Cardano has long been hailed as the potential “Ethereum-killer.”
That’s quite the claim. After all, Ethereum – the name of the blockchain platform itself is often used interchangeably with its native cryptocurrency token, Ether (ETH) – is the second most valuable cryptocurrency project out there, only trailing Bitcoin (BTC). Yet, even as Ethereum seeks to overtake Bitcoin, it has a newer rival coming up to try to take its place.
Bitcoin is still entrenched as the biggest crypto asset largely because it is the oldest and most well-known of the bunch. However, Ethereum has taken market share in cryptocurrency due to its compelling integrated applications. That’s an area where Bitcoin is lacking.
Cardano seeks to top them both, as it offers the best of both worlds. It solves Bitcoin’s excessive energy usage problem while also challenging Ethereum’s captivating smart contracts. Here’s what investors should know:
- What is Cardano?
- Cardano’s mission for greater efficiency.
- The advantages of Ethereum.
- How to invest in Cardano.
What Is Cardano?
Cardano is a blockchain platform centered around Ouroboros.
Ouroboros is a pioneering proof-of-stake protocol that immediately distinguished Cardano from previously invented cryptocurrencies that instead relied on proof-of-work protocols. This difference is key to Cardano’s value proposition.
Also, for clarity’s sake, it’s important to note that Cardano is the name of the blockchain platform, while ADA is the name of its native cryptocurrency token. Cardano’s ADA token, in turn, takes its name from mathematician Ada Lovelace.
Cardano earns all its comparisons to Ethereum. For one thing, Cardano’s founder Charles Hoskinson was a co-founder of Ethereum. However, he had a falling out with Ethereum’s key person, Vitalik Buterin. Hoskinson wanted to lead Ethereum in a more commercial direction and accept venture capital. Other Ethereum founders wanted to take a less business-centered approach.
After leaving Ethereum, Hoskinson decided to improve on Ethereum with his own cryptocurrency project. Hoskinson’s invention would keep many of the attractive features of Ethereum but shore up some of its weaknesses.
Cardano seeks to offer many of Ethereum’s most compelling capabilities, such as robust smart contracts. Meanwhile, Hoskinson designed Cardano from day one to be energy-efficient and support fast transactions with minimal transaction fees. Additionally, for the hard money enthusiasts, Cardano has one other big perk. It has a strict cap of 45 billion coins outstanding, as compared to Ethereum, which has no absolute limit to its total eventual supply.
Cardano has been quite successful. It’s currently the fifth-largest cryptocurrency by market capitalization. The programming community for Cardano is active, and the project has drawn particular interest in 2021 as crypto’s environmental impact has come to dominate the discussion.
Cardano’s Mission: Greater Efficiency
The big edge for Cardano is its claim to energy efficiency.
According to Marie Tatibouet, chief marketing officer for leading cryptocurrecy exchange Gate.io, Cardano’s Ouroboros proof-of-stake algorithm is 20,000 times more efficient than Bitcoin’s mining system. In energy usage, Cardano’s bigger competitor is Ethereum. Ethereum is not wildly energy-efficient as things stand now. That said, Ethereum plans to move to a proof-of-stake algorithm, like Cardano, that would vastly improve its own position.
Bitcoin and many other traditional cryptocurrencies use a proof-of-work protocol. This is where miners use high-powered graphics cards or specialized computing rigs to guess at complicated mathematical puzzles. Those with more computing power win more of the puzzles, and thus receive more of the mining reward.
What makes proof-of-stake different? Howard Poston, an author for cybersecurity education company Infosec, explains that, for one, proof-of-stake bypasses the computing-intensive mining process.
“Proof-of-stake uses its cryptocurrency as a scarce asset. Like putting money into a CD or stocks, stakers promise not to spend their money in exchange for the opportunity to create blocks and earn block rewards. The probability of being selected to create a certain block is roughly proportional to the percentage of the total stake that the user controls,” Poston says.
Instead of having to spend huge amounts of computing power and ecological resources to maintain the blockchain, proof-of-stake protocols can use a miner’s tokens as the collateral that makes the system function. Cardano’s Ouroboros was novel in being one of the first successful proof-of-stake protocols that created a realistic alternative to proof-of-work tokens. Proof-of-stake has become so intriguing that even Ethereum may switch to it in coming months.
So why don’t all cryptocurrencies adopt a proof-of-stake model? One issue is that these systems can concentrate ownership excessively. “Proof-of-stake has issues like the proof-of-stake time bomb. The user with the most staked cryptocurrency will build the most blocks and receive the most block reward. If they constantly reinvest these winnings, they will have an ever-growing percentage of the stake and could eventually control the entire stake,” Poston says.
This runs contrary to the cryptocurrency community’s ethos around distributed authority. Another issue is the so-called “nothing at stake” problem. This makes it easier for users to pollute the blockchain with double votes and other such inaccurate information since there is less penalty for doing so than there would be in a traditional proof-of-work ecosystem such as the one Bitcoin uses. Some purists insist that without proof-of-work, cryptocurrency doesn’t solve many of the decentralization problems it was intended to address.
However, with figures such as Tesla (ticker: TSLA) CEO Elon Musk pushing energy usage concerns to the forefront, proof-of-stake just gained a major round of free publicity. And Cardano’s Ouroboros looks like one of the most compelling proof-of-stake options available.
Ethereum’s Remaining Advantages
While Cardano has numerous technical benefits, it may still lose out overall.
That’s because Ethereum has several key advantages, according to Sarson Funds co-founder and chief marketing officer, Jahon Jamali.
“Ethereum enjoys a sizable first-mover advantage against Cardano. While Cardano’s focus on academia and non-profits has become its hallmark, the argument can be made that lack of private sector engagement has limited the scope of market driven use-cases. There isn’t a major decentralized app of significance building on ADA,” Jamali said.
Several experts pointed to the technical difficulty of programming for Cardano as opposed to Ethereum. Ethereum’s simplicity has allowed it to gain true mass-market adoption. “Cardano may possess some technological advantages, but Ethereum is the only blockchain that is truly enterprise-ready, boasting supporters that include Accenture, FedEx, JP Morgan Chase and Microsoft – all members of the Enterprise Ethereum Alliance,” Jamali said.
Cardano promises to have a robust smart contract environment that will compete with Ethereum’s decentralized finance, or DeFi, platform. However, Cardano isn’t in Ethereum’s league yet.
“When it comes to smart contracts, Ethereum obviously has the edge, for now. Ethereum has an enviable developer community and has built the multi-billion dollar DeFi and non-fungible token (NFT) ecosystems. Cardano, on the other hand, still hasn’t completely integrated smart contracts. With the Alonzo Blue upgrade, they have initiated the process of smart contract integration. It still remains to be seen if these contracts can be properly implemented in the real world,” Tatibouet says.
Overall, while Cardano may have superior technical specifications, it will need to gain more real-world utility and adoption before it can overtake Ethereum.
How to Invest in Cardano
For people that believe in Cardano’s technological advantages, it’s not hard to invest in it.
The ADA token is listed on many major crypto exchanges and has a huge amount of liquidity and trading volume. Coinbase Global (COIN) added support for Cardano in March of this year, giving high-profile validation to the project. In addition to Coinbase, Cardano is heavily traded on Binance, Kraken and Gate.io, among other popular exchanges.
Cardano’s price has been volatile, both this year, and historically. So potential investors should be aware of that and consider Cardano as part of a broader diversified cryptocurrency portfolio. However, a Cardano investment could make a lot of sense, as it has a real chance to take a chunk of business away from Ethereum. “Cardano can take advantage of Ethereum’s bloated gas fees to eventually carve a niche for itself,” Tatibouet says.
Cardano may not be an overnight success, but it has enough merit to remain a top-tier competitor in crypto.