If you invested your money in the stock market in March 2020, you've done quite well. The widely followed S&P 500 has effectively doubled in value since hitting its pandemic low.

But if you bought cryptocurrencies, you're probably dancing in the streets. That's because the aggregate value of digital currencies has skyrocketed more than 1,200% to $1.87 trillion since the March 2020 bottom.

While most investors tend to gravitate to crypto's big two -- Bitcoin (BTC -2.34%) and Ethereum (ETH -6.47%) -- because they make up more than 60% of the aforementioned $1.87 trillion market cap of digital currencies, there exists a world of innovation well beyond these two "blue chip" coins.

A person using a stylus to interact with a rapidly rising crypto chart displayed on a tablet.

Image source: Getty Images.

The following three cryptocurrencies stand out for their innovation and differentiation in what's increasingly becoming a crowded space. It's this innovation and uniqueness that has the potential to deliver monster upside for these cryptocurrencies over the next five years.

Avalanche

When it comes to smart-contract-driven blockchain, most investors think of Ethereum. Smart contracts are the protocol that help to verify, facilitate, and enforce the negotiation of a contract between two parties. But what if I told you there was a cryptocurrency project that can provide what Ethereum offers to decentralized application (dApp) developers, and that does so with clear-cut competitive advantages across the board?

Avalanche (AVAX -16.84%) might not be a household name in the crypto space quite like Ethereum, but it delivers impressive speed, top-notch scaling, and is compatible with the most widely used dApp development software.

According to the Avalanche website, its smart-contract-based blockchain offers a transactional finality of less than two seconds. This means that once a user initiates a payment or the sending of data or files, it takes less than two seconds for the Avalanche network to validate and settle the transaction. Comparatively, it takes Ethereum and Bitcoin an average of six minutes and 60 minutes, respectively, to validate and settle transactions.

Equally impressive is the scale offered by the Avalanche network. Late last year, developers touted the ability to handle at least 4,500 transactions per second (TPS). That blows the seven TPS for Bitcoin and 14 TPS for Ethereum out of the water. However, this 4,500 TPS figure is per subnet -- and the creation of subnets is limitless. Ergo, according to its developers, Avalanche has limitless TPS.

But the most important aspect of Avalanche is that the Ethereum Virtual Machine (EVM) is operating on its blockchain. The EVM is the software developers use to create dApps on the Ethereum blockchain. Avalanche is effectively dangling a carrot to any developers familiar with the most popular dApp software and promising lower transaction fees, faster execution, and superior scaling. It wouldn't be a surprise to see Avalanche become a preferred network for dApp developers.

A person holding a glowing golden lock that's surrounded by a lattice-like structure.

Image source: Getty Images.

IOTA

Another innovative cryptocurrency with monster upside potential is the lesser-known IOTA (MIOTA). As of the time of this writing, IOTA slotted in as the 54th-largest digital currency by market cap ($1.84 billion).

If there's one common theme that most digital currency projects share, it's their use of blockchain technology to revolutionize the sending of money or data. What makes IOTA so unique is that it isn't using blockchain at all.

The secret sauce behind IOTA's future success is its network, which is known as the "Tangle." The Tangle is a directed acyclic graph that requires each new transaction to validate two previously confirmed transactions. As you can imagine, each new transaction linking to two previous transactions for confirmation purposes can begin to look a bit like a tangled web over time, which is where the "Tangle" got its name.

Why the Tangle and not blockchain like virtually every other cryptocurrency project? The primary answer is to maximize the speed of the network. Blockchain-based networks require users to vote on proposals and validate blocks. These actions can slow down the validation process. By comparison, IOTA's Tangle can validate transactions in a couple of seconds, and is designed to become more efficient over time as additional transactions are processed on its network.

Additionally, with Bitcoin and Ethereum sporting some of the highest transaction fees in the cryptocurrency space, you might be surprised to learn that transactions on the IOTA network are fee-free. That can be a big future selling point.

A final reason for investors to be bullish about IOTA is its practical use. Whereas a lot of cryptocurrency projects amount to nothing more than whitepapers and hope, IOTA's technology is already being used in the real world. In February 2021, IOTA partnered with Dell Technologies to measure the confidence and trust of data as it moves from an edge network or wireless connected device into the cloud. These trust ratings are being stored in IOTA's Tangle. 

A neatly staggered stack of one hundred dollar bills transforming into digital currency on blockchain.

Image source: Getty Images.

Algorand

The third and final innovative cryptocurrency that could deliver monster upside over the next five years is Algorand (ALGO -15.10%).

Like Avalanche, Algorand is a smart-contract-based blockchain network. But while Avalanche is gunning for Ethereum's lunch in every respect, Algorand is primarily focused on becoming the face of decentralized finance (DeFi). Whereas traditional financial transactions involve payments routing through a financial institution, such as a bank, DeFi circumvents these centralized institutions to produce faster, cheaper, and more democratized access to global payments.

One of the advantages of Algorand's network is its speed. According to the project's website, Algorand has been completing transactions in a little over four seconds. By comparison, a traditional cross-border transaction can take up to a week to validate and settle.

Furthermore, the cost per transaction is negligible with Algorand, which would be considerably cheaper than the wire fees associated with expediting a cross-border transaction using traditional payment infrastructure.

The Algorand network is also big on interoperability. The idea here is that businesses are developing multiple variants of blockchain technology. While some of these networks will be compatible with others, there's the very real possibility that unique blockchain networks won't play nice with each other. Algorand is aiming to take the lead and bridge these gaps so blockchain-based DeFi goes mainstream.

If you need one more good reason to believe in Algorand's upside potential, let it be the project's unique consensus mechanism, known as pure proof-of-stake (PPoS). With Algorand's PPoS, users are randomly and secretly chosen to vote on proposals and propose blocks. This all but ensures that bad actors won't be able to disrupt the network. Plus, people holding the protocol token ALGO are likely vying for its success anyway.

Avalanche, IOTA, and Algorand all have what it takes to stand out in a crowded and highly volatile space.