What an incredible year it's been for the cryptocurrency market and investors! All cryptocurrencies combined started the year with an aggregate market cap of $17.7 billion, but they're now (as of Dec. 12) worth $494 billion. That's a return of nearly 2,700%, which is more than some investors might see during their entire lifetimes -- yet it's occurred in less than a year.

A nearly 2,700% rise in aggregate crypto-valuations explained

The reasons behind the cryptocurrency rally are aplenty, but they, of course, center around bitcoin, the world's most popular cryptocurrency, which currently comprises 59% of the aggregate $494 billion market cap.

A physical gold bitcoin on a table.

Image source: Getty Images.

Among the most important factors to this rally has been the emergence of blockchain technology. Blockchain is the digital and decentralized ledger that underlies most virtual currencies and records transactions without the need for a financial intermediary, like a bank. In particular, blockchain offers the potential for smaller transaction fees, quicker transaction settlement times, and a more secure network, which could be attractive to the financial-services industry.

The utilization of virtual currencies to purchase goods and services is also exciting some investors. Bitcoin, for instance, snagged five brand-name merchants back in 2014 and has added countless smaller merchants since then. Overstock.com (NASDAQ:OSTK), the first brand-name retailer to accept bitcoin, has since branched off and now accepts six of the most popular cryptocurrencies. The addition of new merchants helps to validate the usability and scalability of bitcoin and other digital currencies.

Speaking of validation, news-driven events have played a key role in pushing cryptocurrency prices higher. Earlier this year, Japan opened its arms to bitcoin and began accepting it as a regulated currency. Meanwhile, CBOE Global Markets earlier this week became the first to begin trading bitcoin futures. 

Lastly, emotions have played into the rise of cryptocurrencies. The fear of missing out on big gains has coerced investors, both experienced and inexperienced, to buy into the virtual-currency craze.

Bicycle chains with binary code linked together to represent blockchain technology.

Image source: Getty Images.

In case you missed it, a major shift is underway

Yet in spite of most cryptocurrencies heading significantly higher, they're far from created equally. In fact, in case you hadn't noticed, a major shift is underway among cryptocurrencies. We're beginning to witness a pretty clear bifurcation with regard to their mission. They're either focusing on the payment potential of their digital currencies, or are building out their proprietary blockchain technology.

For instance, bitcoin and Litecoin have made it pretty clear to the world that they're all about the payment potential of their respective digital currencies. As noted, bitcoin has attracted more merchants than any of its peers, while Litecoin is in the process of ramping up its marketing to merchants. Overstock.com is probably the biggest retailer it's landed thus far, but with creator Charles Lee putting his full time and energy behind Litecoin, it should have a good shot at building its merchant network. 

At the other end of the spectrum, crypto-giants like Ethereum and Ripple are laser-focused on the development of their proprietary blockchains. Ethereum currently has 200 organizations around the globe testing out a version of its blockchain technology via the Enterprise Ethereum Alliance. Ethereum's use of smart contract protocols, which facilitate, verify, or enforce the negotiation of a contract, has been a particularly attractive aspect of its blockchain. 

A physical silver and gold Ripple coin.

Image source: Getty Images.

As for Ripple, it's also been forging small-scale and pilot projects with its blockchain. A month ago, American Express (NYSE:AXP) and Banco Santander (NYSE:SAN) announced that they'd be partnering with Ripple to use its blockchain in a cross-border payment project. Customers using American Express's FX International Payment network and sending a non-card payment to U.K. Santander will have those payments processed through Ripple's blockchain. The thesis here is that these transactions can be completed instantaneously and for a cheaper cost than though current databases. 

This isn't to say that Ripple's and Ethereum's coins are being ignored. For instance, there may be use in instantly converting these virtual currencies into other fiat currencies over cross-border blockchain networks to speed up transaction settlement times.

This also doesn't mean that bitcoin and Litecoin are ignoring their underlying blockchains. Litecoin recently implemented the SegWit upgrade to its blockchain, boosting capacity while lowering transaction costs and settlement times in the process. But it's not as if Litecoin or bitcoin are actively marketing their blockchains to enterprise clients.

We're seeing a well-defined bifurcation between cryptocurrencies that want to focus on payments and those that want to focus on blockchain for enterprise clients.

Which pathway offers the best chance of making money?

Given this bifurcation, the next logical question is: Which pathway has the best chance of making money?

Though no one knows the answer with any certainty -- cryptocurrencies could be in a bubble for all we know -- my personal leaning is to side with blockchain being a much larger opportunity than the virtual currency as a payment-facilitator route.

A person holding a puzzle piece with a question mark drawn on it.

Image source: Getty Images.

Pretty much no one is denying that blockchain can be a game-changing money-transmitting technology. The real issue is determining how quickly enterprise customers will integrate this technology into the fold. While we're seeing plenty of small-scale and pilot tests, it doesn't mean that blockchain technology will be quickly integrated, or that these demos will proceed without hiccups. Time and again, history has shown us that investors are notorious for overestimating the adoption of new technology -- especially a technology that the public doesn't really seem to understand that well -- which might be the case, again, with blockchain.

It's also unclear how exactly the virtual currencies that investors are purchasing for these blockchain-oriented models will fit in. The lack of correlation here makes it veritably impossible to place a "fair" valuation, should such a thing exist, on these virtual currencies.

Long story short, be aware of this ongoing bifurcation, but don't expect it to clear things up in terms of valuing cryptocurrencies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.