It’s telling that one of the most popular colloquial terms for a cryptocurrency is “altcoin”, a portmanteau of “alternative” and “bitcoin”. Bitcoin, the original cryptocurrency, has become so ubiquitous that it is the definition of its own category. But the future of Bitcoin is currently in question and, because of this uncertainty, many traders are switching to other cryptocurrencies.
On March 10, Bitcoin hit an all-time high trading value of $1,325 as investors banked on a US proposal for a bitcoin-backed exchange-traded fund (ETF). However, the proposal was rejected by US authorities, which happened to coincide with a crackdown on bitcoin exchanges by Chinese regulators. Together, these two events caused Bitcoin’s value to drop by over $300.
The root of the problem putting the future of Bitcoin in question is scaling: Bitcoin is becoming too popular for its own infrastructure. The number of Bitcoin transactions that can take place at any given time is limited, which is causing a backlog of transactions in queue for processing, slowing down the whole system. This is because of the limited computing power of the blockchain, a distributed database that records all transactions and serves as a public ledger. In some cases, the backlog becomes so great that some Bitcoin transactions are not confirmed for hours or even days, and in some cases, the bitcoins being sent never reach their intended destination.
The Rise of Cryptocurrencies
Blockchains, invented in 2009 by the anonymous developer of Bitcoin, would prove to be a core technology of all cryptocurrencies. Blockchains are the key software that allows digital currencies to break the double spending problem by timestamping transactions into a public ledger on a peer-to-peer network. Without this solution, double spending represented a flaw in which the same digital token can be spent twice, rendering it useless as a currency. This technology allowed bitcoin and other digital currencies to be decentralized.
Cryptocurrencies are a subset of digital currencies, distinct in that they are decentralized: they are not tied to any real-world assets, not backed by any government or central bank, and no one is required to accept them as valid forms of payment or exchange them for any real-world currencies. Nonetheless, Bitcoin became so successful that it is now accepted by major companies such as Microsoft and Dell. You can even use Bitcoin at some brick-and-mortar stores and coffee shops around the world. In fact, there’s a coffee shop in Prague that only accepts payment by Bitcoin!
Naturally, Bitcoin’s success inspired imitation. Many copycat coins failed, but those that refined and built upon Bitcoin’s model attracted investors looking to capitalize on the technological innovation promised by these new altcoins. While some digital currencies like Litecoin and Dogecoin may have already hit their high water mark, there are still lots of intriguing cryptocurrencies that have something new to offer.
Here are the up-and-coming Bitcoin alternatives to keep an eye on in 2017.
Today’s Top Altcoins
Ether (founded 2015)
Shortly after Bitcoin’s crash in mid-March, Ether, the cryptocurrency that powers the Ethereum network, reached an all-time high trading value, surpassing $55 on March 16. Ethereum is an interesting case, as 2016 saw its value rise and fall erratically due to the same scaling problem Bitcoin is currently facing. To solve it, Ethereum split their blockchain into two parallel streams, a solution bitcoin has sought to avoid.
Known as Ethereum and Etherium Classic, these two cryptocurrencies both trade in Ethers, but they can have two different values depending on which stream they belong to, which can rise and fall independently of each other. Microsoft, the Royal Bank of Scotland, and J.P. Morgan Chase are all investing in proprietary software built on top of the Ethereum blockchain, lending credence to Ether’s reputation as a preferred network for digital software applications.
Zcash (founded 2016)
Zcash is one of the highest-valued cryprocurrencies today, currently trading around the $65 mark. The success of Zcash in what is now a very competitive landscape is due to its revolutionary, totally anonymous blockchain. The public ledger reveals no information about the parties involved or the amounts transacted; no other cryptocurrency provides complete privacy and anonymity.
Dash (founded 2014)
The third most valuable cryptocurrency by market capitalization behind Bitcoin and Ethereum, Dash hit an all-time high of $108.32 on March 20. This is a huge leap in value from its 2016 peak of $14.42.
After two different name changes, it appears Dash has finally taken off, driven by its proprietary InstantSend technology that allows transactions to be verified without the longer confirmation times of Bitcoin and other altcoins.
Monero (founded 2014)
From the beginning, Monero set itself apart from other cryptocurrencies in a way that is proving very important: scalability. Unlike Bitcoin and most altcoins, Monero has no hard-coded limit on its block size, meaning that it will never face the slowdowns that provoked Ether to split its blockchain and that are causing Bitcoin’s current existential crisis.
This scalability is key because the popularity of cryptocurrencies has now reached epic proportions. Bitcoin’s inability to handle its own popularity has led one of its key developers, Mike Hearn, to state that bitcoin is a failure as more altcoins rush in to take its place.
Nothing is certain in this crowded, complex market, and cryptocurrencies should still be seen as experimental and high risk in terms of an investment, but their potential power within the digital economy cannot be understated. More and more people are investing their real-world money in Bitcoin and altcoins, while businesses of all sizes have begun to accept cryptocurrencies in exchange for goods and services both online and in-store. If you’re curious about digital currency, now might be the time to start trading, and it’s still possible to find coins that have not reached their full potential yet and still have room to rise in value.
We’ve only skimmed the surface of the history, complexity, and capability of cryprocurrencies, but this is a subject we at Payza will be following closely in 2017. Subscribe to the Payza Blog to get email notifications about more in-depth articles about this and other FinTech disruptors, and follow us on Twitter and Facebook for even more e-commerce news from around the web.