Traditionally, the stock market is the greatest creator of long-term wealth. Over time, stocks have returned an average of 7% annually, inclusive of dividend reinvestment and adjusted for inflation. We're talking about the potential to double your invested money about once a decade, which is actually pretty fantastic.

But cryptocurrencies like bitcoin and Ethereum have done a bit better than that. Since the year began, the aggregate value of all cryptocurrencies combined has risen from $17.7 billion to $244 billion as of Nov. 21. That's approaching a 1,300% increase in just under 11 months. It would have taken the stock market decades to deliver the sort of returns virtual currencies have yielded in less than a year.

Bicycle chains with binary code linked together to represent blockchain.

Image source: Getty Images.

It's all about blockchain

Leading the charge have been bitcoin and Ethereum. Bitcoin, which began the year below $967 per coin, is currently valued at $8,265 per coin, a gain of more than 750%. Bitcoin also comprises about 56% of the aggregate cryptocurrency market cap. Meanwhile, Ethereum is trading at $367.15, up from its $7.98 where it began the year. That's just your run-of-the-mill 4,500% year-to-date gain.

A number of factors have propelled virtual currencies through the roof in 2017, but most of them lead back to the excitement surrounding their blockchain platforms. Underlying most digital currencies, including bitcoin and Ethereum, are digital and decentralized networks that log transactions without the need for a financial intermediary like a bank. These networks are almost always open source, which makes it practically impossible for logged data to be altered without someone else noticing. This is one of the key features that should make blockchain more secure than existing software. Blockchain also has the potential to save businesses money over the long run, too, as the operating expenses behind blockchain are cheaper than existing verification and processing software.

In recent months, bitcoin initiated an upgrade to its blockchain that pulled some information off the network in order to boost capacity, lower transaction costs, and improve settlement times. This was a direct attempt to attract businesses to test its blockchain. As for Ethereum, more than 150 organizations in the Enterprise Ethereum Alliance are currently testing a version of its blockchain in small-scale or pilot programs.

A physical Ripple coin.

Image source: Getty Images.

Move over, bitcoin and Ethereum

But the biggest danger for these leading cryptocurrencies might just be that the barrier to entry in developing blockchain technology and launching a digital currency is relatively low. After all, the number of cryptocurrencies that are currently available to be purchased has exploded higher in 2017 on the heels of bitcoin's and Ethereum's success. It's always possible that bitcoin and/or Ethereum fail to offer what businesses want in a blockchain.

Just over a week ago, financial giants American Express (AXP 3.02%) and Banco Santander (SAN 1.23%) announced a cross-border partnership that entails utilizing the blockchain network developed by Ripple. Behind bitcoin ($137.4 billion), Ethereum ($35.2 billion), and bitcoin cash ($20.3 billion), Ripple has the fourth-largest market cap ($9.1 billion) of any virtual currency.

As reported by CNBC, payments made by American Express' business customers on its FX International Payments platform will be routed through Ripple's blockchain network and allow for instant, cross-border non-card payments to U.K. Santander bank accounts. What once took days to complete and settle will now occur instantly thanks to Ripple's blockchain technology. "This blockchain solution opens up a new channel between the U.S. and the U.K. and presents significant opportunity for payments globally," said Jose Luis Calderon, the head of global transaction banking at Banco Santander.

Additionally, the partnership may open the door for Ripple's virtual currency, XRP, to play a role down the road. Ripple has been testing methods to further speed up payments, potentially allowing XRP to become a component of future banking partnerships. According to the global head of strategic accounts at Ripple, Marcus Treacher:

The technology we have developed, it separated a connection from the cryptocurrency or the token. So what that means is that a bank or non-bank like AMEX can use Ripple to connect and just exchange value from one fiat currency to another directly, without the need for any intermediate blockchain currency. 

A risk dial turned to its maximum setting.

Image source: Getty Images.

This is a risk for all virtual currencies (and investors)

And this isn't the only instance of big banking firms going rogue, so to speak, and looking beyond bitcoin's and Ethereum's blockchain. In late August, the Financial Times reported that Barclays, Credit Suisse, CIBC, HSBC, Mitsubishi UFJ, and State Street have teamed up to create their own form of cryptocurrency (known as the "utility settlement coin") and blockchain. 

The point being that while few would deny that blockchain has a place in the future of the financial services industry, and perhaps other sectors, no one has any clue what the true value of blockchain technology is or how quickly it'll be adopted. Yes, we're seeing plenty of small-scale and pilots tests using Ethereum's blockchain and, yes, Ripple just secured a brand-name partnership with American Express and Banco Santander. But these trials don't equate to broad-based use, and it's unlikely that we'll see widespread adoption of blockchain anytime soon.

We also have no real idea what blockchain will be preferred by enterprise customers. Ethereum would appear to have an early edge given its incorporation of smart contracts. These are protocols that aid in the enforcement, facilitation, and verification of contracts, and it's unique to Ethereum's blockchain. But even then, there's no guarantee that Ethereum, bitcoin, or Ripple will be the preferred blockchain for businesses.

With blockchain weighing so strongly into the current pricing of virtual currencies, any sort of disappointment given already lofty expectations could quickly deflate the cryptocurrency bubble.