Diversify your portfolio AKA welcome to the world of altcoins!

Bitcoin is by far the most popular cryptocurrency in the world. Its market cap is bigger than all other cryptocurrencies combined — over 65% to be precise. Nevertheless, there are interesting options out there, so if you are considering to buy some alternative cryptocurrencies, called altcoins, instead of or in addition to bitcoins, that might not be a bad idea. In this post, we will have a look at some of the most relevant ones.

Caveat: Before investing in any assets or purchasing any cryptocurrencies, you should always exercise due diligence and gather as much information as possible. The following post provides only background information and is by no means giving out any specific investment advice.

Ethereum (ETH)

Ethereum was launched in 2015 and is currently the second biggest crypto on the market. In many ways, it is similar to Bitcoin — it is a decentralized form of payment that uses blockchain. But there are also pivotal differences.

One of the key distinctions is that the Ethereum network brought into the picture the option of facilitating decentralized financial contracts and applications. In other words, besides allowing to trade ETH as digital currency, customers were able to make use of smart contracts and DApps. Therefore, it could be said that it is a platform with a much wider portfolio of services and thus, has a greater potential for growth.

One could assume that this philosophical difference in network purpose would mean that ETH complements, not competes with BTC, but the reality is that they are competitors on the cryptocurrency market. Even though Bitcoin is worth over 30 times more than Ether, the latter has incremented its value from around $130 at the beginning of 2020 to over $450 at the moment of writing this post. Yes, it is very low compared to the price of BTC exceeding the $15,000 mark but still, that is an impressive surge for ETH and represents a considerable yield for its investors.

There are other aspects of ETH that could play a relevant role from the users’ point of view, especially once cryptocurrencies are more widely accepted. Firstly, transactions are faster compared to the average Bitcoin confirmation time of 10 minutes. Secondly, whereas the amount of BTC to be mined is restricted to 21 million coins, ETH does not have that kind of limitation. Those two factors could have an influence on the willingness of both merchants and the public to use the token.

In short, ETH is an interesting option to consider and actions such as their plan to change to proof-of-stake consensus convey an image of an innovative platform that is continuously trying to improve. That is always a good sign in terms of future potential.

Tether (USDT)

The third biggest cryptocurrency by market cap is Tether (USDT) that started trading around the same time as Ether, in 2015.

Tether belongs to a class of tokens called stablecoins, i.e. cryptocurrency backed by some other kind of asset (either FIAT currency, another cryptocurrency, or a reserve of a certain amount of coins). Tether, as you might have already guessed from its symbol “USDT”, is backed by the US dollar (with a one-to-one ratio in terms of value).

The aim of stablecoins is to offer a higher degree of stability to their users because we know that cryptocurrency prices can be quite volatile. This could be a huge plus, especially for those wanting to boost the use of digital coins for payments, exchange, or storage of value instead of trying to speculate with the market for investment purposes.

Tether is, however, quite a controversial cryptocurrency accused of failing to adequately show the existence of sufficient USD collateral. Among other things, it has also been criticised for its unclear relationship with the Bitfinex exchange and its role in the bull run of 2017 where it allegedly manipulated the price of Bitcoin. The company has denied any wrongdoing.

Be that as it may, the fact remains that it is one of the most important cryptocurrencies, currently experiencing exponential growth. In their fight for their market share, they seem to be putting their efforts on innovative solutions, such as the Lightning Network. That kind of forward-looking action, as already stated above, is a breeding ground for greater potential in the future.

Ripple (XRP)

Ripple, with its token labelled XRP, comes in fourth by market cap.

It would be nice to start with a fun fact for those whose mother tongue is not English. In case you didn’t know, ‘ripple‘ means “a small wave on the surface of water”, or also “a sound or feeling that spreads through a person or group of people”. The expression ‘ripple effect‘ is basically a chain of events — translated as “Nachwirkungen”, “efecto dominó”, or “järellainetus”, just to cite a few examples in other languages.

The meaning is relevant because it illustrates the nature of Ripple’s network. It does not function with proof-of-work or proof-of-stake protocols best known in the blockchain and crypto world. Instead, it uses a distributed consensus mechanism which means that a poll is conducted between the nodes and then the network decides by consensus whether a transaction is valid and authentic or not. Basically, it’s a chain of trust.

This digital payment protocol is what Ripple is best known for. Its use is not as extended among individuals and organizations as other cryptos; instead, you can see it having a ripple effect — never better said — in the banking sector. It makes sense because Ripple functions similarly to SWIFT but it offers important advantages such as considerably lower fees and faster transaction speeds (seconds and not days that banks need to facilitate cross-border payments). Moreover, it allows users to transfer an array of means of payment, be it FIAT or cryptocurrencies, commodities, or even frequent flier miles.

Thanks to the aforementioned consensus protocol, Ripple’s cryptocurrency XRP is indeed much more efficient and less energy-consuming than other digital coins. Thus, its transactions are cheaper and faster. This can be an important advantage over Bitcoin, for instance, that has to be mined and therefore has very long transaction times carrying high fees.

Litecoin (LTC)

Now, let’s take a leap further down the market cap ranking and talk about Litecoin (LTC), currently in the ninth position.

When it was first launched back in 2011, it was said that it would be the silver to Bitcoin’s gold. It is also called the younger sibling of Bitcoin. Although somewhat contested, looking at Litecoin’s performance, one could say that, indeed, it has done quite well. While the two tokens are technically nearly identical, the baby brother is like a silver lining to some of the issues haunting Bitcoin users.

What are then the improvements compared to Bitcoin? Again, we can deduct some fundamental features of a token from its name. Litecoin is “liter” so, on average, LTC transactions are four times faster (2.5 min vs 10 min in case of Bitcoin). The same applies to the average fees, which are considerably lower. Furthermore, the supply of LTC tokens is also four times higher, capped at 84 million (vs 21 million for BTC), which makes it easier to acquire and could have an impact in the future in case of mainstream adoption.

The flip side is that Litecoin mining is fairly concentrated, with only five pools clearly dominating the market. This means that LTC is not as decentralized as BTC.

Make your pick

There are of course thousands of options out there and this post is just a short list of some of the best-known altcoins. Take it as a starting point to continue with your research and pick out the cryptocurrency that best suits you and your needs — be it in addition or substitution to Bitcoin which, for the time being, remains the undisputed king of the market.