This has truly been the year of cryptocurrencies. The world's first crypto, Bitcoin, made many millionaires when it soared past $60,000. It's important to remember that Bitcoin started out trading at about $0.08 back in 2010. Newer players also made their mark. For instance, Solana, surged an amazing 12,600% this year.
I don't expect the crypto craze to stop anytime soon. That's because it isn't just a fad. Cryptocurrencies represent a new way of storing value -- and in many cases doing business. So which cryptos will be the hottest in 2022? It's impossible to predict for sure. But here are five that have what it takes to skyrocket in the coming 12 months.
There are many things I like about the blockchain platform Cardano (ADA -0.89%). But one of its biggest attributes is the way it's being built out. Cardano has laid out a roadmap of five stages that will lead to the ultimate goal: to become a truly self-sustained decentralized system. The platform launched smart contracts this year. And now, work is focused on the last two stages of development. Part of the plan involves relying on peer review before launching any updates. This entire approach means we can expect quality from Cardano -- and that gives me confidence in Cardano's ability to stand out in the long term.
Algorand (ALGO -1.57%) is a champion when it comes to transaction speed. The blockchain has already demonstrated that it can process more than 1,000 transactions per second -- and complete those transactions in less than five seconds. Eventually, the platform will be able to process 3,000 per second. And the next goal is more than 45,000. By comparison, credit card Visa says it can handle 24,000 transactions per second. Algorand's protocol structure is the reason for the platform's efficiency. Ordinary smart contracts and other operations take place on a base layer. More complicated smart contracts and decentralized application development happen on a second layer. This efficiency may attract more and more users and investors to Algorand.
Polkadot's (DOT -2.42%) big strength? Communication. This cryptocurrency allows for the exchange of data across various blockchains. One of the big problems for cryptocurrencies has been that each operates on its own -- without this ability to share information or transfer coins from one to another. Polkadot involves a main network -- the relay chain -- and parachains that run alongside it. Through bridges, these parachains connect to other blockchains like Ethereum (ETH -2.29%), for example. And speaking of Ethereum, one of its co-founders went on to create Polkadot. When looking to invest in a company, I look for experienced management. The same goes for crypto. Polkadot's leadership and its ability to connect blockchains may help it stay at the front of the pack as the crypto industry evolves.
Ethereum is a well-known player. It's the world's second largest crypto by market value, after all. And it's been around since 2015. But there's a lot more to come for Ethereum. And 2022 may be its biggest year yet. Why? Because the blockchain is set to fully release an important upgrade. Ethereum 2 will solve the biggest problem facing Ethereum right now. And that's transaction speed. Today, Ethereum processes only about 30 transactions per second. But after the upgrade, it may process as many as 100,000. That's because of two improvements. First, a move to the proof-of-stake validation method -- this cuts out the time-consuming validation method that involves complex computations. Instead, it grants validation power to validators according to coins held. Second, Ethereum is adding shard chains to relieve congestion on the main network. If the upgrade's launch goes smoothly, this crypto giant may get even bigger.
Aave (AAVE -3.52%) is a decentralized lending platform built on Ethereum. You can use the platform to lend, generate income through lending, and borrow -- or you can just buy Aave and hold as an investment. If you're borrowing or lending, you can choose from about 30 different cryptocurrencies. If you lend, you can benefit from an annual percentage yield of more than 3% according to today's rates. By comparison, the best savings account yields for December are about 0.5%, Bankrate.com data show. So the Aave system is a great place for users to earn passive income. As for borrowers, they, too, benefit -- from the variety of interest rates available and various borrowing possibilities. For instance, Aave offers flash loans. This type of loan is taken out and settled within the same transaction. Some individuals use these loans to switch from one crypto to another and generate trading profits. And users of -- and investors in -- Aave should benefit in the coming year as the Ethereum upgrade speeds up transactions and reduces congestion on the network.
A point to note
Another point to note about these cryptocurrencies: They've all gained less than 1,000% this year.
This year's crypto stars have increased a lot more. For instance, Shiba Inu soared more than 43,000,000%. My crypto picks won't necessarily climb to that extreme extent. But they do have room to grow. As I always say, crypto investing remains risky -- so never invest more than what you can afford to lose. Keeping that in mind, these five crypto players are worth a look. They may be among the next group of crypto winners.