Is Cardano a Good Investment?

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Contributor, Benzinga
Updated: June 13, 2022

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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

Background

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 Development 

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

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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

Partnerships

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.

Where to Buy Cardano

Cardano is available almost anywhere you can buy crypto. You can pick it up on Binance.US, Kraken and even Coinbase as of May 2021. 

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Staking Your Cardano

Cardano is a proof of stake network, and you can become a valitor by staking some or all of your ADA tokens. Staking earns you the network fees for all of the transactions that you validate. This is a great way to support the decentralized community and earn passive income in ADA!

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. 

Frequently Asked Questions

Q
What is Cardano?
A

Cardano is a blockchain platform with a settlement and computation layer. Cardano is adding support for smart contracts in spring 2021. This will make it effective at handling transactions and computations without clogging the network. Cardano is an Ethereum competitor, with around a tenth the number of active developers.

Q
What is ADA?
A

ADA is Cardano’s native token, and required to facilitate transactions on the network. ADA is available from most exchanges, and supported by coinbase wallet as well as the Ledger products (among others).

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