Cryptocurrency has made waves in the investing world this year, with big names such as Bitcoin (BTC -4.19%) and Ethereum (ETH -3.48%) regularly making headlines.
One of the newer players in the crypto space is Cardano (ADA -3.13%), and it's been steadily gaining traction among investors. Over the past month, the price of Cardano has exploded by more than 55% -- compared with Ethereum's 4% gain and Bitcoin's 1% drop.
While Cardano may be the new crypto on the block, it has some big advantages. But is this the right time to invest?
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The advantages of Cardano
Cardano was created by the co-founder of Ethereum, so the two cryptocurrencies share some features. Both allow the development of smart contracts, for example, which are digital agreements that use blockchain technology to verify transactions. Some investors believe smart contracts have the potential to revolutionize society, particularly the legal industry.
Compared with Bitcoin, Cardano is more energy-efficient. Bitcoin uses a proof-of-work protocol during the cryptocurrency mining process. That means that to verify transactions and earn tokens, Bitcoin miners must use high-powered computers to solve increasingly difficult puzzles. That's extremely energy-intensive, and Bitcoin has drawn criticism for its impact on the environment.
Cardano, on the other hand, uses a proof-of-stake protocol, through which miners must put their own crypto holdings at stake to verify transactions. This results in faster transaction times and significantly less energy usage.
Where it falls short
While Cardano has plenty of advantages, it has its downsides as well -- primarily that it's not as well known as its competitors. Bitcoin is the most popular cryptocurrency and has the most name recognition, giving it the first-mover advantage in the crypto space.
Ethereum is the second most popular cryptocurrency, and it shares many of the same advantages as Cardano. Not only does it also host smart contracts, but it's planning to move to a proof-of-stake network as well. Ethereum is also home to non-fungible tokens and the decentralized finance movement, giving it more real-world utility than Cardano.
Of course, this doesn't necessarily mean Cardano won't find ways to outperform its competitors down the road. It is still a relatively new cryptocurrency with room for growth. Also, cryptocurrency isn't a zero-sum game, so it's possible for multiple currencies to coexist with their own advantages.
Is Cardano right for you?
Before you invest anywhere -- whether you're buying cryptocurrency or stocks -- make sure you're taking a long-term outlook.
You should only invest in Cardano if you believe it will perform well over the next several years or decades. Investing isn't a get-rich-quick tactic, so try not to get caught up in trendy investments that could make a lot of money in the short term.
Nobody knows for certain whether cryptocurrency will succeed, but if you believe in its long-term potential, be prepared to hold your investments through the waves of volatility. Bitcoin has lost more than 80% of its value in the past, and Ethereum's value has plummeted by nearly 95% on occasion. If you're not comfortable with short-term volatility, cryptocurrency may not be the right investment for you.
Will Cardano eventually become a mainstream form of currency? Nobody knows for sure. It does have its advantages, but it's still highly speculative at this point. If you believe in its potential, it could make for a solid long-term investment. Otherwise, there are plenty of other investment options out there.