Alternative Cryptocurrencies to Bitcoin
The Cryptocurrency Wars
Ever since Bitcoin started to make it big as an alternative currency, a wide range of competitors have hit the market. Like Bitcoin, they are all 'cryptocurrencies'. They are also sometimes known as 'alt coins', which is a bit less of a mouthful.
What Is a Cryptocurrency?
A cryptocurrency is a distributed digital currency which is not controlled by a central authority (like a central bank) but instead is maintained and run through peer-to-peer transactions. The name 'cryptocurrency' comes from the fact that users run software which generates cryptographic keys to enable them to securely store, send, and receive currency.
Bitcoin has rocketed in value over the last year or so, and it is starting to become a popular method for people to pay for things online or send money to friends and family around the world. But Bitcoin is not the only game in town, and its success has inspired a wide range of new start-ups who hope that they can offer something new and different enough to muscle in on this brand new market.
The Risks (and Excitement) of Investing in Alt Coins
From an investment perspective, all cryptocurrencies are risky investments, but they may have the potential to pay off massively. There are not many markets where there is a possibility for a small investment to appreciate by hundreds or even thousands of percent over a short period of time, and that makes this an exciting proposition for investors.
The fact that Bitcoin has already gained so much value means that many investors are now wary that it is already overpriced (over $1000 for 1Btc!) and has little room for continued growth. This makes looking towards innovative alternatives even more appealing.
But of course there is also a very good chance that most of these new alt coins will flounder and won't be around at all in a few years time. Whilst the marketplace is full of new pretenders at the moment, it is likely that the next year or two will see a substantial consolidation, with many alt coins failing and those that succeed rising in price. Picking the winners is going to be tough, but I for one think that it could be very rewarding.
I do not recommend anyone to invest a large sum of money in cryptocurrencies, whether it be Bitcoin itself or any of the alternatives. But a small speculative play with money you can afford to lose has the possibility of making substantial returns—which I think makes it well worth a punt.
How to Pick the Most Promising Alt Coins for Investment
Many of the new cryptocurrency projects are little more than a pyramid scheme. The way that these currencies usually work is that they can be 'mined' by anyone with a computer, basically exchanging your computing power for money. In the early days of Btc, this could be done on a home computer or the kind of dedicated machine that a geek could build in his bedroom. Today, that is now longer profitable, as the difficulty has increased and the 'mining' business now requires a substantial investment in equipment and professional IT skills.
Because of this, many alternatives are setting out to appeal to these home-based miners; this has allowed them to build an initial user base and gain enough initial value to be traded on exchanges, but as the difficulty of mining rises (as it must, because of the limited number which can be mined) people will jump ship and they will be left with nothing—so I do not think these alt coins have any long-term value.
My Criteria for Identifying the Best Options
In identifying the best alt coins for investment in 2014, I look for projects which bring something new to the table:
- They have to offer long-term value to regular users as well as to miners.
- They have to have a unique selling point which differentiates them from Bitcoin and from the rest of the competition.
- Ideally, they should also target a particular niche within which to build an sizable and loyal 'early adopter' user base who are interested in more than just mining and then dumping the currency.
- I have also looked for alt coins which are currently cheap to buy, which helps to maximise the potential profits and minimize risks of depreciation.
My Top Picks
- Ripple and XRP
- Anonymous Transactions
- Anonymous Uncensorable Internet
- Decentralized Asset Exchanges
1. Ripple and XRP
Ripple is actually much more than just an alt coin - it is positioning itself as an international payment system and currency exchange platform. This system uses a cryptocurrency with the ticker symbol XRP.
Unlike Bitcoin, Ripple transactions are instant, and completely free from any fees.
The company behind Ripple is one of the most professional and well funded company involved in the alt coin business. They are also targeting one of the most exciting and profitably niches for digital currency - trading and currency exchange.
One of the most exciting aspects of Ripple is that owning XRP would make you part of a peer to peer banking, trading and currency exchange system. The idea is that rather than exchanging USD to GBP, for example, you would buy XRP with your USD and then sell your XRP for GBP. This would allow traders, or the general public, to trade and exchange currencies with much lower fees than they would usually incur, and with exchange rates set more directly by the market itself rather than through the profit-taking intermediaries of the traditional banking sector. Exchanges, called gateways, are able to issue IOUs into the system, which can then be traded and exchanged for IOUs from other gateways by Ripple users.
Ordinary users can also choose to provide liquidity to the system, by allowing funds to flow through their account via people who they 'trust'. There is even the potential to make money from the balances you hold in any currency in your Ripple wallet by charging transaction fees for this service.
Although Ripple does not use mining for currency creation, there is currently an initiative which gives you free XRP if you donate your computing power to science (you can even choose which scientific projects to support), which I think is really nice.
2. Anonymous Transactions
Bitcoin gained much of its early popularity amongst the hacker community, and with people who liked the idea of making anonymous currency transactions without banks and big business being able to track everything you do.
Bitcoin is not completely anonymous, however.You can create a wallet anonymously, or at least as anonymously as you can do anything on the internet, but once you do all of your transactions are completely open and public.
Various new coins have been developed to appeal to this privacy-centric market by creating a truly anonymous currency. Some of the most popular and promising examples of this include:
The developers behind these privacy centric-coins believe that Bitcoin's public transaction records leave a big market opportunity open for them to create an alt coin which specifically appeals to the hacker ethic and privacy conscious consumers by being fully anonymous.
Tapping into a large, motivated and technologically savvy user-base of earl-adopters could provide massive growth for Anoncoin. Its never going to be as big as Bitcoin or appeal to the general public, but it is targeting a good niche which is big enough to generate substantial growth.
3. Anonymous Uncensorable Internet
Some alt coin developers want to go much further than simply creating a currency which cannot be controlled or manipulated by government, and which can be used anonymously.
There are projects out there trying to use an alt coin to power an anonymous, decentralized and uncensorable internet.
I believe the first project to start using block chain technology for providing internet functions was Namecoin, which uses its block chain for decentralized DNS - which in layman's terms means that you can use it to create website addresses and store their location for other people to visit. These website would be uncensorable - a government could not order them to be blocked in the way they normally do this because their location would be stored in the distributed ledger held on many, many different machines.
A newer and more ambitious project is called Safecoin. The idea behind Safecoin is to create an entirely new web structure - not just decentralized website addresses, but decentralized storage and web hosting as well, all secure with state-of-the-art cryptography so as to be completely anonymous. In this way Safecoin and its SAFE network would not just be providing an alternative to Bitcoin, but also to dark web projects such as TOR. Instead of mining Safecoin, users could 'farm' it by providing storage space, bandwidth and processing power from their computer to the network.
The use of coins like this to provide services offers an extra support to the price and an extra driver of growth, as well as giving casual users something to do with their coins.
4. Decentralized Asset Exchanges
Another category of so-called 'Bitcoin 2.0' project - alt coins which provide function beyond just being a currency to store value and to buy things - are the decentralized asset exchanges.
These projects include an alt coin, but go far beyond this to provide function which allow people to trade and store a wide range of assets. Ripple comes under this category, but there are now quite a few others as well. These include:
- And Coming Soon - Ethereum
Buying Bitshares gives you a stake in a professional and well funded team of developers who are dedicated to creating the next big cryptocurrency. They have already released one alt coin which has gained a moderate amount of success - Memory coin; and they have more planned for the future. Anyone owning Protoshares will automatically receive a founding stake in any new projects, and protoshares themselves can also be traded or held as an investment.
Which Do You Currently Own?
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.