Cardano has been making lots of progress toward its primary goal of becoming a decentralized smart contract platform that can compete with Ethereum. It has attracted lots of attention from investors, who believe in the project’s long-term potential. Despite the recent drop in price, Cardano’s fundamentals remain considerably strong.
Based on historical price action, Cardano has been a great investment. The digital asset got lots of hype in 2021, and many fans praise it as the Ethereum-killer. Does Cardano have a shot at stealing the show in 2023? Should it be in your crypto portfolio?
Cardano Fundamental Analysis
Cardano is a blockchain project that has more than 70% of the total currency, ADA, staked for network validation (an impressive rate). Part of the reason that a lot of ADA is staked is because of the crypto’s lack of decentralized applications (dApps) available on its blockchain. While Ethereum has about 5% of its total supply locked as validators, a lot more ETH is locked in DeFi applications.
The Cardano project launched in 2015 in an attempt to resolve some of the issues that Ethereum faced from its Proof-of-Work consensus model. Cardano was officially launched by Charles Hoskinson, a former co-founder of Ethereum.
Some of Cardano’s major improvements are multiple processing layers for settlements and computations, proof of stake, and the ability to upgrade its network readily in the future.
The Cardano settlement layer was launched in 2017 and raised nearly $63 million via the ADA ICO. Interestingly, the settlement layer excludes smart contracts, so at this time, Cardano may just be used for settling peer-to-peer payments. Since then, the ever-growing team of developers has been majorly hard at work preparing for the launch of smart contracts on the Cardano Computation Layer.
Cardano Development
Cardano now has 100 to 150 developers actively working on the project and pushes out nearly 700 commits per week. These factors make crypto one of the most actively-developed projects within the blockchain space currently, suggesting that they can deliver on their ambitious roadmap.
The amount of developers places Cardano among the most probable projects to steal market share from Ethereum. Nonetheless, it is still not close to the size and pace achieved by Ethereum, Cosmos, and Polkadot as seen in the Electric Capital Developers Report from 2020.
Smart Contracts
A major critique of Cardano is its non-existent DeFi ecosystem. Since its development and launch of smart contracts on September 12, 2021, investors are now hoping to see an ecosystem be built-out soon. Nevertheless, Cardano’s smart contract upgrade did not go well, with its price plunging after applications were unable to work on the new software.
Cardano developers are now aiming to enhance smart contract performance and scalability via new release deployments. Based on Cardano’s communication direction, there will be three major code drops in 2022 with the first one getting released in February and the other two scheduled for June and October. Cardano smart contracts will run on the Cardano computation layer that will support legacy Solidity contracts and its in-house language, Plutus.
Hoskinson has pushed hard aiming to see Cardano’s potential come to fruition in Africa, where he thinks blockchain can make a major impact. That is in part due to a huge proportion of Africa’s population being unbanked.
New Balance also has some plans to use Cardano’s network to track the authenticity of its shoes.
How Cardano Works?
Cardano is a proof-of-stake (PoS) blockchain that strives to address the scalability issues that are inherent to other Layer-1 blockchains like Ethereum PoS is a consensus mechanism that is used to authenticate and secure transactions on the blockchain network.
In PoS, the token holders stake their holdings in a particular node or wallet. The holders are then selected randomly to validate transactions and add extra blocks to the blockchain. The more tokens a holder stakes, the higher the profitability that they have an opportunity of being selected to validate transactions. The process is commonly known as staking.
Compared to proof-of-work (PoW) blockchains like Litecoin and Bitcoin, PoS blockchains like Cardano are far more cost-effective and efficient since they need less energy and computational resources to validate transactions.
PoS blockchains like Cardano, get security via an extra mechanism known as ‘slashing’. Slashing is the process of having a segment of their staked tokens permanently confiscated as a type of punishment.
It serves as a disincentive to validators that engage in malicious activities since they stand to lose a considerable amount of their staked tokens. Under this infrastructure, PoS encourages validators to work in the best interest of the blockchain by aligning their financial interests with the network.
Pros And Cons Of Cardano
Cardano’s separation of the settlement and computation layers results in significantly lower transaction fees for payments. Cardano now utilizes smart contracts, enabling it to be more competitive with Ethereum.
Cardano is now combating an uphill battle with an army a tenth the size of Ethereum’s. Competitor Solana also has a significantly larger development team and is growing more rapidly.
Low fees are nice. However, low fees also indicate a low level of demand for space on the network. This may change when more smart contracts start flowing through the network, which now demands more space than payments.
ADA Versus BTC
Bitcoin is a safer investment than ADA since it backs the entirety of the crypto market. ADA is also majorly speculated at this point, while Bitcoin already has a clear value that you believe in or you don’t. ADA might have more growth potential in case it succeeds with its smart contract integration. For Cardano to surge to the market cap of Bitcoin, it would need to grow more than 3000% in total market cap.
Buy Bitcoin NowIs Cardano A Good Investment?
In general, Cardano is a fundamentally safe investment. Nevertheless, just like other cryptos, ADA is volatile and is considered a high-risk investment by traditional standards. The team is considered reputable in the blockchain space, with the founder Charles Hoskinson being a co-founder of Ethereum.
Furthermore, considering the project is a Layer 1, ADA is a coin on its blockchain independent of other projects. It offers many options when it comes to staking, enabling the traders to earn passive rewards while holding their ADA in staking pools.
Cardano is undoubtedly one of the more promising applications in the blockchain space currently, with strong fundamentals and lots of momentum behind the project.
While regarded by many as the Ethereum-killer, it is not likely that it will kill Ethereum. Cardano will eventually carve out its niche within the global blockchain ecosystem, but it might not flip Ethereum.
In case you are bullish on crypto and blockchain generally, then it makes lots of sense to have a position in Cardano. If you have Ethereum, then Cardano is a great hedge that will most likely result in a net increase in gains. Hence, it is a win-win.
