It may feel as if cryptocurrencies have been around forever, considering how much of the news cycle they consume. In reality, they have only been around for a little more than 15 years, with Bitcoin (BTC -1.70%), the world's largest cryptocurrency, having been created at the very beginning of 2009. That means there's still a lot we don't know about this burgeoning sector.
It also means that cryptocurrencies could be very appealing for younger investors, who can afford to be more aggressive. Now, that doesn't mean this group should invest a majority of their portfolios in cryptocurrencies. It means that they can allocate a smaller percentage of capital and hopefully experience meaningful gains over time. Here are three cryptocurrencies for individuals with a 40-year time horizon.
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Bitcoin: A potentially unique diversifier
If there's one cryptocurrency that looks to be built for the long haul, it's definitely Bitcoin. The token has survived huge drawdowns on several occasions now, only to come back stronger than before. What's clearly driving Bitcoin is a growing belief that the cryptocurrency and its finite supply of 21 million coins could be a form of digital gold, and therefore a hedge against inflation and other types of volatility.
Bitcoin has surged to new all-time highs several times this year and has even seen its volatility decline. With President Donald Trump's administration removing regulatory barriers, more mainstream financial institutions, investors, and businesses are willing to buy crypto. The first place they will likely turn to is Bitcoin.
It's hard to know if Bitcoin is truly digital gold, as some say. But this view is being increasingly accepted by the market, and that's no small task on its own. If it's true, then Bitcoin could become a more commonly accepted part of the traditional portfolio because it offers a unique form of diversification, similar to gold or commodities like oil.
Ethereum: The way to play decentralized finance
If there is a second cryptocurrency to buy, it's easily Ethereum (ETH -2.19%). Ethereum has always played the No. 2 role behind Bitcoin in terms of market value, although it's taken a very different path.
Seeing the energy-intensive nature of Bitcoin's proof-of-work consensus mechanism, in which the network has miners solve a cryptographic puzzle as quickly as possible in order to validate transactions and mint new blocks, Ethereum decided to transition its network to a proof-of-stake consensus mechanism. In this energy-efficient method, Ethereum holders pledge their tokens as collateral to have a chance to get selected by the network to validate transactions and create new blocks.
Ethereum is also the go-to blockchain network for decentralized applications powered by smart contract technology that can essentially automate contracts if a set of terms and conditions is met. Many see great potential to integrate dApps into many different sectors, and most dApp activity is conducted on the Ethereum blockchain. So, given this strong potential real-world utility, Ethereum could see much more usage and demand if smart contracts take off. Most stablecoin activity is also taking place on Ethereum's network -- another reason to be bullish on Ethereum.
Solana: Potentially the strongest technical network
One common way to look for good cryptocurrencies to invest in is to look for good use cases, many of which are powered by blockchain networks that are strong from a technical perspective. Arguably no network is better than Solana (SOL -5.54%).
Not only is Solana one of the few networks to run on proof-of-stake, it also uses a timing mechanism called proof-of-history. This creates a sequence of transactions in advance that can be verified and lets the network validate and confirm transactions more efficiently, allowing Solana's network to process more transactions per second (TPS).
Solana is theoretically capable of processing 65,000 TPS. In fact, a new validator on Solana's network reportedly achieved 1 million TPS in a test environment, showing the network's enormous potential. A network this fast could significantly disrupt many sectors, like international payments, decentralized applications, and the tokenization of real-world assets.
