Cardano (CCC:ADA-USD) has become a leading crypto name following its explosive growth in 2021. ADA-USD is up nearly 1,200% year-to-date. Put another way, the proverbial $1,000 invested in Cardano in early January would now be worth $12,000. It is hard to argue with that kind of success, even in the crypto space.
By comparison, Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD), the two most important digital currencies, are up 53% and 330%, respectively. While the broader crypto market has been taking a breather in recent months, Cardano has managed to extend an impressive rally until early September.
Now ADA-USD is the world’s third largest cryptocurrency with a market capitalization (cap) of almost $73 billion. While still far lower than second-place holder Ethereum with a market cap of $370 billion, Cardano has emerged as one of the hottest altcoins in the crypto market.
Cardano was launched by Jeremy Wood and Ethereum co-creator Charles Hoskinson. In its manifesto, Cardano seeks to be the go-to blockchain platform for smart contracts, or as the Kent Academic Repository posits, “programs that run in a blockchain environment.” In addition, the Cardano Foundation acts as the custodian of Cardano and promotes, standardizes and protects the platform.
Let’s now take a closer look at what the rest of the year could hold for Cardano.
What Makes Cardano Unique
Ethereum is still the most important platform for building smart contracts. International Business Machines (NYSE:IBM) says, they are “used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.”
Yet Cardano’s “Alonzo” upgrade has had a considerable impact on investor sentiment. It allows users to develop and execute smart contracts on the Cardano blockchain and build decentralized applications (DApps). Cardano can now offer potentially lucrative decentralized finance (DeFi) services, gradually matching the utility of Ethereum in this booming industry.
DeFi aims to eliminate traditional intermediaries such as banks, allowing users to lend or borrow funds as well as earn interest in a savings-like account. Ethereum currently dominates the DeFi industry, where the total value of cryptocurrencies pledged has surged to over $110 billion in 2021.
While Ethereum is gradually transitioning from a proof-of-work (PoW) network to a proof-of-stake (PoS) network, Cardano already uses a more eco-friendly PoS system. In this consensus protocol, stakeholders must put their crypto holdings at stake to verify transactions.
This results in faster transaction times and significantly less energy usage. The Cardano network is estimated to use less power than a small town, compared to Bitcoin, which consumes energy equivalent to the entire power supply of Austria or Chile.
Fees used to pay for transactions on Ethereum’s blockchain have been increasing steadily in the last few years. However, Cardano currently boasts more stable and lower fees, starting at around 0.17 ADA-USD.
In addition, Cardano also has a limit on how many tokens can be produced, similar to Bitcoin. The limited supply helps boost its value over time and allow users to hedge against inflation. So far, there are 33 billion ADA in circulation, with around 12 billion left to be mined.
Lack of Adoption Remains a Headwind
Cardano is working hard to catch up with ETH-USD to become the internet’s primary host of DApps. Both blockchains are currently undergoing significant updates. ADA’s dual-layer system, established PoS verification, and more friendly programming language seem to offer a better ecosystem to host tokens and DApps. Users also highlight the importance of lower fees and faster transactions on the Cardano platform.
However, the biggest problem Cardano faces is a lack of adoption. Ethereum enjoys a first-mover advantage and network effects. According to State of the DApps, 2,856 DApps out of 3,645 in the crypto space currently utilize the Ethereum network.
Recent metrics highlight there are currently about 1.2 million transactions per day on the Ethereum platform. Put another way, at the moment, it simply makes more commercial sense to build an app on Ethereum.
In addition, over a dozen other influential DApp tokens, such as EOS (CCC:EOS-USD) and Neo (CCC:NEO-USD), are battling for market share with Ethereum, so there is significant competition in this part of crypto space.
The Bottom Line on Cardano
Investing for the long term is potentially a sound move when buying cryptos. ADA-USD has solid potential to eventually become a mainstream form of currency. Yet investors should only invest in Cardano if their time horizon extends to several years.
Cardano remains highly susceptible to the broader crypto market’s tremendous volatility. It is simply not possible to know what might happen in a week or month. Daily moves of around plus or minus 3%-5% are quite common in digital assets.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation