It’s All About Making That ADA

Everyone is talking about that ADA, the ticker symbol for Cardano, which recently moved into the third position in the market cap, replacing Tether.

Cardano is trying to supplant Ethereum, the cryptocurrency juggernaut second only to Bitcoin on the market, to become the best platform upon which to design smart contracts, the hottest example of which would be NFTs, or Non-fungible Tokens. Interestingly, the majority of today’s NFTs utilize Ethereum, so Cardano definitely has its work cut out for it.

But, Cardano and Etherium’s similarities don’t end there. In fact, Ethereum’s co-founder, Charles Hoskinson, also founded Cardano, which aims to become the top Decentralized Autonomous Organization (or DAO). Simply put, unlike a conventional company, the hierarchy of which ends at the desk of the Chief Executive Officer or Board of Directors, a DAO ensures every stakeholder has the right to express their views and take part in a decision making process. The power then remains decentralized and democratized, as a voting process is used to make all the decisions.

Where Cardano might succeed in toppling Ethereum is by exploiting its three main weaknesses: efficiency, scalability and interoperability.

First of all, Ethereum can quickly become very expensive to use. For instance, every time Ethereum is used, investors have to pay to do so using an internal system of measurement—similar to pennies to the dollar—called Gwei. These payments are more commonly known as “gas fees” and can multiply rapidly depending upon the number of uses as well as the number of people simultaneously conducting transactions. Additionally, as the value of Ethereum increases, so do the fees. This inefficiency is especially discouraging for newer crypto investors. Cardano aims to do away with gas fees entirely by shifting their consensus model from “Proof of Work”, which Ethereum uses, to “Proof of Stake.” Instead of “miners” on the blockchain of cryptocurrencies in the proof of work platform, Cardano has “stakeholders” who aid in the verification of its use by autonomously democratizing the decision-making process. The inefficiencies of the Proof of Work platform, as evidenced by it being cost-prohibitive for most businesses, then leads us to Ethereum’s second problem, that of scaling.

When you begin to look at the numbers of transactions taking place per second with crypto currencies, it can seem very impressive. Bitcoin presently has about two transactions per second, while Ethereum has 20-21 transactions per second. By this measure of roughly 1200 transactions per minute, Ethereum has handily scaled up from the primary competition. Those numbers alone easily demonstrate the present value in investing in Ethereum. That is, until you also look at the number of credit card transactions per second and realize any crypto-based currency has a long way to go before becoming the dominant buying platform. Visa, for instance, is capable of handing 65,000 transactions per second, or 3.9 million transactions per minute. This is because they operate on their own private database, the advantages of which include the ability to abruptly change the rules of operation to suit their best interests, which, by the way, goes directly against the decentralization mantra held by cryptocurrencies.

A third obstacle for Ethereum is that of the lack of potential interoperability, which is the pursuit of a universal language allowing the crossover of blockchains. The idea is that each crypto could live within as well as outside of other blockchains. Cardano is set up to achieve interoperability and presently is among the best to play well with other blockchains. Amazon’s AWS is a good real-world example of the implementation of interoperability outside of crypto.

As if investors needed greater incentive to hop aboard the Cardano train, it should also be noted Ethereum does not have a finite supply of coins and is therefore inflationary, whereas Cardano, like Bitcoin, has a finite amount of coins (45 billion) and is therefore deflationary.

What’s Ethereum’s answer to the looming threat of Cardano’s popularity? Aside of a solid foundation of being the de-facto crypto for NFTs, there is now Ethereum 2.0, which, like Cardano, also operates on a proof of stake basis.