiba inu (CRYPTO: SHIB) and Dogecoin (CRYPTO: DOGE).
Shiba Inu and Dogecoin are two of the most sought-after digital currencies in the United States, and they arguably generate the most buzz on social media. That’s because both of these coins produced life-changing returns, with SHIB tokens rising over 45,000,000% this year and Dogecoin higher by a more âmodestâ 3,400%.
It also didn’t hurt that the two payment coins landed in major merchants in 2021. Movie theater chain AMC Entertainment and online retailer Egg trade are considering accepting SHIB, while the electric vehicle manufacturer Tesla Motors will accept DOGE for some goods.
Unfortunately, the ability to generate buzz on social media and “grow the community” as crypto enthusiasts like to say, has no bearing on the usefulness or future of a project in the world. real. Neither Shiba Inu nor Dogecoin offer anything that looks like competitive advantage or true differentiation.
Shiba Inu is nothing more than an ERC-20 token built on the Ethereum blockchain. It is subject to the same high transaction fees and processing times that can plague the ultra-popular network at times. Meanwhile, Dogecoin’s transaction fees are significantly higher than a number of other popular payment coins, and its network is not capable of handling as many transactions per second.
Shiba Inu and Dogecoin are what appear to be fleeting investment opportunities in the crypto space.
These digital currencies offer real competitive advantages
By way of comparison, a small handful of blockchain projects stand out as offering real competitive advantages, and therefore real sustainability over the long term. Here are three perfect examples.
The first digital currency that offers clear advantages over the vast majority of the crypto landscape is the contract-based smart blockchain network. avalanche (CRYPTO: AVAX). Smart contracts help to verify, facilitate and enforce contract negotiation between two parties.
Avalanche is distinguished by the scalability, speed and compatibility of its blockchain network.
In terms of scale, the Avalanche development team notes that the network is capable of handling over 4,500 transactions per second (TPS). To put this number into perspective, the payment processor Visa claims to handle up to 24,000 TPS. Comparatively, Bitcoin (before its Taproot upgrade) and Ethereum are only able to handle 7 TPS and 13 TPS, respectively.
Avalanche is also fast, with a bouldering finish of less than two seconds. It’s a fancy way of saying that transactions are completed (i.e. validated as true and settled) in less than two seconds. This compares to Ethereum, which takes about six minutes for block finality, and Bitcoin, which has a block finality of about 60 minutes.
But perhaps the most exciting aspect of Avalanche is that the Ethereum VM is already running on its blockchain. Instead of decentralized application (dApp) developers facing high transaction fees and network congestion with Ethereum, they can move their projects to Avalanche and benefit from lower costs and improved network efficiency. This is what a competitive advantage looks like.
A small number of payment network oriented coins also offer clear competitive advantages. One such example is the token under the radar Nano (CRYPTO: NANO).
The three things that set Nano apart from most financial networks are scalability, speed, and cost.
The first thing potential investors will notice about Nano is that it is not a traditional blockchain network. Instead, it’s called a block-network blockchain. With the block-lattice, each user has their own blockchain to which they are free to add. Not having to compete with other users or gain approval from anyone other than the sender and recipient of the payment allows the network to scale quickly without compromising its efficiency.
Nano is also a super-fast network. According to its development team, it can complete transactions in less than a second. Considering that it takes up to a week to validate and settle transactions with cross-border payment with the existing payment infrastructure, Nano is able to make financial payments in less than a second is amazing.
The third differentiator for Nano is its cost … or should I say its lack. Nano’s consensus mechanism, known as open representative voting, ensures that transactions are free on the network.
A third cryptocurrency that offers clear competitive advantages is Algorand (CRYPTO: ALGO).
As with the other digital currencies above, Algorand’s network stands out in three identifiable ways from the growing sea of ââblockchain projects.
For starters, Algorand’s blockchain consensus mechanism is unique and a real improvement over traditional proof of stake. Algorand uses what he calls pure proof of stake, or PPoS. With PPoS, small groups of ALGO holders are chosen at random and in secret to come up with blocks and vote on proposals. The advantage of PPoS is that it virtually eliminates the likelihood that a small number of actors will sabotage or disrupt the network.
A second advantage of the Algorand network is its speed. The developers update the key network performance figures on the project website somewhat regularly. As of December 16, Algorand was capable of 1,162 TPS, but more importantly, he had a block finality of just 4.36 seconds. This removes the deadlines for settling existing financial payments.
And third, Algorand is a leader in enterprise blockchain interoperability. With so many unique blockchain projects under development, many may not work well, or at all, with each other. Algorand based his network on trying to fill these gaps for the business world. This makes Algorand a good bet to offer real utility.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.