In the past few years, the cryptocurrency space has gotten pretty crowded. Gone are the days when few digital assets dominated the headlines. There are now over 8,000 different crypto assets, and new tokens are being added all the time. Of course, the crypto market itself has already created enormous fortunes and has grown 240% in the last year alone. But given the sheer volume – not to mention the hysteria around meme tokens like Shiba Inu and Dogecoin – it can be difficult to separate the good from the bad.
Besides that, Cardano (CRYPTO: NO) stands out from the pack. Not because of its functionality – at least not yet – but because of its experienced development team and its strong growth strategy. Does that mean Cardano is worth buying? Let’s take a closer look.
The value proposition
In 2015, ex-Ethereum founder Charles Hoskinson started the Cardano project together with his former colleague Jeremy Wood. Two years later, the Cardano blockchain (powered by the ADA token) debuted with the first peer-reviewed consensus protocol: a kind of Proof of Stake (PoS) known as Ouroboros.
Compared to Ethereum, which relies on an energy-intensive proof-of-work consensus, Cardano’s PoS consensus makes it more environmentally friendly and sustainable. In addition, the development team is in no rush to implement new features, but instead bases each decision on academic research, dividing the Cardano project into five phases dealing with its creation, decentralization, smart contracts, scalability and governance.
The project is currently in phase three and the blockchain was expanded to include smart contract functionality in September 2021. dApps), including decentralized financial applications (DeFi). Of course, this functionality is new, which means that Cardano’s dApps ecosystem is pretty limited compared to other blockchains like ether and Solana. But that should change in the future.
There is one more point to keep in mind. Cardano was clocked at 257 transactions per second (TPS) – that makes the platform much faster than Ethereum, which can process around 30 TPS. But it pales in comparison to VisaTheoretical limit of 24,000 TPS. If Cardano is to achieve widespread adoption, it has to be faster (i.e., more scalable).
Phase four will solve this problem with the implementation of Ouroboros Hydra, an updated version of the consensus protocol. In particular, Hydra allows multiple side chains to be added to the main block chain, which distributes the network load more efficiently. Hydra is still under development, but simulations have clocked side chains at 1,000 TPS, and with 1,000 side chains, Cardano could theoretically support 1 million TPS in the future.
The investment thesis
Cardano is certainly a more speculative bet than other cryptocurrencies, and that says something. However, the academically motivated development team is pursuing an intelligent growth strategy. Assuming Cardano keeps its promise of enormous scalability, the platform could be very popular with dApps manufacturers and DeFi investors in a few years.
In this sense, increased acceptance of services on the Cardano blockchain would lead to more transaction fees, which means higher demand for the underlying ADA token. That should drive the price up over time. Likewise, owning ADA tokens makes you a stakeholder in the network. You could create your own stake pool to verify transactions and secure the blockchain, or you could just borrow your tokens to an existing stake pool – either way, you would be earning rewards.
All of this, of course, depends on Cardano achieving the required scalability and adoption by both dApp developers and consumers. But with 4,000 projects in the works right now, I think it’s not far to envision Cardano as a thriving ecosystem in a couple of years. 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” 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.