For more than a century, the stock market has been the undisputed leading wealth creator. While it may not surpass the returns of gold, housing, or bonds every year, it's delivered the highest average annual return of these investment vehicles over the very long run.
But over the past decade, cryptocurrencies have stormed the investing scene and become a formidable challenger to stocks. In fact, some of the most widely followed digital currencies have produced five-and-six-digit percentage returns. This includes the "people's currency," Dogecoin (DOGE -4.52%), which galloped higher by 27,000% in a six-month stretch between early November 2020 and early May 2021.
Dogecoin lacks a competitive edge
But not everyone is on board with the ascendance of cryptocurrencies. I consider myself a full-blown crypto skeptic. I don't own any digital currencies, have no near-term plans to buy any, and believe the market to be in a massive bubble that's in dire need of a shakeout.
Of all the digital currencies investors could put their money to work in, Dogecoin is the most baffling. That's because it doesn't do anything particularly well. In other words, if you want a network and tethered token to replace the existing financial infrastructure, it better offer clear-cut advantages. Dogecoin doesn't offer any of that.
In no particular order:
- Dogecoin's transaction fees are considerably higher than most popular cryptocurrencies.
- The average time needed to validate and settle transactions is slower than many of the same networks that have lower (or nonexistent) transaction fees.
- The average number of daily transactions completed on Dogecoin's blockchain recently declined to a three-year low, demonstrating weak adoption.
- It has virtually no real-world use, with only a little over 1,400 mostly obscure business accepting it as payment.
I don't see a future where Dogecoin plays a meaningful role in a transacting capacity.
This trio of cryptocurrencies has a more exciting future than Dogecoin
However, I do find a number of digital currencies and blockchain projects in the crypto space to be exciting. To reiterate, "exciting" doesn't mean go out and buy it right now. As I stated, I believe the crypto market is wildly overvalued given how little functionality it's thus far demonstrated in the real world. But given plenty of time, these following three cryptocurrencies could be success stories -- and will almost certainly have run circles around Dogecoin.
I know I'm not going to win any points for originality here, but that's not my intent, anyway. Ethereum (ETH -2.04%), the second-largest cryptocurrency by market cap, is arguably the most exciting digital currency.
The big selling point for Ethereum has long been its use of smart contracts. These are protocols that verify, facilitate, and enforce the negotiation of a contract. For instance, if two parties agree that a certain action should be executed when conditions are met, smart contracts can handle that. This might mean executing the wishes of a will many years down the line when a grandchild reaches a certain age, or perhaps reordering supplies for a business once a certain percentage of an item has sold.
For the time being, Ethereum is getting a lot of buzz due to its role in decentralized finance, or DeFi. DeFi aims to use smart contracts on a financially focused blockchain to bypass the financial intermediates that have the potential to slow transactions down or deny them entirely. But it's Ethereum's nonfinancial applications, and how it could streamline supply chains, that has me excited.
Notably, the Enterprise Ethereum Alliance has more than 100 members, each of which is focused on promoting the use of the Ethereum network. While some of these EEA members are banks -- note that I'm not discounting the role Ethereum's Ether token could play in the future -- it's far more telling that a large number of these businesses are in the tech sector or focused on logistics. This includes FedEx, Microsoft, SAP, and Advanced Micro Devices, to name a few.
Having the blockchain network with the greatest chance of real-world adoption makes Ethereum the no-brainer digital currency to monitor.
Something a bit more off the radar than Ethereum that has me excited is Stellar (XLM -1.79%). Stellar is the 22nd-largest crypto by market value ($8.4 billion), as of Sept. 1.
While Ethereum piqued my interest for its nonfinancial applications, Stellar and its Lumen coin are intriguing for its potential in the payments space.
With existing infrastructure, it can take up to one week to validate and settle a cross-border payment. Meanwhile, on Stellar's blockchain, more than 180 different fiat currencies can be converted to Lumens, sent across oceans, and be completely validated and settled within a matter of seconds. What's more, Stellar claims to be able to handle up to 3,000 transactions per second. For some context, that's still a ways away from payment kingpin Visa, which can process up to 24,000 transactions per second. But compared to Dogecoin (40 transactions/second), Stellar offers serious validation and settlement advantages.
Despite this efficiency, fees to transact on Stellar are microscopic. The average transaction costs 0.00001 Lumen, equating to an average fee per transaction of approximately $0.000004. Put another way, it would take about 250,000 transactions for a user to rack up the equivalent of about $1 in fees. That's insanely cheap given how effective this network could be.
The last thing to note about Stellar is that it's garnered big-name project partners. In particular, Stellar partnered with IBM four years ago to facilitate blockchain-based international payments for a dozen major banks in the South Pacific region. Strictly speaking about the financial capabilities of blockchain, Stellar is a name to watch.
A third exciting cryptocurrency that appears to have a much brighter future than Dogecoin is Cardano (ADA -1.71%). Cardano is likely no stranger to crypto enthusiasts, as its ADA token has performed incredibly well, with a gain of more than 3,700% over the trailing year.
What strikes me as particularly interesting about Cardano is the transparency provided by its developers, and the clearly defined layered approach those developers are undertaking to further decentralize the network, improve adoption, and broaden the spectrum of use for blockchain technology.
Last year, Cardano's developers launched the Shelley upgrade, which ultimately increased the number of nodes network participants could run. Since this upgrade was released, Cardano's network has seen average transaction volume grow from between 1,000 and 3,000 transactions daily in 2019 to between 24,000 and 42,000 daily in 2021. While some of this is assuredly tied to the outperformance of its ADA coin, it's also a clear sign of development yielding increased adoption.
However, what folks are really excited about is the Goguen update, which is expected to become mainstream this month. Goguen will incorporate smart contracts on Cardano's blockchain, thereby opening up financial and nonfinancial applications for this top-performing cryptocurrency. Following Goguen, developers will be focused on improving the scalability of the network.
To reiterate, once more, my intrigue surrounding Cardano isn't an endorsement to go out and buy the ADA token right now. But the transparent development process presented by Cardano hasn't gone unnoticed. It's definitely worth keeping an eye on as blockchain projects vie for real-world experience.