In 2015, ether (CRYPTO: ETH) debuted. The platform expanded the use of Bitcoin’s blockchain technology and introduced the concept of programmability. Specifically, Ethereum has made it possible for developers to build self-executing computer programs (smart contracts) in a decentralized network. This technology has since developed into a thriving ecosystem of decentralized applications (dApps) and decentralized financial products (DeFi).
Unsurprisingly, Ethereum is the second most valuable cryptocurrency today, with a market value of $ 470 billion. But while it still looks like a smart long-term investment, other cryptocurrencies can offer a bigger plus. For example, Cardano (CRYPTO: NO) and Speckle (CRYPTO: POINT) have market values of $ 45 billion and $ 28 billion, respectively, and former Ethereum team members founded both.
Here’s what you should know.
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1. Cardano
In 2015, Charles Hoskinson left Ethereum to build a more scalable smart contract platform called Cardano. It is noteworthy that the development team takes a very formal approach and often publishes scientific research on the technical specifications of the blockchain. When Cardano went live in 2017, it contained the first peer-reviewed consensus minutes: Ouroboros.
In addition to this academic recognition, Ouroboros Cardano distinguishes itself in another way. It is a proof-of-stake consensus protocol. ADA token holders can create stake pools (or delegate their tokens to existing stake pools) to receive rewards for reviewing transaction blocks. That makes Cardano far more environmentally friendly than proof-of-work cryptocurrencies like Ethereum.
In September 2021, the smart contract functionality went live on the Cardano blockchain, so that dApps and DeFi applications can now be provided on the platform. Of course, Cardano was a little late for this party. 2,900 dApps are already running on the Ethereum blockchain. However, investors shouldn’t overlook the importance of Cardano’s methodical, evidence-based growth strategy.
The Cardano team is currently working on the implementation of Ouroboros Hydra, the latest version of the consensus protocol. Much like its namesake – the multi-headed mythical snake – Hydra will add multiple side chains to the core blockchain, which will help split the network load more efficiently. Think of it this way: companies divide their workforce into departments, and each sub-department focuses on part of the work – it’s far more efficient than having everyone do every task.
For this reason, Hydra – which is expected in late 2022 or 2023 – will increase Cardano’s throughput from the current 250 transactions per second (TPS) to theoretically 1 million TPS. In context, Ethereum is currently processing 30 TPS, and this low throughput has already helped slow transaction speeds and increase transaction fees. In other words, Cardano offers much greater scalability.
So why invest? Decentralized technologies are becoming increasingly popular. With this trend moving, Cardano is well positioned to host a thriving ecosystem of dApps and DeFi products. But these products are not free. Users have to buy the ADA token in order to use the software provided on Cardano’s blockchain, which drives up the price of the cryptocurrency.
2. Polkadot
Like Hoskinson, Gavin Wood was one of the co-founders of Ethereum. In fact, he invented Solidity, the programming language used to create smart contracts on the Ethereum blockchain. But in 2016, Wood went to start his own project: Polkadot.
Similar to Cardano, Polkadot is a programmable blockchain that supports side chains (called parachains in this context). Parachain slots are currently being auctioned off to development teams. The first five parachains were taken on board on December 17th and the long-term goal is 100 side chains working in parallel.
Polkadot is currently processing 1,500 TPS, but once the Parachain ecosystem is complete, throughput could reach 1 million TPS, according to Wood. That means that the scalability of Polkadot should be comparable to that of Cardano. But there is another important facet of the Polkadot blockchain: interoperability.
Specifically, the platform can “bridge” with external networks, which enables data transfer between different blockchains. Moonbeam, for example, is a bridge that enables Ethereum dApps to run on Polkadot. This interoperability is vital as the future of blockchain is unlikely to include a dominant platform. Instead, there will likely be many successful blockchains, each tailored for a specific use case and all able to interact.
To that end, Polkadot aims to run Web 3.0, a decentralized Internet that allows users (i.e., individuals, corporations, and governments) to access secure applications that exist beyond the control of any single entity. And these dApps can be anything from video games and social media platforms to financial services and productivity software. Polkadot can act as a developer-friendly glue that ties these separate blockchain assets together.
So why invest? The investment thesis here is practically identical to that outlined for Cardano. As dApps and DeFi products grow in popularity, Polkadot’s tremendous scalability (and its interoperability) should make it popular with developers, users, and investors, which in turn leads to increased demand for the underlying cryptocurrency. And that demand should drive the price of the DOT token up over time.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.
