While Bitcoin (BTC -0.36%) is still the No. 1 cryptocurrency in the world as measured by market capitalization, there are plenty of reasons to think other cryptocurrencies could eventually surpass it. Before this year's crypto market retreat, the conventional wisdom was that Bitcoin was a hedge against inflation and a long-term store of value. Some even called it "digital gold." But those assumptions are now very much in doubt.
So which cryptos could might displace Bitcoin at the top of the crypto heap? Right now, the two best prospects are Ethereum (ETH -0.91%) and Solana (SOL 2.93%). Both cryptos offer more utility than Bitcoin, and both are innovation leaders in the blockchain industry, with promising growth prospects.
Ethereum stands out as an innovation leader. The most recognizable developments of the past few years -- including smart contracts, decentralized applications (dApps), and non-fungible tokens (NFTs) -- originated on the Ethereum blockchain.
By nearly any metric, Ethereum is the dominant force in the blockchain industry. For example, Ethereum is the No. 1 player in the NFT market, with an estimated 80% share. In areas such as decentralized finance (DeFi), blockchain gaming, and the metaverse, Ethereum dwarfs every other blockchain in the world.
And with The Merge, a broad system upgrade, Ethereum will only become stronger. The current complaint about Ethereum is that it is too slow and too expensive. That is largely because it has been based on a proof-of-work consensus mechanism. With The Merge, Ethereum will transition to a proof-of-stake consensus mechanism, reducing transaction fees and boosting transaction processing speeds. Eventually, when Ethereum 2.0 is complete, it should be able to handle 100,000 transactions per second. In contrast, Bitcoin for now can only process five to 10 transactions per second.
The path to market dominance is more complicated for Solana because it is a direct rival to Ethereum. Both are Layer 1 blockchains offering users the same functionality and utility. Ethereum has smart contracts, and so does Solana. Ethereum enables the creation of NFTs, and so does Solana. The key selling point is that Solana can do everything Ethereum can do, only faster and cheaper. Solana already offers the capability to process 65,000 transactions per second, and transaction fees are near zero.
While Ethereum has been bogged down in all the technical steps needed to become a proof-of-stake blockchain, Solana has been on an innovation tear. Solana has launched everything from a new merchant payment network (Solana Pay) to an entirely new mobile crypto platform (Solana Mobile). In 2023, Solana plans to debut Saga, the first-ever "crypto phone."
At the same time, Solana is making serious forays into both blockchain gaming and Web3. More than any other crypto, Solana is taking steps to build a recognizable brand for crypto early adopters. When you can layer this brand experience on top of a super-fast, super-inexpensive blockchain, that is a very powerful value proposition.
How soon could Ethereum or Solana topple Bitcoin?
This might be an imprecise analogy, but you can think of what is happening in the crypto industry as similar to what happened in the tech industry a generation ago. Until the 1980s, IBM was the biggest name in the tech industry, and then along came Microsoft and Apple. The rest, as they say, is history.
In many ways, Bitcoin is today's crypto IBM, Ethereum is the new Microsoft, and Solana is the new Apple. There is definitely room for all three to co-exist. The only real question is who gets to sit on top. Big institutional investors may prefer Bitcoin, while everyday investors might prefer Ethereum and Solana.
Right now, Ethereum is about half as big as Bitcoin based on market cap and Solana's is equal to just 3%. So a lot would have to change for either of them to overtake Bitcoin. But again, look at what happened with IBM, Microsoft, and Apple in the tech industry. Microsoft launched in 1975, and it took nearly two decades for Microsoft to pass IBM in market capitalization. Then, after that happened, it took nearly another two decades for Apple to pass Microsoft in market capitalization. So obviously, this is not going to happen overnight, and there will be many twists along the way.
But Ethereum and Solana now offer too much utility to ignore. And they are both innovation leaders, making them both long-term plays if you believe in the future of the crypto industry. If you can handle crypto's volatility, you can put these two cryptos in your portfolio and hold onto them forever.