Over the past decade, cryptocurrency has effectively conjured a brand new economy out of thin air. Understandably, it’s become quite a controversial asset class, with smart people arguing for and against. Still, no one can deny the wealth this burgeoning asset class has created. In the last year alone, the crypto market has skyrocketed 109% to $2.1 trillion.
However, enthusiasm for more speculative assets has waned in recent months as high inflation and the prospect of rising interest rates have prompted investors to seek safer alternatives. To that end, despite huge gains over the past year, the crypto market is currently 29% below its all-time high.
Here’s the silver lining: Every past downturn has proven to be a buying opportunity, and there are dozens of cryptocurrencies worth owning. For example, Cardano (CRYPTO: NO) and phantom (CRYPTO:FTM) look like smart long-term investments. Here’s why.
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1. Cardano
Cardano is a programmable blockchain powered by the ADA token, currently ranked as the seventh most valuable cryptocurrency. In 2015, the project was started shortly after Charles Hoskinson left the company ether (CRYPTO:ETH). Cardano wants to be a better version of Ethereum and differs in three ways.
First, the development team took an academic approach to building the blockchain. Instead of rushing the platform, the Cardano project was divided into five phases focused on inception, decentralization, smart contracts, scalability, and governance. In addition, the team regularly submits research papers for academic peer review, using an evidence-based development approach.
Second, Cardano is secured by an environmentally friendly Proof-of-Stake consensus protocol called Ouroboros. In this system, validators stake tokens to ensure their honesty, as this stake is forfeited in the event of fraud or an attempted attack. Unlike Proof-of-Work consensus, where miners compete based on computing power, Ouroboros randomly selects validators to add new blocks to the chain, thereby securing the network with reduced energy consumption.
Third, the forthcoming fourth phase of development — expected to begin in late 2022 or 2023 — will feature Ouroboros Hydra, a scaling solution that will add multiple sidechains to the core blockchain. In other words, Hydra will add additional blockchains to the platform, sharing network traffic more efficiently. In return, Hydra will increase throughput from the current 250 transactions per second (TPS) to a theoretical 1 million TPS. That would make Cardano one of the fastest and most scalable blockchain platforms and maybe even the top performer.
So what is the investment thesis? Cardano has roots in peer-reviewed academic research. Its Ouroboros consensus protocol is energy efficient and highly scalable. Smart contracts have been live on the blockchain since September 12, 2021, which means that an ecosystem of dApps and decentralized finance (DeFi) services should flourish in the near future. However, these products are not free. Users pay transaction fees using the blockchain’s native cryptocurrency. In other words, as dApps and DeFi products become more popular on Cardano, demand for ADA should increase and push the price higher.
2. Phantom
Fantom bills itself as a high-throughput smart contract platform for digital assets and dApps. The project aims to address two major limitations commonly found in other blockchains: lack of scalability and lack of interoperability. To do this, Fantom relies on a unique proof-of-stake consensus mechanism called Lachesis, a protocol that allows validators on the network to independently calculate the time order of events. This means that any node (computer) can reach consensus without having to wait for confirmation from every other node. This in turn makes Fantom very fast.
In fact, Fantom can process thousands of transactions per second (TPS), and those transactions complete in about a second. For comparison, Ethereum — by far the largest dApp and DeFi ecosystem — can process around 14 TPS, and it takes six minutes for those transactions to become final (i.e. included on the blockchain). This means that Fantom is far more scalable than Ethereum, which could help it gain market share.
In addition, Fantom is also compatible with Solidity, the programming language used to create smart contracts on Ethereum. This means developers can easily port their Ethereum-based dApps to the Fantom blockchain, where performance is better and fees are lower. Unsurprisingly, developers and investors have taken notice, and Fantom actually ranks as the sixth largest DeFi ecosystem with over $7.1 billion invested in the platform.
As Fantom-powered dApps and DeFi products become more popular in the future, increasing demand for FTM tokens is likely to push the price higher. That is why this cryptocurrency looks like a smart long-term investment.
This article represents the opinion of the author, who may disagree with the “official” endorsement position of a Motley Fool premium advisory service. We are colourful! Challenging an investment thesis — including one of our own — helps us all think critically about investing and make decisions that help us be smarter, happier, and wealthier.
