Ethereum (ETH) was the first cryptocurrency to introduce smart contracts. These are small pieces of code that live on the blockchain and mean that developers can create apps and other projects on the network. For years, Ethereum was the undisputed leader in this space and still hosts the lion’s share of projects.
But unfortunately, Ethereum has been a victim of its own success. Until it can complete its upgrade to a more scalable and environmentally friendly model, it struggles with high network fees and network congestion.
As a result, a host of so-called Ethereum killers have come to the fore. These feature faster, lower-cost transactions. Here are five to watch in 2022.
1. SOLANA (SOL)
Solana was one of the top-performing cryptocurrencies of 2021. It says it is “the fastest growing ecosystem in cryptocurrency”, which is backed by the ever-growing list of applications on its network. At last count, there were more than 1,350 projects running on Solana. A big reason for Solana’s dramatic growth is its speed. In theory, Solana says the network is capable of processing 65,000 transactions per second, which is magnitudes more than Ethereum’s 15-45 transactions per second.
On the negative side, there is growing concern that Solana was not ready for the exponential growth it has seen. In September, it blamed a load surge for a 17-hour outage, and there have been a series of problems since then. According to Fortune, Solana experienced six outages of more than eight hours in January. Investors are willing to attribute some technical problems to the initial glitches, but their patience may be wearing thin.
2. AVALANCHE (AVAX)
Like Solana, Avalanche experienced dramatic growth last year. It may not have grabbed as many headlines, but its price increased by more than 3,000% and it now ranks ninth in terms of market capitalisation. Two metrics stand out for Avalanche:
Its total value locked in (TVL) is nearly $11 billion. According to DeFi Llama, this puts AVAX in fourth place in terms of the amount of money people have deposited with projects running in its ecosystem. Ethereum still dominates here with more than $120 billion in LTV.
It has the fastest time to finish. Without getting too technical, finality is the point at which a transaction cannot be altered. One way to think of it is that there is a difference between the point at which you swipe your credit card to pay for an item and the point at which that payment is actually processed. The transaction itself seems almost instantaneous, but the time to completion is more similar to the processing time and may take longer.
3. CARDANO (ADA)
Cardano has been a consistent fixture in the top 20 cryptos by market capitalisation for several years. It takes a research-intensive development approach, which means it has been much slower to implement technical developments than other blockchains. For example, it only launched smart contracts in September…
One of the things that sets Cardano apart from other cryptocurrencies is its broad vision. It wants to use blockchain technology to redistribute power and become a positive force for change. It already has partnerships with governments and other organisations in several African countries. For example, it has partnered with the Ethiopian Ministry of Education to put the academic records of 5 million students on the blockchain.
In terms of pricing, Cardano was struggling even before the broader market crash. One reason for this is that very few projects are actually running on its network, even after the smart contract launch. This has raised questions about whether its slow development will actually deliver superior results.
4. ELROND (EGLD)
Elrond is smaller than the cryptocurrencies we have covered so far and is not yet listed on several major cryptocurrency exchanges in the United States. It is a scalable and fast blockchain that also focuses on interoperability. Interoperability is the ability of these networks to communicate with each other and is a crucial part of blockchain’s evolution.
Elrond launched a decentralised exchange called Maiar last summer, which currently lists only a couple of tokens. More recently, Elrond said it would introduce a new decentralised metaverse-centric financial function called metataking. This is a good coin to have on your radar in the coming year.
5. TEZOS (XTZ)
Tezos did not grow as fast as other smart contract cryptocurrencies last year. It gained around 115%, which is a decent gain, but it is heavily overshadowed by Solana and Avalanche. This green blockchain had some leadership issues after its ICO in 2017, which resulted in a $25 million legal settlement.
I’ve included it as a coin to watch in 2022 because it has made great strides to capture market share in the burgeoning NFT market, and also recently announced a partnership with Manchester United football club. It has weathered the recent downturn in cryptocurrency prices relatively well. Ethereum’s price has declined by more than 20% since the start of the year, while Tezos has only declined by 15%.
There are many smart contract cryptocurrencies on the market, and several are likely to have their moment in the spotlight at different times in 2022. As for whether any of them may actually be Ethereum killers, Elrond co-founder Beniamin Mincu summed it up when he tweeted, “To be clear, Elrond is not a Bitcoin or Ethereum killer. This is a zero-sum, loser-take-all game.”
Undoubtedly, the longer Ethereum takes to solve its scalability problems, the more likely it is that other cryptocurrencies will take more of its market share. But ultimately, this is unlikely to be a winner-take-all game. If the cryptocurrency market continues to grow, all these blockchains could grow along with it. We will probably see four or five emerging ahead of the pack, but it is extremely difficult to predict which ones.
As an investor, it is important to remember that this is a new technology with many unknowns. Each project has taken slightly different approaches in terms of speed, security and decentralisation. And none of the newer players have been road-tested to the same degree as Ethereum. Some may fail due to technical, security or management difficulties. And a new cryptocurrency could emerge that is faster and even more secure than all the existing players.
The important thing is to understand the risks, research each individual investment carefully, and only invest money you can afford to lose.