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Based on historical price action, Cardano has been a great investment. The digital asset received a ton of hype in 2021, and many fans hail it as the Ethereum-killer. Does Cardano actually have a shot at stealing Ethereum’s marketshare? And, should it be in your crypto portfolio? Let’s take a look!
Cardano: Fundamental Analysis
Cardano is a blockchain project with over 70% of the total currency, ADA, staked for network validation (a really impressive rate). Part of the reason that so much ADA is staked is due to the cryptocurrency’s lack of decentralized applications (dApps) available on its blockchain. While Ethereum has around 5% of its total supply locked as validators, much more ETH is locked in DeFi applications.
The Cardano project began in 2015 in an attempt to solve some of the problems that Ethereum faced from its Proof-of-Work consensus model. Cardano was officially founded by Charles Hoskinson, who is a former co-founder of Ethereum.
Some of Cardano’s key improvements are multiple processing layers for settlements and computations, proof of stake consensus and the ability to upgrade its network easily in the future.
The Cardano settlement layer launched in 2017 and raised around $63 million through the ADA ICO. The settlement layer excludes smart contracts, so at this time Cardano could only be used for settling peer-to-peer payments. Since then, the ever-growing team of developers has been hard at work preparing for the launch of smart contracts on the Cardano Computation Layer.
Cardano currently has between 100 and 150 developers actively working on the project and pushes out around 700 commits per week. These factors make the cryptocurrency one of the most actively-developed projects in the blockchain space today, suggesting that they will be able to deliver on their ambitious roadmap.
This amount of developers places Cardano among the most likely projects to steal market share from Ethereum. However, it’s still not close to the size and pace achieved by Ethereum, Polkadot and Cosmos as seen below in the Electric Capital Developers Report from 2020.
Cardano Smart Contracts
One of the most common critiques of Cardano is its non-existent DeFi ecosystem. Since its release of smart contracts on September 12th 2021, investors are hoping to see an ecosystem be built-out soon. However, Cardano’s smart contract upgrade didn’t go smoothly, with its price dropping after applications were unable to operate on the new software.
Looking to the remainder of 2022, Cardano developers are looking to improve smart contract performance and scalability through new release deployments. As per Cardano’s communication director, there will be three major code drops this year with the first one being released in February and the following two slated for June and October respectively. Cardano smart contracts will run on the Cardano computation layer, which will support legacy Solidity contracts as well as its own language, Plutus.
Cardano has already inked some notable partnerships with universities, governments and businesses including the University of Illinois, Ethiopia and New Balance. Hoskinson has pushed hard to see Cardano’s potential come to fruition in Africa, where he believes blockchain can make a huge impact. This is in part due to a large proportion of Africa’s population being unbanked.
New Balance also has plans to use Cardano’s network to track the authenticity of its shoes.
Cardano vs. Ethereum
While Cardano and Ethereum aim to achieve similar goals, they do so in very different ways. Arguably its biggest downfall, Ethereum uses a proof of work consensus model to verify transactions. This is extremely energy intensive and can only handle around 15 transactions per second. Conversely, Cardano can theoretically handle thousands of transactions per second, allowing for far better scalability.
This being said, Ethereum has a far more developed ecosystem than Cardano. Cardano’s smart contracts don’t work yet, so there are no NFTs, decentralized exchanges, or decentralized lending platforms on its blockchain. Even once these programs are released, they will take time to gain the liquidity and adoption seen by Ethereum’s blockchain.
What’s more, Ethereum plans to transition to a proof of stake network within the next year. Once this happens, much of Ethereum’s scalability problems will be fixed. At the end of the day, a bet on Cardano is a bet that its ecosystem will develop before Ethereum transitions to proof of stake.
Pros for Cardano
Cardano is already proof of stake and has a strong development team behind its future upgrades. The project focuses on getting it right the 1st time, whereas Ethereum focuses on trial and error to develop its ecosystem.
Cardano’s separation of the settlement and computation layers results in much lower transaction fees for payments.
Cons for Cardano
Cardano is fighting an uphill battle with an army a tenth the size of Ethereum’s. Competitor Solana also has a much larger development team and is growing even quicker.
Low fees are nice, but low fees also indicate a low level of demand for space on the network. This might change when more smart contracts start flowing through the network, which demand more space than payments.
Cardano has no chance to overtake Ethereum’s smart contract market share until they launch fully-operable smart contracts. This is expected to be sometime in September 2021.
Pros for Ethereum
Etheruem’s network is already established and boasts over 1,500 active developers (over 10 times more than Cardano). Ethereum is the foundation of the DeFi movement, and it boasts a rich ecosystem already built on top of it. If Cardano wants to defeat Ethereum, they will need to pick up the weight of this entire ecosystem as well (This is why Cardano has already promised to support smart contracts written in Ethereum’s programming language, Solidity).
Ethereum is also far more decentralized than Cardano, making it much more secure (even before Ethereum 2.0, which should heighten security). Also, the ETH2 testnet, essentially the beta version, is already more decentralized than Cardano.
Cons for Ethereum
Ethereum’s lengthy transition to proof of stake is giving their competitors time to catch up and gain market share. Ethereum’s high network fees also make it unusable for many of its potential users. Since Ethereum only has 1 layer for settlements and smart contracts, the blockchain relies on scaling solutions like Polygon, Optimism and Arbitrum to scale its network. That is, until ETH2 releases.
What Has More Room To Grow: ADA or BTC?
Bitcoin is a much safer investment than ADA, primarily because it backs the entirety of the crypto market. ADA is also widely speculated at this point, where Bitcoin has a very clear value that you either believe in or you don’t. ADA may have more growth potential if it succeeds with its smart contract integration. For Cardano to reach the market cap of Bitcoin, it would need to grow over 1,400% in total market cap.
Is Cardano Safe?
Generally speaking, Cardano is a fundamentally safe investment. However, just like other cryptocurrency, ADA is volatile and considered high risk by traditional standards. The team is considered reputable in the blockchain space, with founder Charles Hoskinson being a co-founder of Ethereum. Also, considering the project is a Layer 1, ADA is a coin on its own blockchain independent of other projects. It offers many options when it comes to staking, allowing traders to earn passive rewards while holding their ADA in staking pools.
Best Hardware Wallet for Cardano
When owning a digital asset like cryptocurrency, it is often smart to get a hardware wallet to keep your private keys safe.
Best Hardware Wallet: Ledger
Ledger is the most credited hardware wallet currently available. The device is primarily an offline hardware wallet. Ledger also connects to Bluetooth and USB, depending on whether you want to use your computer or mobile device. Ledger’s app also makes it easy to secure and manage your assets.
Bonus section: Keep a look out for the Cardano smart contracts utility, as it has yet to be built out on the platform. It will be a bullish indication when developers begin building on Cardano.
Where To Invest in Cardano
You can buy Cardano on many exchanges including eToro, Coinbase Global Inc. (NASDAQ: COIN) and Crypto.com. A digital asset exchange like one of these options is a great way for traders to start buying cryptocurrency.
So, Is Cardano a Good Investment?
Cardano is without a doubt one of the more promising applications in the blockchain space today, with strong fundamentals and a lot of momentum behind the project.
While touted by many as the Ethereum-killer, this is extremely unlikely. In my opinion, Cardano will carve out its own niche within the global blockchain ecosystem, but fail to flip Ethereum. If you are bullish on crypto and blockchain in general, then it makes a lot of sense to have a position in Cardano. If you own Ethereum, then Cardano is a great hedge that will more than likely result in a net increase in gains. It’s truly a win-win.
Remember, this is just my opinion and not financial advice. Crypto investments are inherently risky and you should not invest any money you are not willing to lose. Crypto is extremely volatile, but I’m guessing that’s the reason you’re here to begin with.