Bitcoin (BTC 0.28%) is the $720 billion behemoth in the crypto market, and has been called a lot of things, including a hedge against inflation and the future of digital currency. But I think right now the best-case scenario for Bitcoin is that it's digital gold, or a store of value for turbulent times.
Whether you're bullish on Bitcoin or not, I think the use cases for this digital currency have proven to be limited over the last few years. But there are a growing number of use cases being built on top of cryptocurrencies like decentralized finance projects, NFTs, and entire protocol ecosystems that could disrupt established industries. It's these use cases that make me think Ethereum (ETH 0.17%) and Solana (SOL -2.64%) could ultimately dwarf Bitcoin in their total market caps.
Image source: Getty Images.
Ethereum's growth potential
The most valuable crypto utility ecosystem today is Ethereum, which has most of the high-value assets, like NFTs, and the most mature development projects. Worlds like Decentraland, The Sandbox, and Axie Infinity are all based on Ethereum in some form, and there are millions of dollars invested in these projects alone. In 2021, NFT value on the blockchain reached $41 billion, according to Chainalysis, and most of that was on Ethereum.
Not only is Ethereum itself valuable, but it's also the Layer 1, or main decentralized blockchain, for other extremely valuable Layer 2 protocols that are third-party integrations that live on top of the underlying Layer 1 blockchain and provide greater scale.Polygon (CRYPTO: MATIC), Arbitrum, and Looping (CRYPTO: LRC) are just a few of the projects built on top of Ethereum.
To be fair, Ethereum's network is currently extremely slow and expensive, and that's holding back growth. But a planned Ethereum 2.0 upgrade this yearalong with more upgrades in coming years are needed to make the network even faster and dramatically lower costs. Without these upgrades, Ethereum could be in trouble. But if the upgrade goes off as planned, the sky is the limit for this digital ecosystem.
Solana brings low costs to the blockchain
One protocol that doesn't suffer from high fees is Solana, which was built for high transaction volume and low fees from the start. This is also a Layer 1 blockchain, just like Ethereum.
What I like about Solana is how fast the network is and how inexpensive it is to make transactions. An NFT that sells for $20 would make sense on Solana because transaction costs are a fraction of a penny, but would never work on Ethereum because gas fees (fees paid to validators to complete transactions) can be $100 or more for a transaction.
The investment in projects for Solana is impressive as well. At least two funds totaling $250 million have been raised in the last few months for investments on the Solana blockchain. These kinds of investments will create new infrastructure and utilities that developers can build on top of.
Innovation is happening rapidly on Solana, especially when you consider the blockchain just reached a critical mass of users in fall 2021. The future is bright for Solana, and eventually the value of its ecosystem could be worth more than Bitcoin.
Utility is the future of cryptocurrency
The growth of cryptocurrency over the next decade will be driven more by utilities than day-to-day trading of cryptocurrencies themselves. Metaverse projects are being built on top of Ethereum and Solana, and finance and gaming projects are being built with Solana as the medium of exchange.
This is where innovation for the next generation of the internet is taking place, and that's why I'm bullish on the two cryptocurrencies. They're just starting to show their true potential to investors.
Travis Hoium owns Ethereum and Solana. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
