If you thought the 29% total return for the benchmark S&P 500 in 2021 was impressive, chances are you weren't paying close enough attention to the cryptocurrency space. When the curtain closed, the aggregate value of digital currencies hit $2.2 trillion, representing a yearly gain of more than 185%!
Crypto investors are clearly excited about the financial and nonfinancial applications of blockchain technology, as well as the role blockchain could play in the metaverse -- i.e., the next iteration of the internet, which'll allow users to interact in 3D virtual environments.
With more than 16,000 listed cryptocurrencies on CoinMarketCap.com, it's likely many will fail. But a few projects could lead to incredible returns for patient investors. The following trio of cryptocurrencies all have the competitive advantages and differentiation in their corner to skyrocket 1,000% or more by 2026.
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As I recently stated, there's not a cryptocurrency that has me more excited at the moment, at least among the largest group of digital currencies, than Avalanche (AVAX 1.63%). Avalanche checks in as the 11th-largest cryptocurrency, and sports a market value of $27 billion.
Smart contracts help to verify, facilitate and enforce the negotiation of a contract on blockchain. The reason this smart contract-driven blockchain network is so exciting is its speed, scalability, and compatibility.
In terms of speed, transactions on Avalanche's network offer a block finality of less than two seconds. In English, this just means files, data, and payments sent on the network reach their destination and are validated in less than two seconds. Comparatively, Bitcoin (BTC 2.35%) and Ethereum (ETH 0.82%), the two most popular crypto networks, complete transactions in respective average times of 60 minutes and six minutes.
There are clear-cut comparative advantages when it comes to scalability versus the "Big Two" as well. At their peak, Bitcoin and Ethereum are handling around seven transactions per second (TPS) and 13 TPS, respectively. As for Avalanche, its development team touts the ability of the network to process north of 4,500 TPS. For some added context, payment processor Visa can handle up to 24,000 TPS. Being fast and scalable helps keep transaction fees on Avalanche's blockchain network quite low.
But what most impresses me about Avalanche is its compatibility. While it's no secret that decentralized application (dApp) developers favor Ethereum, Avalanche has the Ethereum Virtual Machine (EVM) up and running on its blockchain. The EVM is the software that developers use to create dApps on Ethereum. In other words, Avalanche is dangling a carrot to dApp developers that will hopefully entice them to come to its network and enjoy faster processing, lower costs, and exceptional scalability, relative to Ethereum.
To me it seems like a no-brainer that dApp developers will flock to Avalanche in 2022 and beyond.
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Another cryptocurrency that patient investors could watch skyrocket 1,000% or more by 2026 is Algorand (ALGO 1.84%). Algorand is currently the 19th-largest digital currency, with a market value of $10.5 billion.
While social media-based hype and pumping were the keys to big gains in the meme coins in 2021, the not-so-subtle secret to sustainable long-term gains in the cryptocurrency space is providing differentiation and a competitive edge. Algorand does this through its speed, security, and focus on interoperability.
Similar to Avalanche, Algorand makes sending data, files, or money -- as well as scaling the network -- fast. At last check, Algorand's website showed it was processing at 1,162 TPS (this blows Bitcoin and Ethereum out of the water), and it had an impressive block finality of 4.36 seconds. Considering that existing financial infrastructure can take up to a week to validate and settle cross-border payments, completing a transaction faster than most of us can walk to our refrigerators is quite impressive.
Algorand differentiates itself in a positive way with what's known as its pure proof-of-stake (PPoS) consensus mechanism. With standard proof-of-stake networks, it's possible for smaller holders to potentially disrupt the network. But with PPoS, holders are randomly and secretly chosen to vote on proposals and propose blocks. Since holders of ALGO have an incentive for its success, this randomization all but eliminates nefarious activity that might otherwise disrupt the network.
However, the real key to Algorand's long-term success is its prioritizing of interoperability. In simple terms, we're witnessing the development of countless unique blockchain projects. While some will play nice with each other, there's a good chance many won't work together. That means no ability to send data, files, or payments. Algorand is specifically looking to bridge these technological gaps. For enterprise utility, Algorand is a genius play.
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A third cryptocurrency with the momentum and real-world data to back up a potential climb of 1,000% or more over the next five years is Axie Infinity (AXS). Axie Infinity slots in as the No. 31 digital currency by market cap ($5.8 billion).
As noted, anything having to do with the metaverse, and/or the creation of virtual characters or worlds, is expected to be hot throughout 2022 and beyond. Axie Infinity is a play-to-earn game built on the Ethereum blockchain. And I probably don't need to tell you that it's not difficult to lure in gamers if there's a potential monetary reward for their involvement.
The game is fairly straightforward. Users collect, raise, breed, upgrade, and battle monsters known as Axies, with a minimum of three Axies needed to wage battle. Users who win these battles are awarded experience points, which can be used to upgrade various aspects of their characters.
What makes this project, and other blockchain-based gaming, so unique is how ownership of these digital assets is recognized. With traditional console and PC gaming, any characters or virtual worlds created remain the property of the company that developed the game. But with play-to-earn games like Axie Infinity, users own their creations. Each and every Axie created is a non-fungible token (NFT). These NFTs can be used in game play, or they can be monetized in a marketplace (i.e., bought and sold). Allowing users to own their creations is bound to bring a new level of excitement to blockchain-based gaming and virtual worlds.
But Axie Infinity has a good shot to head a lot higher. According to data from TokenTerminal.com, Axie Infinity has brought in about $1.23 billion in trailing 180-day protocol dApp revenue. That's second only to Ethereum, which netted an incredible $5.15 billion in protocol dApp revenue over the same stretch. With real capital flowing to Axie Infinity, a viable case can be made that it could moonshot over the next five years.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, and Visa. The Motley Fool has a disclosure policy.