Evai Founder and CEO Matt Dixon discusses the cryptocurrency projects on his watchlist for 2021, exploring their innovation, utility, and performance compared to bitcoin.
Bitcoin (BTC) price action in 2021
Bitcoin has become the defacto standard for all digital assets, responsible for inspiring an entire ecosystem of cryptocurrencies.
The pioneering cryptocurrency soared to an all-time high of $57,000 on the 21st of February, defying nearly every expectation. While recently undergoing a sizable 20% correction, Bitcoin currently remains in the relatively uncharted territory above the $40,000 threshold with a 70% year-to-date (YTD) increase.
Bitcoin’s price uptick comes as a result of mass approval from both retail and an increasing institutional base. The asset is finding increased exposure in portfolios, both large and small, as a hedge against macroeconomic risk, latent inflation, and currency debasement.
But with bitcoin stealing the spotlight, it’s often easy to overlook the potential of alternative crypto assets. Nestled within the 8,000 strong, $1.5 trillion cryptocurrency market are some innovative “ones to watch.”
Here are several alternatives to bitcoin, judged on their innovation, utility and early performance this year.
Arriving on the scene in 2015, some 6 years after bitcoin’s genesis, ethereum claims its spot as the second-largest cryptocurrency by market cap.
Akin to bitcoin, ethereum is responsible for inspiring and facilitating the creation of thousands of cryptocurrencies built upon its network. Similarly, ethereum enables the peer-to-peer transfer of value while eliminating the need for an intermediary such as a bank.
However, unlike bitcoin, the ethereum blockchain is programmable, allowing anyone to create any application upon it. These so-called decentralized apps, or “dapps” range from games to other tokens and even an entire division dedicated to lending and borrowing cryptocurrencies known as the decentralised finance sector (DeFi).
This year alone, ethereum has witnessed an increase of around 105%, a fairly stark raise on bitcoin’s own 70% YTD gain.
One of the principal drivers of Ethereum’s price increase is the network’s ongoing transition to a more sustainable and scalable protocol dubbed Ethereum 2.0.
Phase 0 of the ETH 2.0 upgrade has already shipped with the beacon chain—Etheruem’s proof-of-stake consensus blockchain—now live with over 3 million ETH staked (worth $4.8 billion at the time of writing).
Polkadot’s native token, $DOT, has achieved an impressive 360% gain since the beginning of the year.
Created by Ethereum Co-Founder and CTO Gavin Wood, Polkadot aims to connect the multitude of siloed blockchains to enable interoperability across a range of services and protocols. Polkadot extends a “bridge” to established blockchain networks, allowing developers from different ecosystems to collaborate.
The Polkadot protocol also plays host to its own individual group of blockchains, known as “parachains.” Each parachain comes with its own particular niche—ranging from the creation of applications to providing access to decentralised marketplaces or even simply increased transaction efficiency.
The Polkadot network is currently in the beta phase of its parachain rollout, with bug fixing taking place on the Rococo testnet. This represents the final stage of Polkadot’s launch, after which the protocol will become a fully-functional multichain network.
Aave essentially acts as a savings account on the blockchain, enabling participants to earn passive interest on several cryptocurrencies deposited on the platform.
Built upon the Ethereum network, Aave is a non-custodial lending platform that allows users to lend, borrow and earn dividends on cryptocurrencies within the DeFi sector.
For borrowers, Aave facilitates collateralised crypto loans for a nominal fee. Lenders, meanwhile, can earn dividends on the cryptocurrencies they’re willing to loan out.
Aave also permits so-called flash loans. These ultra short duration loans allow instant and uncollateralised borrowing with one condition: the loan must be repaid within the same transaction it was taken out in. This type of loan is most often used to capitalise on arbitrage opportunities between markets where crypto prices differ.
Though flash loans have been tied to several DeFi protocol exploits, they represent a useful and innovative step in the future of credit and loans.
The AAVE cryptocurrency works as a governance token, entitling holders to vote on important protocol updates and developments. The protocol recently upgraded V2 of its token governance system, enhancing scalability and extending voting rights.
AAVE has registered a 306% increase since the start of 2021.
Chainlink is a so-called “oracle” network that relays real-world data to “smart contracts” on the blockchain.
Smart contracts are automated, programmable contracts or agreements between two or more parties. Once a smart contract’s terms are met, they execute. These novel contracts can be applied for a myriad of uses, from brokering insurance deals to closing real-estate proceedings, all without the need for a middle man.
The issue is, smart contracts rely—often quite heavily—on valid real-world data. It’s the oracle’s job to provide this data. However, a sole or centralised oracle can be easily corrupted and/or faulty.
That’s where Chainlink comes in.
By providing an entire network of oracles, Chainlink negates this single point of failure, enabling data to be verified by a host of decentralised validators.
Chainlink’s latest upgrade, dubbed a “rapid evolution” by founder Sergey Nazarov, looks to increase scalability by enabling nodes to pull data off-chain. Now, node runners no longer incur the exorbitant fees charged by the Ethereum network—cutting operating costs by up to 90%.
Over 300 projects have integrated Chainlink’s oracle tech, with smart contract holders paying for the oracle’s invaluable service via chainlink’s native cryptocurrency, LINK.
The LINK token has increased some 110% this year, outperforming bitcoin by 40%.
Behind many leading cryptos, there is genuine innovation. While these tokens demonstrate value as investment assets, many also strive to shape the modern financial landscape, either through re-imaging credit and loans, easing transaction pangs, helping evolve the DeFi sector, or streamlining how we broker deals.
As ever, doing your own research is integral and understanding the technologies and innovation is just one component that will help you avoid risk and identify long term value in the crypto market.
Disclaimer: Opinions expressed in this article do not constitute investment advice.
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