Cryptocurrencies have experienced waves of volatility over the past year, but they're steadily gaining traction among investors.
Bitcoin (BTC 0.96%), Ethereum (ETH 1.25%), and Cardano (ADA 0.05%) are three of the biggest names in the crypto space, and they've all experienced explosive growth. The price of Bitcoin is up by more than 300% over the past 12 months, Ethereum has soared by roughly 700%, and Cardano has increased by a whopping 2,350% in that time period.
Each of these cryptocurrencies has unique advantages and disadvantages, and it's wise to do your research before you buy. Here's what you need to know when deciding which of these options is right for you.
Pros: One of the biggest advantages of Bitcoin is that it's one of the oldest cryptocurrencies and has the most name recognition. That first-mover advantage has also helped make it the most popular and the most widely accepted cryptocurrency.
For any cryptocurrency to survive over the long term, it will need to be widely adopted. Because Bitcoin is already the best-known cryptocurrency with the longest track record, it has a head-start in this department.
Bitcoin's limited supply is another advantage. There will only ever be 21 million tokens in existence, and that scarcity could potentially drive up its value. Bitcoin supporters consider the cryptocurrency "digital gold," and its increasing value could help hedge against inflation.
Cons: Like any cryptocurrency, Bitcoin is a risky investment. Nobody knows for sure whether crypto will ever become mainstream, and that uncertainty carries risk.
The Bitcoin mining process is also incredibly energy-intensive. In fact, Bitcoin uses more electricity than the entire country of the Philippines, according to data from the University of Cambridge.
This energy consumption is a problem that has many investors and regulators concerned about its future. Unless it finds a way to become more sustainable, Bitcoin may have a tough time staying competitive.
Pros: Ethereum is more versatile than Bitcoin, which is one of its most significant advantages. Not only does it have a native token, Ether, but the Ethereum blockchain also serves as a platform for smart contracts and decentralized applications.
Some of the best-known applications are decentralized finance (DeFi) and non-fungible tokens (NFTs), but because Ethereum is an open-source technology, anyone can create new applications, and the opportunities are endless.
Ethereum also processes transactions faster than Bitcoin, and it's less energy-intensive. While Bitcoin uses a proof-of-work (PoW) mining protocol, Ethereum is moving to a proof-of-stake (PoS) network.
With a PoW network, crypto miners must use high-powered computers that solve complex puzzles to verify transactions -- which is why the process is so energy-intensive. Also, because Bitcoin has a limited supply, the more tokens that are mined, the harder these puzzles become -- and the more energy they require.
With PoS networks, on the other hand, miners validate transactions by putting their own crypto holdings at stake for a chance at earning rewards. Not only does this process use significantly less energy, but it also processes transactions much more quickly.
Cons: While Ethereum does have a lot of potential, it's not as popular as Bitcoin. Ether isn't as widely accepted among merchants as Bitcoin, which gives it a disadvantage.
In addition, the Ethereum blockchain is undergoing a lot of changes as it grows. Developers are working on releasing Ethereum 2.0, which will move it from a PoW network to a PoS network. These growing pains could result in greater volatility.
Finally, the PoS protocol also has its downsides. Miners with the most cryptocurrency tokens have the most power when it comes to verifying transactions, so it's possible that a small number of wealthy individuals could have majority control over the blockchain.
Pros: Cardano was created by one of the co-founders of Ethereum, so it shares many similarities to its crypto competitor. It also serves as a platform for smart contracts, which is one of the biggest advantages of Ethereum.
Also, while Ethereum is currently transitioning from a PoW network to a PoS network, Cardano already uses a PoS system. That makes it more environmentally friendly and faster than its competitors.
Like Bitcoin, Cardano also has a limit on how many tokens can be produced, which creates a sense of scarcity and can help drive up its value over time.
Cons: Widespread adoption is the biggest hurdle Cardano is facing. It's the newest of the three cryptocurrencies, and its market cap is significantly lower than both Bitcoin and Ethereum. Its native cryptocurrency, ADA, also isn't as widely accepted as Bitcoin or Ether.
That doesn't necessarily mean Cardano won't be able to catch up to the competition. But at the moment, it's more speculative than Bitcoin and Ethereum, making it a riskier investment.
As you're weighing your options, consider how much risk you're willing to take. All cryptocurrencies are risky investments, but by doing your research and thinking about how much speculation you're comfortable with, it will be easier to decide which option is best for you.