Mainstream investors spent much of last year trying to figure out how to jump in on bitcoin, the digital currency for which prices ballooned to as high as $19,000 in recent months. But even as people hope to make a quick buck by trading on the cryptocurrency's shifting value, experts in the field have long been exploring other alternatives that could hold just as much promise. As we head into the new year, here are a few crypto-assets that analysts say are worth watching.
But remember: As exciting as it may be to think about investing, the risks here are equally great. As with other highly volatile assets, you might want to think twice about getting involved — unless you're willing to accept losing it all.
You can think of bitcoin cash as bitcoin's faster and younger sibling. Functionally speaking, it works in much the same way. It's simply a form of digital cash you can use to buy real-world goods and services, such as a cup of coffee. It was invented only last year after a number of developers working on regular bitcoin, or "bitcoin core," as some call it, decided they were unhappy with the direction of the main project.
At issue was how quickly and cheaply bitcoin could process transactions. Bitcoin's rising popularity had strained the platform's capacity, which meant that over time, if you wanted to buy or sell something on the network, you had to pay ever higher fees to have your transaction cleared. Bitcoin made certain changes in its code to bring down those fees and speed things up, but the people who wound up creating bitcoin cash wanted to go much further. That's how bitcoin cash was born.
If bitcoin cash ultimately becomes the stronger, more capable digital currency, it could spell trouble for bitcoin core (and its sky-high price), according to Ryan Selkis, a bitcoin investor and founder of the publication CoinDesk.
“You have to be long [on bitcoin cash] as a hedge,” he wrote in a recent blog post.
One of bitcoin's original benefits was the promise of anonymity. After all, every wallet or account associated with bitcoin is identified simply by a jumble of letters and numbers, not a person's real name. But soon, law enforcement and academics began demonstrating that simply by analyzing a particular bitcoin wallet's public transaction history you could deduce with relative accuracy who the owner could be. It's similar to the way looking at your cellphone's location records or Web browsing history can give an indication as to who you are.
“The anonymity it offers is kind of brittle, is the way I've described it,” said Jim Harper, the executive vice president of the Competitive Enterprise Institute, a Washington think tank.
Zcash has tried to solve that problem by encrypting not only the wallet information, as bitcoin does, but also by encrypting information about individual transactions, as well — hiding it so that casual passersby can't try to sleuth out who was paying whom, or even how much.
Monero is a bit like Zcash but takes the additional step of mixing together the online addresses of senders and recipients with other possible senders and recipients. In theory, this makes it harder for the true sender or recipient of money in any transaction to be identified; from the outside, you'd know that one of a number of people listed in the transaction were involved, but you wouldn't necessarily be able to tell which one. In that respect, monero promises privacy through obscurity.
Monero has made headlines recently as a haven for criminal transactions. That's not surprising, given that illicit behavior tends to seek shelter from the watchful eye of law enforcement. But it could also gain traction among those who are simply conscious of their privacy or distrust mainstream institutions.
Created in 2012, Ripple is unlike some other crypto-assets. Instead of being controlled by a network of computers that otherwise have nothing to do with one another, as with bitcoin, Ripple is managed by a single company based in California that wants to transform how international payments work.
Today, if you wanted to send money to another country, it could take days for the transaction to clear. But Ripple promises settlement in four seconds, and, according to its website, foreign workers living in Japan are already using the platform to send money back home to Thailand.
“I told people about Ripple when it was under $1 billion that it was a small company solving a big problem,” said Lou Kerner, a venture capitalist at the investment firm Crypto Oracle. “I started getting an avalanche of calls at $40 billion.” Ripple hit a market cap of $40 billion in August 2013.
Ethereum is probably the most well-known crypto-asset after bitcoin. Its currency, which is known as ether, enables users not only to perform monetary transactions with one another but also gives holders access to an entire array of distributed computing power. By spending ether and getting access to this computing power, industry analysts say, users of ethereum could theoretically have an even wider range of applications than bitcoin. Where bitcoin could disrupt traditional financial institutions by wresting the power to clear transactions away from big banks and governments, some say ethereum could do the same for apps and online services.
Experts call this idea a “distributed app,” because the programming behind the app is collaboratively written and executed. Here's a series of other efforts to explain what ethereum is and why it could be important.
The bottom line
There are many more virtual currencies out there that we haven't discussed yet, including Litecoin, NEO and IOTA, just to name a few. Nearly all of them are on the rise, with often subtle differences separating one from another. Any one of them could emerge as one of 2018's breakout stars, too. But some analysts are reminding people of the risks involved in backing these emerging technologies.
The entire crypto sector makes me queasy right now— Fred Wilson (@fredwilson) January 3, 2018
“I just don’t know when buying crypto will stop being a good idea. It was a great idea in 2017,” wrote Fred Wilson, a co-founder of the venture capital firm Union Square Ventures, in a blog post.
Investing in crypto-assets may prove disastrous for investors who leap before they look, Kerner said, but it's the technology behind the price swings that really matters.
“Ninety percent of people have no idea what these companies do — and that's fine,” he said. “In the long run, that won't have any impact on how massively disruptive and wealth-generating it is.”