Bitcoin Alternatives – What’s the Best Cryptocurrency?
Last updated: 7/26/19
With thousands of cryptocurrencies around, it’s hard to separate the chaff from the wheat. In this post, I’ll cover the best cryptocurrencies around (that aren’t Bitcoin), and also show you how I evaluate different coins.
Bitcoin Alternatives Summary
There are four main factors to take into account when evaluating a cryptocurrency – Adoption, security, innovation, and incentives. In my opinion, the most promising cryptocurrencies around today, aside from Bitcoin, are:
Those are the main Bitcoin alternatives in a nutshell. For a more detailed review keep on reading, here’s what I’ll cover:
- How to Evaluate a Cryptocurrency
- Best Bitcoin Alternatives
- Frequently Asked Questions
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.
There’s no doubt that the number one cryptocurrency today is Bitcoin.
Bitcoin has the highest price, the widest adoption, the most security (thanks to extensive Bitcoin mining), the most recognizable brand identity (just take a look at how many businesses accept Bitcoin) and the most active development.
It’s also the only coin so far that’s represented in traditional markets, in the form of Bitcoin futures trading on the American Chicago Mercantile Exchange.
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 other coins (if not all) will widen.
However, if you’re looking for an alternative payment method or a cryptocurrency to speculate on its price, there are a few factors that tend to win out over hype and price pumps 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 cryptocurrencies 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.
How do you measure adoption?
- Try to see if businesses and services accept this cryptocurrency as a payment method.
- Take a look at the market cap of the coin. While market cap doesn’t equal adoption, it’s usually correlated.
- Read news about the coin, especially government related debates.
Remember, there’s a thin line between hype and adoption. Adoption is usually measured in real life use cases and not the amount of news stories written about a coin.
Decentralization is critical to the trustless model of a true cryptocurrency. Without decentralization, one has something more akin to a fiat currency than a true cryptocurrency.
Coin centralization of governance is exactly what cryptocurrencies aim to solve. Without it, the coin can easily be manipulated.
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 the coin’s security.
How do you measure decentralization?
- Is the code for the coin open source? What’s the criticism about it online?
- How many independent nodes are running the code and participating in the mining operation? The more, the better.
- What “trials by fire” has the code faced for its governance? A good example for Bitcoin is the Bitcoin Cash hard fork.
Worthwhile coins strive to improve their technology, but not at the expense of security. Innovation can be a hard factor to assess, particularly for nontechnical users. However, here are some aspects to consider:
- Has the coin’s code grown stagnant or isn’t receiving updates that address significant issues?
- What features is this coin bringing to the table that aren’t available in other coins?
A coin’s inherent economic incentives are easier for the average person to grasp. If a coin had a major pre-mine, or its team holds a significant share of tokens, then the primary motivation for the coin may just be profit for the founders.
Make sure to understand the incentive model for the coin you’re evaluating and check to see if there are some exclusive advantages to early adopters. Most credible coins offer the same opportunities to all participants.
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’s.
A privacy-focused coin, such as Monero, would seem far more suitable for the role of buying illicit goods and services. This may be due to Litecoin’s longevity, which 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 the Lightning Network. Litecoin may thus benefit from atomic swap trading (the secure peer-to-peer trading of coins without any third party involvement).
Since Litecoin keeps its code largely synced with Bitcoin’s, it’s well-positioned to benefit from Bitcoin’s technological progress.
To sum it up, while Litecoin doesn’t bring a lot of technological innovation to the table, its adoption and security are well suited to serve as a Bitcoin alternative.
In the near future, Ethereum will be facing its long-delayed switchover to a new hybrid Proof of Work/Stake system. This means that Ethereum mining will no longer be done through GPUs. It remains to be seen just how successful any such change will be.
Summing it up, when it comes to innovation and adoption, Ethereum seems to have a case. While Ethereum also scores high on the decentralization criteria, some would question its governance, especially after the DAO incident which created Ethereum Classic.
Monero (XMR) remains the premier privacy coin. Its reputation and market capitalization are still beyond those of its rivals (Dash and Zcash) – for a good reason.
The use-case for a privacy coin is pretty clear, given the fact that Bitcoin is far from anonymous.
When it comes to innovation, Monero’s code requires less trust than Zcash’s “trusty” key ceremony. Also, unlike DASH, Monero had a fair launch.
Additionally, the fact that Monero changed its mining algorithm to prevent the development of an ASIC miner for its algorithm confirms the coin’s commitment to mining decentralization.
It seems, for now, that Monero is winning the race for the best privacy coin. This can be seen by its position on the cryptocurrency charts as well.
Ripple (XRP) is the institutional Bitcoin alternative. Designed to help banks and financial institutions optimize the way they transact, Ripple and its currency, XRP, aren’t aimed at day to day transactions.
Ripple brings a lot of added value to the table, trying to fix the fragmented banking system and slow and inefficient payment protocols used today.
Ripple is far from decentralized, although some would argue that some degree of decentralization exists.
Libra is backed by some of the biggest names in the industry like Visa, eBay, PayPal, and Uber. There’s no doubt – adoption would be an easy task when so many B2C companies are on board.
While Libra claims to have a vision of decentralization, there’s a small chance that a cryptocurrency issued by a company like Facebook and regulated by the SEC would reach a decentralization level that’s anywhere near Bitcoin.
Having said that, Libra brings massive value to the table by making cryptocurrencies accessible to people who might not be eligible for their own bank account. On top of that, Libra is backed by financial assets in order to avoid price volatility like most cryptocurrencies.
Since starting your own cryptocurrency requires nothing more than a computer, it’s impossible to say the exact count of cryptocurrencies available. The estimated amount is in the thousands.
While I don’t have a specific recommendation for another coin, I do have a conviction that once Bitcoin starts rallying again and achieving mass adoption, 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.
The main thing you can take away from this post is this:
Do you own research and make your own decisions. Sure, you can use various references, but in the end, it’s your money and you need to decide if you want to invest in something. Don’t blindly follow any investment guru or publication.
Keep in mind the 4 pillars of evaluation a cryptocurrency and see how your potential Bitcoin alternative lives up to each one.
What are your thoughts about the best cryptocurrency out there? Let me know in the comments section below.
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