While Bitcoin (BTC -1.73%) While it is still the world’s #1 cryptocurrency by market cap, there are many reasons to believe that other cryptocurrencies may eventually surpass it. Before this year’s crypto market pullback, 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 these assumptions are now very doubtful.
So which cryptos could displace Bitcoin at the top of the crypto pile? Right now the two best views are ether (ETH -7.79%) and Solana (SOL -3.30%). 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 well-known developments of recent years – including smart contracts, decentralized applications (dApps) and non-fungible tokens (NFTs) – have their origins in the Ethereum blockchain.
By almost every metric, Ethereum is the dominant force in the blockchain industry. For example, Ethereum is #1 in the NFT market with an estimated 80% share. In areas like decentralized finance (DeFi), blockchain gaming, and the Metaverse, Ethereum dwarfs every other blockchain in the world.
And with The Merge, a major system upgrade, Ethereum will only get stronger. The current complaint about Ethereum is that it is too slow and too expensive. This is mainly because it is based on a proof-of-work consensus mechanism. With The Merge, Ethereum will transition to a proof-of-stake consensus mechanism that will reduce transaction fees and increase transaction processing speeds. When Ethereum 2.0 is finally ready, it should be able to process 100,000 transactions per second. In contrast, Bitcoin can only process five to ten transactions per second for the time being.
The path to market dominance is more complicated for Solana as it is a direct competitor to Ethereum. Both are Layer 1 blockchains that offer users the same functionality and utility. Ethereum has smart contracts, and so does Solana. Ethereum allows for the creation of NFTs, as does Solana. Its main selling point is that Solana can do everything Ethereum can, only faster and cheaper. Solana already offers the ability to process 65,000 transactions per second and transaction fees are close to zero.
While Ethereum is stuck on all the technical steps required to become a proof-of-stake blockchain, Solana is on an innovation rift. Solana has launched everything from a new merchant payments network (Solana Pay) to an entirely new mobile crypto platform (Solana Mobile). In 2023, Solana plans to launch Saga, the very first “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. If you can put that branding experience on top of a super-fast, super-cheap blockchain, that’s a very strong value proposition.
How Fast Could Ethereum or Solana Plunge Bitcoin?
This might be an inaccurate analogy, but you can imagine what’s happening in the crypto industry is similar to what happened in the tech industry a generation ago. Until the 1980s IBM was the biggest name in tech, and then came along 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 upstairs. Large institutional investors may prefer Bitcoin, while ordinary investors prefer Ethereum and Solana.
Right now, Ethereum is about half the size of Bitcoin based on market cap, and Solanas is just 3%. So a lot would have to change for any of them to overtake Bitcoin. But look again at what happened to IBM, Microsoft, and Apple in the tech industry. Microsoft was founded in 1975 and it took almost two decades for Microsoft to overtake IBM in market capitalization. Then, after that happened, it took Apple nearly another two decades to overtake Microsoft in market cap. Obviously, this won’t happen overnight, and there will be many twists and turns along the way.
But Ethereum and Solana now offer too many benefits 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 add these two cryptos to your portfolio and keep them forever.
Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Apple, Bitcoin, Ethereum, Microsoft, and Solana. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.