IMPORTANT: This post should not be taken as investment advice. The writer focuses on the best coins in terms of actual use and adoption—not from a financial or investment perspective.
During 2017, crypto markets set the new standard for easy profits. Just about every coin or token realized amazing returns. “A rising tide lifts all boats,” as they say, and late 2017 was a flood. Surging prices created a positive feedback loop, attracting ever more capital into crypto. Unfortunately but inevitably, this runaway market led to massive malinvestment. Money was thrown indiscriminately into all kinds of dubious projects, many of which won’t bear fruit.
In the current bearish environment, hype and greed are replaced by critical evaluation and caution. Particularly for those who’ve lost money, marketing promises, endless shilling, and charismatic spokespeople are no longer sufficient. Good, fundamental reasons for buying or holding a coin are once again paramount.
Fundamental Factors for Judging a Cryptocurrency
There are a few factors that tend to win out over hype and price pumps, at least over the long term:
While a cryptocurrency’s technology or an ICO’s business plan may seem amazing, without users, they’re just dead projects. It’s often forgotten that widespread acceptance is an essential property of money. In fact, it’s estimated that over 90% of Bitcoin’s value is a function of its number of users.
Whereas fiat acceptance is mandated by the state, the acceptance of crypto is purely voluntary. Many factors play into the decision to accept a coin, but perhaps the most important consideration is the probability that others will accept the coin.
Decentralization is critical to the trustless model of a true cryptocurrency. Without decentralization, one has something more akin to a Ponzi scheme than a true cryptocurrency. Trust in individuals or institutions is the problem—one cryptocurrency attempts to solve.
If a coin’s mining operation or some central controller can alter the transactional record, this calls into question its basic security. The same is true for coins with unproven code that hasn’t been thoroughly battle-tested over the years. The more the code can be relied upon to function as described, regardless of human influence, the higher a coin’s security.
Worthwhile coins strive to improve their technology but not at the expense of security. Real technological progress is rare because it demands a great deal of expertise—and also wisdom. While there are always cool ideas that can be bolted on, if doing so introduces vulnerabilities or detracts from a coin’s original purpose, it misses the point.
Innovation can be a hard factor to assess, particularly for nontechnical users. However, if a coin’s code has grown stagnant or isn’t receiving updates that address significant issues, it may be a sign that the developers are low on ideas or motivation.
A coin’s inherent economic incentives are easier for the average person to grasp. If a coin had a major pre-mine or an ICO (initial coin offering) team has held a significant share of tokens, then it’s fairly apparent that the primary motivation is profit. By buying what the team is offering, you’re playing their game and enriching them. Make sure they offer some tangible and reliable value in exchange.
5 Coins to Watch for in 2018
There’s never been a better time to re-evaluate and rebalance a crypto portfolio. Based on their solid fundamentals, here are five coins I feel are worth holding through or perhaps buying up at their current depressed prices (which, fair warning, could go lower).
#1. Bitcoin (because of its decentralization)
The number one spot belongs to Bitcoin (BTC), which remains the market leader across all categories. Bitcoin has the highest price, the widest adoption, the most security (due to Bitcoin mining’s phenomenal electrical consumption), the most recognizable brand identity (which forks have tried to appropriate), and the most active and rational development. It’s also the only coin so far that’s represented in traditional markets in the form Bitcoin futures trading on the American CME and CBOE.
Bitcoin remains the prime mover; the performances of all other coins are highly correlated with Bitcoin’s performance. My personal expectation is that the gulf between Bitcoin and most—if not all—other coins will widen.
Bitcoin has several promising innovations in the pipeline, soon to be incorporated as additional layers or soft forks. Examples include the Lightning Network (LN), MAST, Schnorr signatures, Mimblewimble, and more.
LN, in particular, is expected to open up a whole new range of applications for Bitcoin, as it allows for tremendous scaling, microtransactions, and instant, secure payments. LN is growing steadily as users test its various possibilities with real bitcoins. As it becomes more user-friendly, it can be expected to greatly benefit Bitcoin’s adoption.
#2. Litecoin (because of its persistence)
Litecoin (LTC) is a clone of Bitcoin with a different hashing algorithm. While Litecoin doesn’t feature any more anonymity technology than Bitcoin, surprising reports have revealed that Litecoin’s adoption on darknet marketplaces is now second only to Bitcoin. While a privacy-focused coin such as Monero would seem far more suitable for the role of buying illicit goods and services, perhaps this comes as a result of Litecoin’s longevity: it was launched in late 2011.
Another factor in Litecoin’s favor is that it integrated Bitcoin’s SegWit technology, meaning that Litecoin is prepared for LN. Litecoin may thus benefit from atomic cross-chain trading. In other words, the secure peer-to-peer trading of coins without any third party (i.e., exchange) involvement. As Litecoin keep its code largely synced to Bitcoin, it’s well-positioned to benefit from Bitcoin’s technological progress.
#3. Ethereum (because of smart contracts)
Ethereum (ETH) has a couple of big issues right now. First, governments are cracking down on ICOs, and with good reason: many have proven to be either fraudulent or failures. As most ICOs run on the Ethereum network as ERC-20 tokens, the ICO craze in the last few years has brought a lot of value into Ethereum. If sensible regulations are passed to protect investors from scammy projects, Ethereum may reclaim some legitimacy as a crowdfunding platform.
The second major issue facing Ethereum is its long-delayed switchover to a new hybrid Proof of Work/Stake system. Ethereum GPU-mining is currently profitable, but Bitmain just announced Ethereum ASIC miners, which will likely impact GPU miners’ bottom lines. It remains to be seen whether this will force the PoW change—and just how successful any such change will be.
If Ethereum can weather both these major issues—regulatory and mining—it will have demonstrated significant resilience. If not, there are multiple competing currencies stalking its shadow, such as Ethereum Classic (ETC), Cardano (ADA), and EOS.
#4. Monero (because of its anonymity)
Although its adoption on darknet markets isn’t all that could be hoped, Monero (XMR) remains the premier privacy coin. Its reputation and market capitalization are still beyond those of its rivals—and for good reason.
Monero’s code requires less trust than the Zcash’s “trusty” key ceremony, and it had a fair launch, unlike DASH. That Monero recently changed its PoW to defeat the development of an ASIC miner for its algorithm confirms the coin’s commitment to mining decentralization. A significant drop in its hash rate is being reported due to the new, ASIC-resistant version. This could well present an opportunity for GPU and even CPU miners to move back to Monero. The new version of Monero, 0.12, also contains other improvements, which demonstrate that Monero is continuing to develop along sensible lines.
#5. Vertcoin (the wild card)
Similar to Litecoin, Vertcoin (VTC) is a Bitcoin clone with a swapped-out hashing algorithm. The Vertcoin team has vowed to change the algorithm should ASIC mining be developed for it. The idea is that this will keep mining more decentralized by locking out big monopoly miners/producers. Vertcoin is a low-value coin without meaningful adoption. Like Litecoin, it has the potential to benefit greatly from the success of the Lightning Network.
In addition to testing atomic cross-chain swaps, Vertcoin’s team is developing a product called LITBox. This hardware device will allow users to automate Lightning Network operations. This could prove to be a big deal, as configuring a Lightning node currently requires a lot of technical know-how. If the device makes it to production and allows easy LN access, it could be a hot seller. LITbox will support Bitcoin, of course, but also Litecoin and Vertcoin by default, so it could do a lot for the adoption of those coins.
The Next Big Thing
I don’t have a specific recommendation for another coin. What I do have is the conviction that once Bitcoin starts rallying again, a lot of money will flood into “the next big thing.” So far, we’ve seen crazes in altcoins, smart contracts, ICOs, and forkcoins—all of which were based around a kernel of utility and a potential profit but were massively inflated by people hoping for a time machine back to the earliest days of Bitcoin investment.
Perhaps the next hype will form around government or company coins—coins backed by credible and legally-enforceable promises from real-world entities. Venezuela’s Petro seems to have failed, but should more powerful countries start releasing crypto assets, it could be a different story. Similarly, should a large and profitable company release a crypto asset that conveys shareholder rights or pays a dividend, it would be a game changer.
Keep an eye out for the development of whatever the next big thing proves to be. It might be worth a gamble, but my advice is to keep the majority of your portfolio in Bitcoin.