Bitcoin (BTC 0.20%) has set records over the past year, reaching an all-time high of close to $70,000 per token in November.
However, as the crypto market continues to expand, newer competitors are giving Bitcoin a run for its money. While Bitcoin remains the most popular cryptocurrency at the moment, there are a few others that could potentially outpace it in 2022.
As the second most popular cryptocurrency, Ethereum (ETH 0.29%) is Bitcoin's strongest competitor. While the two cryptocurrencies are different in many ways, there are a few areas in which Ethereum outshines Bitcoin.
For one, Ethereum's network is widely used for decentralized applications (dApps) like smart contracts, which allow two parties to execute legal transactions without an intermediary such as a lawyer. Ethereum is also home to a variety of projects within the decentralized finance (DeFi) and non-fungible token (NFT) space.
In addition, Ethereum is in the process of transitioning from a proof of work (PoW) protocol to a proof of stake (PoS) protocol. With PoW, high-powered computers must solve complex puzzles to verify transactions. With a PoS system, however, validators verify transactions by putting a portion of their crypto holdings at stake for a chance to earn rewards.
Bitcoin still uses a PoW protocol, making it an incredibly slow and energy-intensive cryptocurrency. Once Ethereum fully transitions to a PoS system, it will use around 99.95% less energy and will also be significantly faster -- which could help it scale and potentially soar past Bitcoin.
Solana (SOL 1.24%) is a newer cryptocurrency, launched in 2017. It's already proven to be a force in the crypto world, however, as its price has surged by more than 11,000% over the past year.
Solana's biggest advantage is its speed. Currently, Bitcoin can process around 7 transactions per second. Solana, on the other hand, can reportedly handle up to 65,000 transactions per second. Like Ethereum, Solana can also host dApps, and it's home to projects ranging from DeFi to NFT marketplaces and more. Because it's so fast, developers have flocked to Solana, making it one of the fastest-growing cryptocurrencies.
That said, Solana is riskier than Bitcoin. It uses a proof of history protocol, which isn't widely used among cryptocurrencies. According to a recent report from institutional investing firm Grayscale, this could potentially make it more vulnerable to attacks. In fact, Solana has experienced multiple attacks over the past few months, even going offline for around 17 hours back in September.
This isn't to say that Solana is a bad investment, because it does have tremendous potential for growth. But it is higher risk, so keep this in mind before you buy.
Cardano (ADA -3.53%) was created by one of the co-founders of Ethereum, and it was designed to excel in the areas where other cryptocurrencies fall short.
For example, Cardano already uses a PoS protocol, making it faster and more efficient than Bitcoin. While it can currently process around 250 transactions per second, its upcoming Hydra upgrade could help it reach up to 1 million transactions per second.
Similar to Ethereum and Solana, Cardano's network can host dApps and smart contracts. Unlike its competitors, however, Cardano uses a peer review system to improve security. Before any new features or updates are rolled out, they must be approved by a team of academics. In theory, this should make Cardano safer and less prone to glitches or attacks.
Investing in Cardano is playing the long game. While it has experienced phenomenal growth over the past year, its peer review system may make it slower to adapt as the crypto market continues to scale. It still has loads of potential, but if you choose to invest, be prepared to hold this investment for the long term.
While Bitcoin has its advantages, it's going to have to continue innovating to keep up with its younger competitors. Cryptocurrencies including Ethereum, Solana, and Cardano are proving to be powerhouses in the industry, and they all have incredible potential in 2022.