Cardano (CCC:ADA-USD) is a crypto token that has been on a tear this past year. A year ago the crypto was at 5.3 cents. As of Sunday, May 16, Cardano was at $2.2129. This is 41.5 times the price a year ago, implying a gain of 4,050%.
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At the end of 2020, ADA-USD was at 17.53 cents. Today, May 16, it’s at $2.197, which means it is up 1,153% year-to-date. This is an astounding performance, even though Cardano is off of its highs this year. I suspect that Cardano will reach those heights again.
Let’s examine some of the reasons why this will happen.
Cardano’s Features
In short, Cardano is seen as an “Ethereum killer.” Ethereum (CCC:ETH-USD) is the second-largest cryptocurrency after Bitcoin (CCC:BTC-USD). Whether that will really happen is an open question, but ADA has been moving higher on the possibility.
For one reason, Cardano does not use mining and a proof-of-work reward to validate blockchain transactions. Cardano’s system, called Ouroboros, is based on a proof-of-stake validation. This is seen as more environmentally friendly as it does not require the kind of electricity that digital mining does.
It is possible for all ADA owners to stake their coins. This can validate a blockchain set and provide rewards. Ethereum expects to transition to proof-of-stake within the next year. But ETH is a lot more expensive to use than ADA as a result of its popularity and mining requirements.
Cardano is already doing this. As the largest proof-of-stake validation blockchain it gives Cardano a unique crypto angle. And it is a lot cheaper to set up an address and move your Cardano to a wallet or to use it to transfer money to someone.
This is another feature that Cardano performs well. Its peer-to-peer settlement in payment transactions is very efficient. The Cardano platform facilitates smart contracts and other apps. Nevertheless, Cardano is still looking to book large companies to use its platform.
Cardano bills itself as third-generation crypto (behind Bitcoin and Ethereum). Its main focus is to get around these other cryptos’ problems. Bitcoin is too rigid and only useful for payment transfers. Ethereum, although less rigid and more useful, has very high fees and a lot of congestion given its popularity.
What to Do With Cardano
Here is an example of how expensive Ethereum can be now. A week ago I had to use an Ethereum-based transfer in order to buy a crypto coin that is not available on Coinbase (NASDAQ:COIN). In order to buy the crypto using an Ethereum blockchain transfer, I ended up paying 16% in “gas” fees just to buy the altcoin. That is very expensive.
If I had known that I could use the ADA blockchain transfers to buy this altcoin, I would have done that. It would have been much cheaper.
Cardano gets around the Ethereum cost and congestion problems using a two-layer computational structure. One computational level is for transaction settlements and the other is for computations.
Look for ADA to continue to do well as it gains acceptance as a third-generation crypto. In a September 2020 interview, Charles Hoskinson, who founded Cardano, said his vision is to make it “a ‘global financial operating system’.” It will be able to easily scale up as new accounts are added.
Cardano’s Benefits Over Ethereum
On May 15, there was a very interesting conversation on Twitter (NYSE:TWTR) between Mark Cuban and Mr. Hoskinson about ADA’s usefulness. The exchange was reported in the Cryptoglobe article: “Charles Hoskinson Explains To Mark Cuban Advantages of Cardano Over Ethereum.” This is a must-read article for anyone interested in Cardano.
In short, Hoskinson explained the current features of ADA over ETH. He started with Cardano’s stature as being the first successful proof-of-stake system, which Ethereum still has not accomplished.
He also described the security feature of its new smart contract system. (The system is not yet on.) Lastly, Cardano is more developer-friendly. It does not require the use of one programming language. Whereas Ethereum is “losing steam” in the developer community, Cardano is catching on. Many Defi (decentralized finance) apps have already working for Cardano.
These are some of the basic reasons why investors will likely see Cardano continue to do well over the next year.
On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.