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While each has enormous potential, some are safer bets than others.As such, I’ve organized the cryptocurrencies based on their overall risk-to-reward potential from most balanced to least.With that in mind, let’s take a closer look at the wild world of cryptocurrency.5-Star Rated Coins Ethereum (ETH)
Ethereum is a relative newcomer that has risen up the ranks thanks to its superior technology and its ability to create “smart contracts.”
Approximate Market Cap: $200 billion Year Established: 2015 2020 Return: 470% Score:
Ether, the cryptocurrency of the Ethereum blockchain, is a technologically advanced version of Bitcoin that stands to grow even faster.
Rather than hold itself as “digital gold,” Ethereum runs on a series of contracts.
That makes it more like Google Wallet or Apple Pay — a system that can approve or delay transactions based on real-world events.Online buyers and sellers, for instance, could set up trades that only follow through when the postal service independently verifies the delivery of goods.
Ethereum is also blazingly fast compared to Bitcoin: transactions only take 15 seconds to clear, rather than 15 minutes.
Although trading costs are still high, its speed makes Ethereum useful for real-time use, rather than only as a store of value.
Finally, Ethereum also has widespread adoption, with over 600,000 wallet addresses in use .As developers add services and protocols to make cryptocurrencies more useful, Ethereum looks set to keep winning.
These qualities have pushed Ethereum to my No.
1 spot in terms of risk-to-reward potential.Despite it having a later start than many other currencies, it has a winning combination of widespread usage, technological superiority and relative safety (compared to smaller coins, at least).Bitcoin (BTC)
Bitcoin is the most widely adopted cryptocurrency.Although it’s not the most technologically advanced, it continues to lead the pack.
Approximate Market Cap: $920 billion Year Established: 2009 2020 Return: 309% Score:
The first successful cryptocurrency continues to lead the pack.With its first-mover advantage, Bitcoin not only won early name recognition.It also became the de-facto cryptocurrency for mainstream investors.
Smaller investors can use Square (NYSE: SQ ) and Paypal (NASDAQ: PYPL ) services to buy as little as $1 (or as much as they can “hodl” ).Meanwhile, institutional investors can use the Chicago Mercantile Exchange (CME) to transact millions of dollars in futures.
That makes Bitcoin an essential allocation.The world’s No.1 coin makes up close to two-thirds of the entire cryptocurrency market, providing liquidity between smaller altcoins.
Its size also makes it resistant to 51% attacks , where large cryptocurrency miners attempt to use computing heft to try manipulating the blockchain.
However, popular as it may be, Bitcoin has some downsides.
As one of the earliest blockchains, Bitcoin’s ledger is large and unwieldy.Transactions can cost $12 to complete and take over 15 minutes to clear.That’s fine for its purpose as “digital gold,” but it prevents BTC from use as a day-to-day currency.
(People paying in Bitcoin will often use third-party services to transact small amounts).
Bitcoin is also extremely sensitive to macroeconomic movements — the currency lost half its value in the most recent U.S.stock market downturn.And if 2021 reveals a weak economic recovery or mutated strain of the novel coronavirus, Bitcoin could easily lose 50-80% of its value.But for those looking to invest in cryptocurrency, Bitcoin remains the most liquid option.It’s an essential coin to hold, and one that receives top marks for in 2021.XRP (XRP)
XRP is a centralized cryptocurrency that’s geared toward taking out the high costs of inter-bank transfers.
Approximate Market Cap: $24 billion Year Established: 2012 2020 Return: 16% Score:
If you could only bet on one cryptocurrency this year, XRP would be it.
XRP is the largest currency to have 10x potential for 2021.
XRP is the odd duckling of the cryptocurrency world.Founded by Ripple Labs, XRP is a centralized currency that’s mined, managed and administered by Ripple Labs (instead of a broad-based community).On one hand, that gives the coin the benefits of Visa (NYSE: V ) and other centralized payments processors.These include the ability to negotiate with large banks, execute trades quickly and control policies.
On the other hand, critics are right to question: “Why use a cryptocurrency in the first place then?”
XRP has also had its share of accounting issues.Specifically, in December 2020, the U.S.
Securities and Exchange Commission (SEC) sued Ripple and two executives for selling XRP tokens as unregistered securities .
Ripple also controls over half of the XRP supply.
Still, XRP has enormous potential.The currency is used by financial institutions as an alternative to the SWIFT network, giving it a real-world application.And its low price-per-coin makes it a tempting target for punters — it’s easier to see XRP rising 1,000% to $3.5 than BTC doing the same to $454,000.Stellar (XLM)
A well-placed contender to XRP’s crown, Stellar offers low-cost, cross-border transactions.
Approximate Market Cap: $11 billion Year Established: 2014 2020 Return: 189% Score:
2021 is shaping to become Stellar’s year.After lagging Bitcoin in 2020, Stellar surprised analysts and investors alike by rocketing 200% in the first week of January.The coin has continued to outperform expectations since.
Much of its success comes from XRP’s misfortunes.
Much like XRP, Stellar was designed to facilitate cross-border transactions.As regulatory issues mount for rival XRP, Stellar has quickly moved to fill the void.But some of it has also come down to luck.In January, the Office of the Comptroller of the Currency (OCC) allowed banks to start using independent node verification networks .The same week, the Ukrainian government announced a partnership with Stellar Development to create a national digital currency.
All this grants perfect investment conditions for Stellar, a top cryptocurrency for 2021.Cardano (ADA)
Cardano is the largest third-generation cryptocurrency, and it’s packed with plenty more upside potential in 2021.
Source: Immersion Imagery via Shutterstock
Approximate Market Cap: $27 billion Year Established: 2017 Cost Per Transaction: 7 cents 2020 Return: 441% Score:
ADA, which runs on the Cardano network is one of the most technologically exciting cryptocurrencies to date.
Its proof-of-stake system means it can operate more efficiently than the standard proof-of-work system.
And its use of smart contracts means that it can keep track of transactions like bitcoin while handling payments like Ethereum.In short, it’s a third-generation coin that improves on its predecessors.
ADA/Cardano still has plenty of work to do in the year ahead.After all, having a superior technological product means nothing if people won’t adopt it.But three key areas make it a top cryptocurrency for 2021.
First, ADA has momentum.The currency took just three years to hit a $10 billion market cap — one-third the time it took Bitcoin to do the same.Second, it sits at just 30 cents per coin, making it a tempting target for punters to run up.Finally, it has the ability to handle transactions and smart contracts.
This makes it a natural enhancement for other cryptocurrencies like Bitcoin.Dogecoin (DOGE)
An internet meme turned cryptocurrency, Dogecoin teaches the world about making money.
Approximate Market Cap: $7 billion Year Established: 2013 Cost Per Transaction: 3 cents 2020 Return: 118% Score:
In 2013, IBM (NYSE: IBM ) software engineer Billy Markus founded Dogecoin as a meme joke.And like most memes, Dogecoin saw its 15 minutes of fame.In 2017, DOGE briefly rocketed 85,000% as the internet found its new amusement; it subsequently lost 98% of its value.
But in the world of cryptocurrencies and memes alike, second acts DO exist.
In December 2020, Tesla (NASDAQ: TSLA ) CEO Elon Musk sent Dogecoin back up 200% in a week simply by tweeting about it .As 2021 rolls around, this newfound popularity could send the coin up to speculative heights.Dogecoin does have its merits: its faster block time makes it better at processing payments than Bitcoin can.But in an asset class where popularity trounces usability any day of the week, Dogecoin could quickly return 1,000%.
Just make sure you take your profits.
4-Star Rated Coins
Along with Cardano/ADA, Polkadot is another promising third-generation cryptocurrency to consider.
Source: Zeedign.com / Shutterstock.com
Approximate Market Cap: $27 billion Year Established: 2017 2020 Return: 205% Score: ★★★★
In December, Binance announced a $10 million fund to support projects on Polkadot, a new cryptocurrency.DOT’s price shot up 41% within a week .And more gains could be on the way.
Founded by Gavin Wood, the Chief Technology Officer of the Ethereum Project, its protocol improves on older blockchains.From a technological standpoint, Polkadot’s key difference is its use of parachains — multiple blockchains that can run in parallel.
That solves a massive issue for Bitcoin, which has a single, growing blockchain that all miners (and transactors) need to store.Developers have also added scalability, smart contracts and security.
Still, investors need to remember that, in the world of cryptocurrencies, the best technologies aren’t always the winners — it will take strong marketing (and some luck) to get Polkadot to rival its larger competitors.Neo (NEO)
NEO — “the Chinese Ethereum” — looks set to shine if the Chinese Communist Party allows it.
Source: Wit Olszewski / Shutterstock.com
Approximate Market Cap: $3 billion Year Established: 2016 2020 Return: 63% Score: ★★★★
Don’t be fooled by NEO’s sleepy looking returns in 2020.NEO (formerly known as Antshares) is one of China’s earliest and largest cryptocurrency ventures.
The coin fell hard in 2018 as the Chinese government cracked down on cryptocurrency exchanges.But in 2021, the coin staged a remarkable resurgence as Chinese regulators turned their ire to Ant Group, a payments processor .
With the Chinese Communist Party now rethinking its stance on cryptocurrencies , NEO has a chance to shine once again.Celsius (CEL)
Lender Celsius is a cryptocurrency with the potential to become a bank.
Approximate Market Cap: $1 billion Year Established: 2018 2020 Return: 3,717% Score: ★★★★
In 2018, Celsius Network crowdfunded $20 million to create a cryptocurrency lending platform.Since then, the network has written $6.2 billion in loans and produced $11 million in interest income, making it more like a bank than a currency.And by registering as an exempt issuer with the U.S.Securities and Exchange Commission (SEC) , Celsius has soared even as other regulatory related currencies like XRP have struggled.In fact, its 2020 return was one of the highest of any other coin.
Still, Celsius has plenty of risk for potential investors.As companies from Bear Stearns to Lehman Brothers found, bad loans can quickly threaten the stability of an entire lending operation.
And the Celsius Network has raised red flags in the past, particularly with its unclear collateral requirements .In other words, Celsius could also blow up like a bank if they don’t have the right controls in place.
Nevertheless, CEL could still continue to rise.It’s one of the largest pure-play P2P lenders in the crypto space, making it a cryptocurrency to watch in 2021.Nano (NANO)
Want to have your own blockchain? Nano gives every user their own ledger.