In 12 days, the curtain will close on 2021 and cryptocurrency investors will likely be uncorking the champagne following another banner year. Amid volatile trading, the aggregate value of digital currencies has risen by 185% year-to-date, through late evening, Dec. 16.
Without question, the "Big Two" -- Bitcoin (BTC -0.11%) and Ethereum (ETH -0.19%) -- have played a significant role in pushing the total market value of cryptocurrencies higher. This dynamic duo makes up 62% of the crypto market's $2.2 trillion value.
However, 2021 has also been a year where cryptocurrencies with clear-cut competitive advantages shone bright. When I say "competitive advantages," I'm referring to blockchain projects that demonstrate a competitive edge over the other 15,700-plus listed cryptocurrencies. Differentiation is absolutely imperative for digital currencies to stand out in an increasingly crowded space.
The crypto space is full of pretenders
Shiba Inu and Dogecoin are two of the most-searched digital currencies in the U.S., and they arguably generate the greatest amount of social media buzz. That's because these two coins have delivered life-altering returns, with SHIB tokens up more than 45,000,000% this year and Dogecoin higher by a more "modest" 3,400%.
It also hasn't hurt that both payment coins have landed major merchants in 2021. Movie theater chain AMC Entertainment and online retailer Newegg Commerce plan to accept SHIB, whereas electric-vehicle manufacturer Tesla Motors will accept DOGE for select merchandise.
Unfortunately, the ability to generate social media buzz and "grow the community," as crypto enthusiasts like to say, has no bearing on a project's real-world utility or future. Neither Shiba Inu nor Dogecoin offers anything that resembles a competitive edge or true differentiation.
Shiba Inu is nothing more than an ERC-20 token built on the Ethereum blockchain. It's subject to the same high transaction fees and processing lag that can occasionally plague the ultra-popular network. Meanwhile, Dogecoin's transaction fees are markedly higher than a number of other popular payment coins, and its network isn't capable of handling all that many transactions per second.
Shiba Inu and Dogecoin are what look to be fleeting investment opportunities in the crypto space.
These digital currencies offer true competitive advantages
By comparison, a small handful of blockchain projects stand out as offering true competitive advantages, and therefore genuine staying power over the long term. Here are three perfect examples.
The first digital currency that offers clear-cut advantages over the vast majority of the crypto landscape is smart contract-based blockchain network Avalanche (AVAX). Smart contracts help to verify, facilitate, and enforce the negotiation of a contract between two parties.
Avalanche stands out for the scalability, speed, and compatibility of its blockchain network.
In terms of scale, Avalanche's development team notes the network is able to handle more than 4,500 transactions per second (TPS). To put this figure into some perspective, payment processor Visa claims to handle up to 24,000 TPS. Comparatively, Bitcoin (before its Taproot upgrade) and Ethereum are only able to handle a respective 7 TPS and 13 TPS.
Avalanche is quick, too, with a block finality of less than two seconds. This is a fancy way of saying that transactions are completed (i.e., validated as true and settled) in less than two seconds. This compares to Ethereum, which takes around six minutes for block finality, and Bitcoin, which has a block finality of around 60 minutes.
But the most exciting aspect of Avalanche just might be that the Ethereum Virtual Machine is already operating on its blockchain. Instead of decentralized application (dApp) developers dealing with high transaction fees and network congestion with Ethereum, they can move their projects to Avalanche and enjoy lower costs and improved network efficiency. This is what a competitive advantage looks like.
A small number of payment network-oriented coins offer clear-cut competitive advantages as well. One such example is under-the-radar token Nano (NANO 0.92%).
The three aspects that allow Nano to stand head and shoulders above most financially focused networks are its scalability, speed, and cost.
The first thing prospective investors will notice about Nano is it's not a traditional blockchain network. Instead, it's what's known as a block-lattice blockchain. With the block-lattice, every user has their own blockchain that they're free to add to. Not having to compete with other users, or gain approval from anyone other than the sender and receiver of payment, allows for the network to be scaled quickly without compromising its effectiveness.
Nano is also a lightning-fast network. According to its development team, it can complete transactions in less than one second. Considering that it takes cross-border payment with existing payment infrastructure up to a week to validate and settle transactions, Nano being able to complete financial payments in less than one second is astounding.
The third differentiating factor for Nano is its cost... or should I say lack thereof. Nano's consensus mechanism, known as Open Representative Voting, ensures that transactions are fee-less on the network.
A third cryptocurrency that offers clear-cut competitive advantages is Algorand (ALGO 1.20%).
As with the other digital currencies above, there are three identifiable ways Algorand's network stands out from the growing sea of blockchain projects.
To begin with, Algorand's blockchain consensus mechanism is unique and a true improvement over traditional proof of stake. Algorand utilizes what it calls pure proof of stake, or PPoS. With PPoS, small groups of ALGO holders are randomly and secretly chosen to propose blocks and vote on proposals. The advantage of PPoS is it virtually eliminates the likelihood that a small number of actors would sabotage or disrupt the network.
A second benefit of the Algorand network is its speed. Developers somewhat regularly update the key performance figures for the network on the project's website. As of Dec. 16, Algorand was capable of 1,162 TPS, but more importantly had a block finality of just 4.36 seconds. This blows the door off existing financial payment settlement times.
And third, Algorand is a leader in enterprise blockchain interoperability. With so many unique blockchain projects under development, many risk not working well, or at all, with one another. Algorand has based its network on attempting to bridge those gaps for the business world. This makes Algorand a good bet to offer real-world utility.