Cardano Might Be Worth the Speculation, But Know You’re Speculating

In the early years of the proliferation of cryptocurrencies, critics unfamiliar with the underlying blockchain concept dismissed the sector as pure speculation. However, the development of utilitarian networks like Cardano (CCC:ADA-USD) forced a deeper understanding and respect.

A concept token for Cardano (ADA) with a trading chart in the background.
Source: Shutterstock

Under the right conditions, it’s possible for these decentralized protocols to spark unprecedented societal and economic changes.

Indeed, anyone observing the crypto storyline from a top-down perspective can see its evolution. Starting off as a peer-to-peer transactional platform, computer programmers took the blockchain innovation and developed other trustless networks.

From this synergy sprouted concepts like smart contracts and decentralized finance (DeFi) applications.

If anyone was feeling the heat regarding the burgeoning crypto industry, it was the legions of middlemen entities: attorneys, escrow agents, brokers. Not that the functions these professions lever will be obsolesced.

Rather, their operations will be decentralized. That’s the main point regarding Cardano or any other virtual currency. Apparently, economies weren’t making efficient use of resources due to centralized protocols.

Decentralization changes everything. It may not solve everything immediately, but it sets the course for myriad good, including financial access and democratization.

However, merely switching on a single lever doesn’t always spark radically positive changes. Before you buy Cardano on the notion that it could be “the one,” you should consider lessons of our past.

Decentralization isn’t Always the Answer

Quite often, crypto advocates — whether we’re talking about Cardano or any other digital asset — will speak of decentralized protocols as if they were novel concepts. In fairness, the technical platform itself is unprecedented, but the concept of decentralized financial infrastructures has been done before.

According to the fall 1982 edition of the Federal Reserve Bank of Minneapolis’ Quarterly Review (the link to the document is here though it automatically uploads a pdf document to your computer, just a heads up), researchers explored the topic of wildcat banks during the Free Banking Era between 1837 to 1864.

A common assumption among academic circles is that wildcat banks or loosely regulated independent financial institutions contributed to free banking’s downfall because of fraud. However, the Federal Reserve Bank of Minneapolis pointed out that evidence for this accusation is scant.

Rather, it proposed that “bank closings and noteholder losses of the period were caused not by banks cheating their noteholders, but rather by banks and their noteholders simply responding to capital losses sustained because of market forces.”

Under its hypothesis, “falling bond prices would cause free bank closings, basically, by instigating runs on banks.”

Of course, it’s impossible to completely align free banking with cryptos like Cardano. However, the main point is that issuing multiple competing currencies decoupled from a central authority has been tried before.

Unfortunately, it just created too much speculation, with the freedom of advantaging market forces also becoming its pivotal liability when said forces failed to move in the “right” direction.

Lessons for Cardano or Any Crypto Initiative

To put it bluntly, just because an economy is decentralized doesn’t necessarily mean that you will immediately promote efficiencies. In fact, since we’re on a history lesson here, let’s consider an important takeaway about decentralization:

At the start of the [Great] Depression, the Federal Reserve’s decision-making structure was decentralized and often ineffective. Each district had a governor who set policies for his district, although some decisions required approval of the Federal Reserve Board in Washington, DC. The Board lacked the authority and tools to act on its own and struggled to coordinate policies across districts. The governors and the Board understood the need for coordination; frequently corresponded concerning important issues; and established procedures and programs, such as the Open Market Investment Committee, to institutionalize cooperation. When these efforts yielded consensus, monetary policy could be swift and effective. But when the governors disagreed, districts could and sometimes did pursue independent and occasionally contradictory courses of action.

You see, even decentralized protocols have the potential to promote inefficiencies in an economy. Given the wild bubbles in Cardano and other asset classes, merely eschewing centralization for decentralization has not proven to be a viable solution for anything.

But the biggest whammy is that the pulling of a single lever didn’t solve the gambling fervor that sparked circumstances like the Great Depression or the Great Recession. In both centralized and decentralized paradigms, American history has demonstrated that neither protocol effectively mitigated the consequences of rampant speculation.

Put another way, I find it difficult to believe any blockchain project will spark global financial access and democratization. Merely distributing the benefits of economic exploitation across random anonymous actors doesn’t actually address the exploitation itself.

Don’t Fall Into a One-Track Mindset

The takeaway in mentioning all of the above is to help steer decisions toward Cardano away from a one-track mindset. If you want to buy ADA, go knock yourself out. I’m not here to stop you. However, I am here to encourage you to think clearly and objectively about your investment decisions.

Often, crypto proponents pitch you this idea that through decentralization, myriad innovations can come forward. Maybe that’s true. Admittedly, I used to fall into this camp. However, as I consider objective realities, I have discovered that there’s nothing new under the sun.

While decentralization sounds like a novel concept, it’s been done before, not through digital means of course but the main idea is the same: remove power structures from a single point of authority. Sometimes, decentralization does enable innovation but merely pulling this lever alone is no guarantee for progress.

On the date of publication, Josh Enomoto held a LONG position in ADA. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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