5 Altcoins That Could Change the Way We Use Money

These cryptocurrencies could transform our financial services.

As you venture further into the world of cryptocurrencies, at some point you have to consider the concept of money. Once upon a time, we bartered with each other, swapping one product for another. Perhaps you'd give me some fish in exchange for some potatoes. I might then swap some of that fish for some seeds, and so on.

As societies evolved, so did our money. We started to use things like cowrie shells or gold as a medium of exchange for goods and services. From there, we eventually reached fiat money -- like the dollars or euros that we use today. These aren't inherently valuable: A dollar is worth a dollar because we give it that value.

Now we have cryptocurrencies. One way to think of crypto is that it's like digital cowrie shells: tokens you can swap for goods and services.

How Bitcoin can change our monetary systems

Bitcoin was the first cryptocurrency, and it promised to revolutionize the way we use money. It isn't backed by a central bank or government. And it allows us to make digital payments or transfers without involving a third party, such as a bank. Money can be moved faster and with lower transaction fees.

Over 11,000 alternatives to Bitcoin (known as "altcoins") followed in its wake, and a new decentralized finance (DeFi) industry has flourished. DeFi cuts the middleman out of traditional financial services. For example, crypto holders can take out a loan without going through a traditional lender, earn interest without opening a bank account, and take out insurance without using a broker.

Here are five altcoins pushing the frontiers of how we use money.

1. Aave (AAVE)

Decentralized lenders like Aave cut traditional lenders out of the loan process. Borrowers don't need to pass a credit check or fill out paperwork. Instead, they put down crypto collateral and enter into a smart contract (a piece of self-executing code that lives on the blockchain).

Crypto holders can earn interest on their assets by contributing them to the lending pool. The rates they can earn are higher than traditional savings accounts, as are the risks.

2. Compound (COMP)

Compound is another top DeFi lender that operates similarly. According to DeFi Pulse, which tracks the performance of different DeFi platforms, Compound has fewer total assets deposited on its platform than Aave. (At the time of writing, Aave topped the list with $16.12 billion, while Compound had $10.35 billion.)

3. Ripple (XRP)

Ripple is an international digital payments network that seeks to replace SWIFT (the current standardized money transfer system favored by banks). If Dogecoin (DOGE) is the people's crypto, Ripple is the bank's crypto.

Ripple makes it easy to transfer any currency, whether it's dollars, Swiss francs, or Aave tokens. Unfortunately, it landed in hot water with the Securities and Exchange Commission (SEC), which enforces securities laws and protects investors. It argues XRP is a security rather than a cryptocurrency. (Most cryptocurrencies are categorized as commodities, so they don't have to follow the same rules as securities.)

4. Stellar Lumens (XLM)

Stellar was created by Jed McCaleb, one of Ripple's co-founders. Like Ripple, it aims to facilitate low-cost money transfers. However, Stellar is aimed at people rather than institutions. This could be particularly powerful in developing countries where many people can't access traditional banking services.

5. Nexus Mutual (NXM)

Sadly, as cryptocurrency gains in popularity, crypto scams, hacks, and thefts also increase. Cryptocurrencies don't have the same protections you'd get with a traditional bank or stockbroker. As a result, crypto insurance is increasingly important.

And, unsurprisingly, there's a growing pool of decentralized insurers. Indeed, insurance brokers as we know them may become a thing of the past. Those smart contracts we mentioned earlier? They don't always work as planned. Nexus Mutual covers smart contract failure and exchange hacks.

The nonprofit aims to bring back a community approach to insurance and cut administrative inefficiencies. Unlike traditional insurance brokers, NXM token holders jointly assess claims, which are then paid out from a central pool. Unfortunately, the token is not available from major U.S. cryptocurrency exchanges.

Changing the way we use money

Whether it's banking, money transfers, loans, or insurance, these cryptocurrencies and others could transform the financial landscape. But like all cryptocurrencies, they are volatile and high-risk investments.

We don't yet know how this space will evolve, and there are many moving parts. Authorities worldwide are considering how DeFi should be regulated to ensure consumer protection. Governments may launch their own centralized digital currencies. And the technology itself continues to develop rapidly, so these coins may be superseded by newer ones.

That said, DeFi is an exciting area with a huge amount of potential, so it's worth putting these coins on your watchlist.