Valuing cryptocurrencies is difficult because fundamentals do not exist and there is no metric investors can use to compare them. Many investors are watching Bitcoin (BTC -0.73%) as a store of value, like gold, but other cryptocurrencies are more useful in payments or non-fungible tokens (NTF), or building businesses on their blockchain. They act more like smart currencies.
Long term, I think the value in crypto comes from building real businesses, not just trading assets. And that means the underlying cryptocurrencies of valuable digital economies are likely to be more valuable than Bitcoin. Three that I think have a chance to beat Bitcoin in the long term are Ethereum (ETH -4.24%), Solana (SUN -3.59%)and Polygon (MATIC -2.83%).
There is nothing that Bitcoin can do that Ethereum cannot, but there is a lot that Ethereum can do that Bitcoin cannot. At its core, Ethereum is built to be a smart cryptocurrency with smart contracts that developers can build upon. They have done it quickly with decentralized finance and NFTs leading the way.
What’s even more encouraging are network upgrades that can dramatically improve performance. Ethereum co-founder Vitalik Buterin recently said that Ethereum will be able to handle 100,000 transactions per second, up from about 15 transactions per second today, once a series of upgrades are completed.
Ethereum has a big head start when it comes to developing real utility in crypto, which is why it is one that can beat Bitcoin in the long run.
Coming up quickly behind Ethereum is Solana, which is a cryptocurrency blockchain that can handle around 3,000 transactions per second today and plans to continue to upgrade that number over time, improving to 30,000 transactions per second or more.
Solana has similar smart contract capabilities to Ethereum, but transactions are faster and far less expensive. A typical transaction on Solana costs a fraction of a penny as opposed to costs in dollars and sometimes hundreds of dollars on Ethereum. It allows developers and innovators to potentially create more businesses on the blockchain than a more expensive blockchain like Ethereum.
Solana now has more active users and more transactions than Ethereum, and if the current growth rate continues this will be an extremely disruptive cryptocurrency.
The upgrades I mentioned for Ethereum are in part intended to improve performance for what are known as Layer 2 blockchains like Polygon. A layer 2 lives on top of layer 1 (in this case Ethereum) but provides important tools such as scalability or security.
Polygon was built with scalability in mind and has become a leading way to reduce the cost of operating on Ethereum. Instagram recently launched support for Polygon NFTs, and Stripe enabled payments with Polygon.
If Ethereum is to scale as its developers hope, Polygon will be a key solution, and it could give it the ability to be bigger than a cryptocurrency like Bitcoin.
Utility is the future
Note that each of these cryptocurrencies is built with utility in mind. It could be payments in the real world or ownership of digital assets in the metaverse or with NFTs, but doing something productive is the key. And it’s that productivity that makes me believe that Ethereum, Solana, and Polygon can all beat Bitcoin in the long run.
Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Polygon and Solana. The Motley Fool has a disclosure policy.