Want a cryptocurrency that can stand the test of time? Look no further than the industry's biggest names: Bitcoin (BTC 0.28%) and Ethereum (ETH 0.05%). Let's explore why these "blue chip" cryptos have what it takes to maintain their huge leads over rivals.
Launched in 2009, Bitcoin is the cryptocurrency that started it all. And despite technical weaknesses, the platform still dominates crypto with a market cap of $788 billion -- a full 41% of the total industry. Bitcoin can remain a great investment for decades to come because of its unparalleled brand recognition and maturity.
Bitcoin has a transaction capacity of just five per second and doesn't support decentralized applications (dApps) that use smart contracts to offer services on the blockchain. But this doesn't destroy its value proposition. Think of Bitcoin as digital gold. Gold is not the rarest metal, nor is it the most useful. But it has value because of its history and acceptance. People agree that it is valuable, so it is.
Bitcoins' first-mover advantage also gives it some fundamental advantages. According to the crypto directory, Cryptwerk, almost 8,000 listed merchants accept Bitcoin as payment compared to just over 4,000 for its closest rival, Ethereum. The platform's age also means it's hugely decentralized, with the top 10 holders only controlling 5.6% of the coins in circulation. For newer platforms like Shiba Inu, the top 10 holders control 64% of the units in circulation, increasing the risk of price manipulation.
While Bitcoin was the first public blockchain to hit the market, Ethereum was the first to expand the technology's use-cases through dApps, giving it a big advantage in attracting users and developers. While Ethereum faces an arguably tougher challenge from newer, faster rivals, its development team looks up to the job.
Decentralized applications use self-executing smart contracts to offer blockchain-based services ranging from cryptocurrency exchanges to non-fungible tokens (NFTs), which can be used to create digital art and collectibles. Ethereum is the leader in virtually all dApp categories, hosting almost 3,000 of the roughly 4,000 total projects, according to crypto analytics site stateofthedapps.com.
That said, dApps dramatically increase transaction volume on the network, so Ethereum (which only handles 15 transactions per second) probably won't be able to rest on its laurels like its simpler counterpart Bitcoin. It will need to get dramatically faster to stay relevant.
To meet the growing demand, Ethereum's developers are working on an upgrade called The Merge, which will change the blockchain's current proof-of-work consensus mechanism (where miners solve computation puzzles to verify transactions) to a proof-of-stake system where miners will use their existing coins. It is unclear when this change will go live -- or how much faster it will make Ethereum. But the platform has a track record of successful updates.
Blue chip cryptocurrencies?
In the stock market, blue-chip stocks are shares of well-known, well-established industry leaders. Bitcoin and Ethereum are the cryptocurrency equivalent. Their first-mover advantages, strong brands, and active development teams will help them stay relevant in the increasingly competitive blockchain opportunity.