Cardano (CCC:ADA-USD) has become one of the leading alternative cryptocurrencies.
Many people have labeled Cardano a potential Ethereum (CCC:ETH-USD) killer. And indeed, with Cardano’s dramatic rise over the past year, it has become a top 10 cryptocurrency by market cap. If Cardano can execute on its project road map, it could become one of the dominant players in cryptocurrencies.
However, that whole achieving the road map part is still in question. And a recent social media feud has brought concerns about Cardano’s programming to the forefront.
Smart Contracts: A Killer App
We’ll get to the feud in a second, but some back story is necessary. Smart contracts are vital to cryptocurrencies. You’ve probably heard of decentralized finance (DeFi). This is where people can build applications on top of cryptocurrencies such as Ethereum.
These allow for binding legal contracts and a wide variety of related financial transaction. DeFi allows for all sorts of fun stuff such as coin staking, where members can provide liquidity and earn high interest rates as a result.
Ethereum has grown massively over the past year due to launching a highly successful DeFi and smart contract ecosystem. Investors have plowed tens of billions of dollars into the core smart contract area. Other related fields such as non-fungible tokens (NFTs) have taken in billions of dollars as well. It seems that smart contracts may finally be the big thing that allows cryptocurrencies to go more mainstream.
Bitcoin (CCC:BTC-USD), due to its more limited programming options, can’t really compete with Ethereum here. So there’s a big opening for Ethereum or some other cryptocurrency to gain a dominant position offering these smart financial services.
Ethereum, Proof-of-Work, and the Cardano Opportunity
Cardano founder Charles Hoskinson was one of the key players in Ethereum. However, he left due to strategic differences over how that currency should proceed. Instead, he decided to found Cardano and improve on what he felt were Ethereum’s shortcomings.
A huge one is energy efficiency. Ethereum, like Bitcoin, currently uses a proof-of-work mining protocol. This is the classic cryptocurrency technique, where high-powered computers solve cryptographic puzzles to ensure the integrity of the blockchain. Miners, in turn, receive rewards such as newly-minted crypto tokens in return for their work.
Proof-of-work protocols have come under fire, however, due to their high levels of electricity usage. Tesla (NASDAQ:TSLA) founder Elon Musk, in particular, has called into question the environmental damage that Bitcoin, Ethereum, and other big proof-of-work tokens are causing.
Cardano aims to resolve this problem. It, instead, uses a proof-of-stake protocol. In this, rather than using computing-heavy puzzles, people stake (or lend) their tokens. When they stake their tokens, they get to vote on the cryptocurrency’s future; it’s presumed that the majority will vote for in their self-interest and keep the currency’s integrity intact. Stakers that participate in a token’s liquidity pool receive rewards such as new tokens or a portion of fees that a project may earn.
Proof-of-stake uses just a tiny fraction of the electricity of proof-of-work. This is vital not only due to environmental concerns. It’s also plain expensive to use that much electricity. That cost, in turn, ends up causing high transaction fees on Ethereum as the miners have to be compensated for their costs somehow. Cardano, by cutting out all the expensive computing costs, should be able to deliver the functionality of Ethereum without the huge transaction fees or environmental burden.
Can Cardano Deliver The Goods?
If Cardano can truly set up seamless smart contracts on a safe and reliable proof-of-stake protocol, it should be a home run investment. Cardano would, in theory, take massive market share from Ethereum and other smart contract ecosystems.
There’s a little problem, however. Cardano’s efforts to roll out smart contracts have been delayed. And the timeline has slipped further into question.
An online betting/prediction site called Polymarket recently brought this to light. Polymarket is a cryptocurrency-backed betting site that indeed uses a smart contract-based liquidity system for market making. Polymarket’s bets are settled using USDC, which is the stablecoin powered by Coinbase (NASDAQ:COIN). So, it’s fair to say that Polymarket knows a thing or two about designing cryptocurrency applications using smart contracts.
Polymarket launched a contract asking: “Will Cardano support smart contracts on Mainnet by Oct. 1, 2021?” As of this writing, bettors have the odds at 53% against and only 47% odds of Cardano succeeding in rolling out smart contracts by Oct. 1. More than $328,000 worth of trades have executed on this Cardano bet, so there is a decent amount of money at stake on whether or not Hoskinson can actually bring smart contracts to Cardano reasonably soon.
The Bet
On July 15, Hoskinson apparently noticed the Polymarket contract that hinges on whether or not Cardano will succeed. Hoskinson tweeted: “You people really make me laugh.”
But Polymarket’s official Twitter (NYSE:TWTR) account had the last laugh. It tweeted back this challenge to Hoskinson:
You know what’s really funny, Charles? @Cardano still not having smart contracts. We’ll bet you $50,000 on Polymarket that you won’t have live smart contracts for Cardano $ADA by Oct 1st. Time to put your money where your mouth is, Charles. Winnings go to charity of choice.
As of this writing, Hoskinson has apparently not publicly responded to Polymarket’s offer for a $50,000 charity bet, though he has tweeted about many other subjects in the interim. It seems that Hoskinson may not have confidence in the October timeline, as otherwise it’d be entertaining to make Polymarket pay up for its audacious dare.
Cardano Verdict
It probably won’t make or break Cardano’s prospects whether it hits the October deadline or not. That said, it’s a candid reminder of Cardano’s big plans but limited execution in recent years. As Coindesk recently pointed out, Cardano has talked a lot about projects in places such as Ethiopia and El Salvador, but the reality could be less upbeat.
Meanwhile, the clock is ticking for smart contracts. Ethereum intends to move from proof-of-work to proof-of-stake over the next year. This could potentially end Cardano’s window of opportunity. Once Ethereum is operating on a proof-of-stake protocol, it will largely eliminate Cardano’s competitive advantage as it pertains to electricity usage and transaction fees. If Cardano wants smart contract market share, it needs to get them listed as soon as possible.
In the meantime, if you need a barometer of how Cardano’s development is going, watch that Polymarket contract. It could end up being quite entertaining, particularly if any $50,000 trades happen.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
