Notwithstanding, Cardano has risen swiftly through the ranks and currently sits on a $70 billion valuation as of October 2021.
If you’re familiar with the crypto industry, you should have come across many mentions of ADA being an Ethereum killer. While ADA has yet to live up to this name, it appears to be well on its way, as it recently held the number three spot in terms of most valuable cryptocurrencies (although currently number four).
Despite this, many have argued that Cardano offers nothing different from what already exists in the market, making talks about ADA overtaking Ethereum untenable. However, do these arguments hold water? Let’s keep reading to find out.
A Brief Introduction to Cardano
Charles Hoskinson, a co-founder of Ethereum, created Cardano back in 2015. However, it wasn’t until 2017 that the platform went live. The founding mission of the network is to serve as a more environmentally friendly and scalable network, unlike most other crypto networks, thereby reducing the industry dependency on energy-intensive miners.
Like other blockchain networks, Cardano has a native token known as “ADA.” ADA functions as the primary payment tool for premium services on the network. That said, this cryptocurrency also serves speculative purposes and gets traded for other coins through cryptocurrency exchanges.
Cardano is an open-source blockchain platform divided into two segments; including the Cardano Settlement Layer (CSL) and the Cardano Computational Layer (CCL).
The CSL layer, termed the Byron age, allows users to transfer ADA to other blockchain participants. And like other Layer-1 crypto networks, it facilitates an immutable recording of transactions.
On the other hand, CCL operates as a separate layer that supports tokenization, Smart Contracts, and the creation of decentralized applications (dApps) through the combination of various components published throughout the Shelley and Goguen eras. Cardano recently upgraded its network to allow for the development and launch of Smart Contracts and dApps, a new feature that made it a formidable competition with Ethereum. More on Cardano’s Smart Contract capability upgrade later.
Proof-of-Stake (PoS) Consensus Mechanism
In line with its environmentally friendly and scalability mandate, Cardano operates on a proof-of-stake consensus mechanism. The PoS mechanism is a more efficient and cleaner validation process, unlike the proof-of-work (PoW) validation mechanism seen in Bitcoin and Ethereum. The PoW mechanism requires miners to solve transaction blocks on the network and consumes a significant amount of electricity, which has raised the brows of many environmentalists.
Meanwhile, Cardano’s PoS mechanism allows users who hold ADA to delegate their tokens in a staking pool. The percentage of total coins in the staking pool determines how often it can validate new transactions into the blockchain.
New transactions then get forwarded to the network to get vetted by other nodes. After passing this check, it gets accepted, and the validator receives a small reward.
Cardano Smart Contract Functionalities
In September 2021, the Cardano network witnessed a massive upgrade called ‘Alonzo,’ which saw the compatibility of Smart Contracts and dApps deployment on the Cardano Mainnet.
Before then, some argued that Cardano provided no unique capability and served merely as a speculative asset. Others played the event down, arguing that it took four years for Cardano to make this promise a reality.
According to some analysts, this four-year delay came partly due to the peer-reviewed attribute of the network, which involves expert review and thorough testing of projects before release.
Nonetheless, the Alonzo upgrade is here and has given other blockchain ecosystems, like Ethereum, a run for their money.
Smart Contracts work as algorithms that carry out different functions or actions without the need for human input or supervision. For example, when purchasing a landed property, there are various contracts and legal undertakings to ensure that neither party gets cheated. With Smart Contracts, these verifications and documentation are delegated to algorithms on the blockchain to secure and enforce.
Smart Contracts allow for the creation of lending services, DeFi projects, non-fungible tokens (NFTs), and other projects on the issuing network.
The Fierce Competition Between Cardano and Ethereum
As mentioned earlier, Cardano is trumpeted by some as the “Ethereum Killer” due to the advantages Cardano holds over Ethereum and the growing interest in the latter, as Ethereum falls behind due to various network issues.
Cardano runs a dual-layer network design (CSL and CCL), allowing for the independent facilitation of computations and settlements.
Ethereum, on the other hand, has a single-layer ecosystem where calculations, Smart Contract deployments, and settlements, like token transfers, all take place simultaneously. This web of activities causes significant delays and transaction fees to hike on the ETH ecosystem.
With this, it is safe to say that Cardano trumps Ethereum in terms of operational efficiency and transaction costs. This advantage comes from the superiority of the PoS validation mechanism used by the ADA network over Ethereum’s PoW validation method.
However, Ethereum has announced plans to switch to the PoS consensus mechanism by 2022, which should help it win back some superiority in the industry.
Another advantage Cardano holds over Ethereum is in its monetary system. Ether, Ethereum’s native token, has an infinite supply of coins with an annual circulating supply growth rate of 4.5%. At press time, Ether has a total circulating supply of 117,993,350, which means that this supply will grow by at least 5.3 million coins infinitely.
On the other hand, ADA—like Bitcoin—has a finite supply of 45 billion coins. At press time, 32.9 billion of those coins are in circulation, indicating that the supply of ADA could run out soon. This paints a good picture for the prospects of the cryptocurrency, considering that this makes it a deflationary asset.
Based on on-chain analyses, ADA could reach $3.83 before the end of 2021. This projection is a massive leap from the asset’s current price of $2.10 and its previous all-time high at $3.16. For 2022 and 2023, analysts expect the price to hit $7.70 and $8.93, respectively. And by 2025, analysts put their forecasts at $15.
That said, these are conservative projections for ADA. In August, Hoskinson asserted that he expects the cryptocurrency to hit $150 in the medium term.
Advantages of Cardano: Why Cardano Is not Late to the Party
Cardano Projects are Peer-Reviewed
One area where Cardano reigns supreme over most blockchain ecosystems is the devotion to evidence-based research and peer-reviewed projects. Instead of rolling out new versions or products to the public like most blockchains, every proposed update or product on Cardano undergoes a series of strict vetting.
This factor and the robust development team behind the platform secure its relevance in the present and future of the cryptocurrency industry.
Cardano Operates on a PoS Consensus Algorithm
As we have extensively discussed previously, Cardano’s Proof-of-stake validation method sets it miles ahead of other cryptocurrencies, including Bitcoin and Ethereum, in terms of network efficiency and speed.
Because the PoS mechanism is environmentally friendly, Cardano has secured a spot in the future as world and industry leaders call for the adoption of greener industrial practices.
Cardano Is a Deflationary Asset
We have also talked at length about the supply cap on Cardano and how it makes ADA a deflationary asset due to its rising demand and diminishing supply. This positions ADA for a massive surge in value in the future if it receives increased adoption, especially from institutional investors.
Disadvantages of Cardano
Cardano Is a New Entrant to the Industry
One of the most suggested disadvantages of Cardano is that it lacks the first-mover advantage in the industry, unlike more developed networks like Bitcoin or Ethereum.
The barrier to entry in this ever-growing industry is significantly high, thereby giving significant advantages to older and more established platforms. However, with more networks coming on board, the industry has become much more competitive and allows seamless upwards mobility for exceptional performers.
Cardano has Slow Developmental Progress
Because of its peer-reviewed nature, Cardano takes a considerable amount of time to implement upgrades and rollout products to improve its competitive edge. This factor could stifle innovation on the Cardano network and set it further behind.
Cardano Remains Largely Unknown
Due to its relatively young status, Cardano is not as popular as its older competitors. As a result, ADA has not secured many use cases or widespread use compared to other more established cryptos of Bitcoin and Ethereum. ADA currently fulfills only speculative purposes and needs serious work in this area.
Regardless of the disadvantages mounted against it, Cardano is a force to reckon with in the industry. Most crypto experts believe that this cryptocurrency has a bullish future due to the increasing awareness around environmental issues and ADA’s PoS protocol. Some experts have called on investors to avoid missing the opportunity to get on board while it still is relatively early.
Only time will tell for sure what the future holds for Cardano.