Bitcoin has been center stage in recent weeks due to its soaring value. Investors who think more than $19,000 per bitcoin is too steep today may kick themselves for not getting in when the cryptocurrency traded around $7,000 about a month ago, $2,000 last spring, or less than $1,000 this time last year.
Of course, you don’t have to buy a whole bitcoin. The numerous exchanges that trade bitcoin for dollars, yen, euro or other currency are happy to buy or sell tiny slivers — a 10th of a coin, or a 100th, or less.
But there’s an alternative that might appeal to investors who think the skyrocketing price makes bitcoin more likely to fall than rise: buy another cryptocurrency like ethereum, ripple, litecoin, IOTA or dash.
The website Coinmarketcap.com lists 920 “altcoins.”
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“The cryptocurrency space has an amazingly bright future,” says Paul Snow, co-founder of the Texas Bitcoin Association, a trade group. “There isn’t one kind of car, one kind of currency, one kind of house, one kind of crop. Different blockchains and currencies have different target uses, and they are likely to prosper in their different applications.”
For now, though, bitcoin is king.
“It’s hard to envision any alternative cryptocurrency dethroning bitcoin in the near future,” says Eric M. Jackson, CEO and co-founder of CapLinked, a data-sharing service for businesses. “However, bitcoin does face a number of scaling issues that will need to be resolved for its longer-term viability — specifically, transaction processing costs, speed, and energy requirements will need to be addressed.”
Many bitcoin alternatives are designed to tackle those problems, but experts recommend choosing with caution, as features vary and the fever for digital currency could break entirely, dashing bitcoin and all the wannabes, too.
What bitcoin and its competitors share is an existence in the ether, as a digital code rather than metal coins or paper bills. Beneath these currencies lies a technology known as blockchain that keeps a record of all transactions without an authority like a central bank. Advocates say cryptocurrency is thus free of meddling that changes the amount of currency in circulation, like when the U.S. Federal Reserve adjusts supply to spur economic growth or curb inflation. Free of such interference, digital currency can rise and fall with supply and demand in a worldwide marketplace. Blockchain serves users who don’t necessarily trust one another.
For any alternative coin to have lasting value as a true currency, it must go into widespread use, says Chris Ahmad, CEO of Dragon Corp., a firm developing altcoin for the gaming industry.
Bitcoin has value because it is useful as a form of money, Ahmad says.
“Bitcoin has the characteristics of money — durability, portability, fungibility, scarcity, divisibility, and reconcilability — based on the properties of mathematics rather than relying on physical properties like gold and silver or trust in central authorities like fiat currencies,” he says. “With these attributes, all that is required for a form of money to hold value is trust and adoption. In the case of bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, bitcoin’s value comes only and directly from people willing to accept them as payment.”
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But as currency for buying goods and services, bitcoin has a long way to go, and the contenders even further. For now, bitcoin is primarily a speculative asset. People buy it because they think others will someday pay more, a process known as the greater fool theory when prices zoom.
So cryptocurrency values depend largely on forces of supply and demand, and among the issues is whether supply is really as limited as true believers say.
The founding program limits the number of bitcoin that can be created, or “mined” to 21 million, for example. But there’s no limit to how small the fractions of a coin can be. While a 1,000th of a TV set would likely be worthless, 1,000th of a bitcoin is now worth more than the first bitcoin ever mined. If the supply of bitcoin fractions is unlimited, how will that affect the supply-and-demand equation that seems to be boosting the price gain?
Even if bitcoin survives and becomes more useful over the long term, current prices may signal a bubble. The system could someday be hacked, though the fact that it has not been so far despite the enormous financial incentive to do so suggests it’s pretty secure. And it could be dethroned by a usurper or cut down to size by onerous governmental regulation. This has already happened in China.
So here’s a rundown on some of the biggest bitcoin alternatives, ranked by market capitalization, the value of currency in circulation:
Ethereum. Running a distant second with a market capitalization of $68 billion versus bitcoin’s $281 billion, ethereum is traded by many of the exchanges that handle bitcoin. The currency is just part of a broader ethereum goal of creating “smart contracts” held on an array of “nodes” rather than a central server, speeding deal making and providing better security than the old-fashioned internet.
Ripple. With market cap around $29 billion, this is a system used mainly by financial institutions to send and receive currency in a decentralized way. It is claimed to be more secure than bitcoin and to offer great liquidity, which means buyers and sellers can trade as much as they want when they want.
Litecoin. With market cap of $14 billion, litecoin is a bitcoin offshoot, similar in most respects but said to allow transactions to be completed about four times faster than bitcoin. Advocates say this will become especially valuable if the bitcoin exchanges bog down under huge volume.
IOTA. Run by the nonprofit IOTA Foundation, this altcoin has a market cap $10.5 billion. This is another approach claiming an improvement on bitcoin’s blockchain system. IOTA founders say it is faster and can handle bigger transactions without problems.
Dash. This altcoin, with a $6.7 billion market cap, is meant to be more user-friendly than bitcoin, making it easier for ordinary people to send currency to one another almost instantaneously.
Below dash are the also-rans, with market caps that are miniscule by comparison. For investors, a chief concern would be whether there are enough buyers and sellers to allow one to complete a trade when desired.
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Also, many of the little currencies may have been created by people just trying to jump on the cryptocurrency bandwagon while not really offering anything different or better. If that sounds familiar, think back to the dot-com frenzy of the late ’90s.
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5 Great Alternatives to Bitcoin originally appeared on usnews.com
