What is an altcoin?
Due in part to bitcoin’s rising success, a number of “altcoins” have gained significant traction – and some of them are downright bargains… if you believe they’re worth anything at all. While clearly the “500 lb. Gorilla” of the crypto-space, bitcoin is not the only cryptocurrency on the block. No matter how little money you have to invest, understand that digital currency can be divided into tiny fractions (0.00000001 BTC is the smallest denomination). So, if you feel like you “missed the boat” on Bitcoin (which I feel is not the case), here are some alternative digital currencies (altcoin) you might want to consider buying and holding. Will they skyrocket in value over the next year or years – as bitcoin has done – and make early adopters exceptionally rich? That’s something no one can answer, and therein lies the risk and the excitement. So let’s get down to business and examine the purpose and potential of the top “altcoins” (listed in no particular order) that might be considered a bargain!
ALTCOIN #1 – LITECOIN (LTC):
If Bitcoin is gold, Litecoin is silver, says just about everyone. Trading at about $48 at the time of this writing, Litecoin has seen a boost recently, and has risen significantly since 2012, when a single Litecoin cost just $0.50. Litecoin is based on the Bitcoin protocol, but unlike Bitcoin, Litecoin is designed to make mining relatively cheap and easy, and is capable of handling higher transaction volume than big brother, Bitcoin. Litecoin was originally conceived and developed by Charlie Lee, who was the Director of Engineering at Coinbase until very recently when he resigned that position to focus full-time development efforts on Litecoin. Here are five reasons why Litecoin may see a bullish trend in 2017.
- Recent crack down on major crypto exchanges by the People’s Bank of China – they stopped all margin trading and have eliminated the zero-fees model. This means traders can no longer short by selling coins they don’t have – if they want to be a participant in the crypto markets, they need to actually own some coins.
- Big brother Bitcoin bull trend is still intact, and although might see corrections due to the scaling issue coming to a head this summer, generally speaking – once bitcoin price stabilizes, liquidity usually shifts into the altcoin markets. Acquiring Litecoin at the bottom of its price range is cheaper than buying Bitcoin at the top of its range.
- SegWit (Segregated Witness), the long-debated change originally intended to improve bitcoin, was successfully implemented May 10th on Litecoin. What does that mean? Litecoin users can now begin using the new style of transaction, in addition to the Lightning Network – which could boost Litecoin transactions by as much as a million times – thus hypothetically be used to move real money.
- Litecoin is currently the second most secure blockchain in the world, and it doesn’t seem like the market value is yet to reflect this achievement. The Litecoin network’s hash rate is starting to show exponential growth. Sometimes a coin’s price can be correlated to the amount of hashing power on the network. The increased difficulty means that miners need to spend money in upgrading their equipment to be more efficient. If the cost of mining coins is on par or greater than the price, miners will hoard coins instead of immediately selling on the markets.
- As recently as March 13, the Litecoin price was only $3.85. Since that time it has grown more than 1,200%, and reached a high of $55 before settling down to its present value. On July 5, Litecoin’s 24-hour trading volume surpassed the $1 billion mark for the first time, briefly giving it a higher volume than both bitcoin and ethereum.
ALTCOIN #2/#3 – DASH and MONERO:
Dash, a combination of the words “digital” and “cash,” is intended to be the Internet’s cash-in-hand. Dash is an open source peer-to-peer cryptocurrency that offers all the same features as Bitcoin but also has advanced capabilities, including instant transactions (InstantSend), private transactions (PrivateSend), and decentralized governance (DGBB). Its core purpose is to act as a kind of electronic cash, providing a level of anonymity hitherto unheard of among cryptocurrencies. Dash is not yet widely accepted by retailers, but a fair selection of independent businesses accept it. Its value per coin is also one of the highest on the market.
Last month, the Dash price increased 15%, enabling the anonymity-centric altcoin to cross the $200 threshold. On July 6, the Dash price rose to an all-time high of $225. It reversed course a little bit, declining before again rising to its present $201 value. While Dash does have “instant transactions,” there are lots of currencies that send much faster than Dash does. Concerning the “anonymity,” there are also other currencies like Monero (send and receive funds without your transactions being publicly visible on the Blockchain), that are being taken as the top choice to transact illegally online. The biggest risk of Monero, like anything that is adapted too much for illegal use, is that it could be targeted by governments. Some big marketplace could be taken down, or the currency itself could be taken down by government.
ALTCOIN #4 – ETHEREUM (ETH)
Ethereum is not just a currency – it’s also a Blockchain platform powered by the Ether cryptocurrency. The Ethereum technology is described as “a single shared computer that is run by the network of users and on which resources are parceled out and paid for by Ether.” The main purpose is to program binding agreements into the Blockchain itself – referred to as the “smart contract” feature. Recently, Ethereum (ETH) went up to $400 before declining and settling around $242. There is a lot more ETH than there is BTC – but Bitcoin has some features that are not palatable for banks and some businesses. For them, Ethereum (and Ripple) might be a better fit. Isn’t it possible that semi-private blockchain projects like Ethereum and Ripple are like intranets — a better way to communicate within a semi-trusted environment — something that can be complimentary to the public Bitcoin blockchain? No way of knowing of course, but J.P Morgan Chase, Microsoft and Intel allied in order to create the fiercest rival to Bitcoin in circulation today with this emerging technology. Some predict that within 10 years, ETH has a good chance to be one of the top currencies, worth in the neighborhood of $1,000 – making today’s current $242 a bargain indeed.
ALTCOIN #5 – RIPPLE (XRP)
Ripple is unique in that it allows for transacting with any unit of value, from fiat currency to frequent reward flier miles – it is not based on the Bitcoin protocol. It’s also the most unique of the major cryptocurrencies because it’s far more than just a currency. First, you have the currency part, called Ripples – those are kind of like Bitcoins or anything else on the altcoin list. The second part is a payment network, through which trusted contacts connect in order to send and receive Ripple payments. Finally, Ripple is its own distributed exchange – meaning offers to buy and sell Ripples are included in the public blockchain alongside key data, like transaction histories and digital wallet balances. This exchange system, and other unique factors, give Ripple the ability to act as an exchange for all types of currencies, from Ripples to Bitcoins to U.S. dollars. Thus the reason it has backing from a range of major venture capitalist firms, including Andreessen Horowitz, Google Ventures, Lightspeed Ventures, and more.
The reality is that banks move slowly – and certainly do not tend to make major changes quickly. So, it’s likely banks are going to need much more time before they switch over to using anything like Ripple on a regular basis. When they do – and more and more banks are taking a hard look at blockchain technology – Ripple might have a good shot to be number two or even number one. There are some sources saying regulators are pushing for big banks to adopt Ripple behind-the-scenes. This is incredibly significant because it means Ripple is making inroads with those in power and positioning itself to replace SWIFT. SWIFT, the network that today facilitates money transfers between 11,000 financial institutions in every country on Earth – needs days to complete a transaction. Ripple does it in about 5 to 10 seconds – and that’s how long banks will be exposed to XRP price volatility. To remove that risk, they will simply use a “liquidity provider” (volatility lessening service) to assume the risk of market swings while XRP tokens (Ripples) are in transit. Sometimes the liquidity provider will gain, sometimes they won’t – but they’ll make money while serving to reduce the bank’s exposure.
It all depends on whether banks actually change what they use now to start using Ripple instead, which would take the price of Ripple to a much higher market cap than it is today. The current price of XRP is $0.222 – so buying and holding it to see how things rock out in the future could be one of the best things you’ll ever do. If it just never takes off at all – the loss is not a great one.
Ripple seems to be keeping a lower profile in the crypto-space than other altcoins. It’s making moves without big announcements, so as not to “upset the applecarts” and make friends vs. enemies within the established banking world. One cannot argue that the fastest way to get money from one country to another right now is by literally boarding a plan with a case full of cash and flying it to the intended destination. Ripple is making progress by educating and working with regulators to figure out the requirements needed to make a change. It is an enterprise solution cryptocurrency designed for banks from day one, to act as a neutral party with which all banks might work vs. another big bank that creates its own crypto coin. Every bank would want their own coin, and wouldn’t want to use the coin of another bank, right? So, a stalemate situation wherein only their own bank branches would use a coin or token would result – and thus there would be no value to any bank coins. Ripple is gaining traction by striving to become that “neutral party” so settlement assets (XRP) are valuable because they are widely accepted across all organizations.
If this is a bit confusing – take a look at this video I found that explains it pretty well!
What about us little guys? All we have to do is bet on whether Ripple is successful in convincing the banking world that its solution is a “race car” compared to the SWIFT “horse-and-buggy.” That doesn’t seem like much of a stretch to me, given the news coverage emerging lately. One of the reasons I like Ripple is because it seems to have targeted a “real use case” while other altcoins have vague-use in mind, but yes – it will take time. Since there is a limited number of XRP available, and more won’t be created, the price of each single XRP could conceivably go up to a level where those who own them, (mainly the founders of Ripple Labs and some investors), become rather rich. Currently, I can snap up XRP for 22¢.
Some background: XRP is a pre-mined crypto token. That means that all of the existing tokens are in someone’s hands, and more won’t be created in the future. XRP is required for the current implementation of Ripple to work. That means to give someone credit on Ripple, or to pay transfer fees, you need to have XRP on your account. So the more adoption Ripple gets, the more sought after XRP will become, and thus its price will rise.
Of course, if the Ripple network is never adopted, having XRP would be like having postage stamps for a postal network that no longer delivers packages. You have got to look at the potential downside as well as the upside!
It’s pretty clear that Bitcoin has “lapped the field” with an ecosystem and resources to compete with significant advantages over “altcoins” – but does that make altcoin investment a bad choice? While I personally don’t think it does, every individual has to evaluate their own risk vs. reward ratios to decide if buying altcoins is a fit for their own investment goals. For example, if I invest $500 today to buy and sit on 2,272 Ripple – and within 2 to 4 years it gains enough traction to increase to even $2 – the gain would be approximately $4,000. Doubtful I’ll see that kind of return on the $500 putting it in the very bank that might actually adopt Ripple technology.
The many large organizations throwing money at development of Ripple and Ethereum technology could attract more quality developers. In my mind, Bitcoin isn’t that suitable for enterprise use because it was designed to exist despite government. Because Ripple’s objective is to work in harmony with government regulators, I think it could be very successful. XRP might just have the ability to appease the banking world, process much greater volume (over 1,000 transactions per second), and address the fear of volatility. Consider this: the global foreign exchange market does $5.7 trillion per day in fiat transactions. XRP in the scope of its market potential is not even 100th of what it can become. And banks are starting to recognize the blockchain technology, talk about it publicly, and surely wonder how to harness it to their benefit. From my point of view, things could accelerate exponentially.
Big money seems to be betting that Ripple will power bank-to-bank and bank-to-consumer international money transfers in the future. Do you think Ripple can deliver on its promise of reducing an international wire from 4 days to 4 seconds? Again – nobody knows, therein lies the risk and potential reward. Meanwhile, I can snap up XRP for 22¢.
By the same token, I do not feel that most altcoins are a great hedge against Bitcoin, as the altcoins have much the same risks – with the added risk that potential rewards could be consumable by Bitcoin at some point. In order for an altcoin to take over Bitcoin, it would have to prove far more utility (now, rather than later) and grow to become competitive with Bitcoin before Bitcoin does the same thing by adding the same feature the altcoin has, right? That’s a tall order when added to the fact that Bitcoin is way ahead of the game having achieved significant stability and entrepreneurship.
WHERE CAN YOU BUY ALTCOINS?
A number of exchanges, actually – my preference is either Bitstamp.net (for XRP) or Bittrex.com (for almost anything). You’ll need to buy enough Bitcoin to purchase altcoins on most exchanges. Keep in mind, you can buy fractions of a bitcoin – so don’t think you have to come up with $2,500+ for BTC to get involved.