In 2015, Ethereum (ETH 0.54%) made its debut. The platform expanded on Bitcoin's use of blockchain technology, introducing the concept of programmability. Specifically, Ethereum made it possible for developers to build self-executing computer programs (smart contracts) on a decentralized network. That technology has since evolved into a thriving ecosystem of decentralized applications (dApps) and decentralized finance (DeFi) products.
Not surprisingly, Ethereum is the second-most-valuable cryptocurrency today, with a market value of $470 billion. But while it still looks like a wise long-term investment, other cryptocurrencies may offer greater upside. For instance, Cardano (ADA 0.16%) and Polkadot (DOT -0.51%) have market values of $45 billion and $28 billion, respectively, and former members of the Ethereum team started both.
Here's what you should know.
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1. Cardano
In 2015, Charles Hoskinson left Ethereum to build a more scalable smart contract platform named Cardano. Notably, the developer team has taken a very formal approach, frequently publishing academic research papers regarding the technical specifications of the blockchain. When Cardano went live in 2017, it featured the first peer-reviewed consensus protocol: Ouroboros.
Beyond that scholastic recognition, Ouroboros differentiates Cardano in another way. It is a proof of stake consensus protocol. Holders of the ADA token can create stake pools (or delegate their tokens to existing stake pools) to earn rewards for verifying transaction blocks. That makes Cardano far more eco-friendly than proof of work cryptocurrencies like Ethereum.
In September 2021, smart contract functionality went live on the Cardano blockchain, meaning dApps and DeFi applications can now be deployed on the platform. Of course, Cardano was a little late to that party. There are already 2,900 dApps running on the Ethereum blockchain. But investors shouldn't overlook the importance of Cardano's methodic, evidence-based growth strategy.
Currently, the Cardano team is working to implement Ouroboros Hydra, the latest version of the consensus protocol. Much like its namesake -- the multi-headed mythical snake -- Hydra will add multiple side chains to the core blockchain, thereby dividing the network load more efficiently. Consider it this way: Businesses divide their workforce into departments, and each subdivision focuses on a portion of the work -- that's much more efficient than tasking everyone with every job.
For that reason, Hydra -- which is expected in late 2022 or 2023 -- will boost Cardano's throughput from its current 250 transactions per second (TPS) to a theoretical 1 million TPS. For context, Ethereum currently handles 30 TPS, and that low throughput has already contributed to slowing transaction speeds and rising transactions fees. In other words, Cardano offers much greater scalability.
So why invest? Decentralized technologies are becoming more popular. As that trend plays out, Cardano is well-positioned to host a thriving ecosystem of dApps and DeFi products. But those products aren't free. Users will need to buy the ADA token to use software deployed on Cardano's blockchain, thereby driving the cryptocurrency's price higher.
2. Polkadot
Like Hoskinson, Gavin Wood was one of Ethereum's co-founders. In fact, he invented Solidity, the programming language used to build smart contracts on the Ethereum blockchain. But in 2016, Wood left to start his own project: Polkadot.
Similar to Cardano, Polkadot is a programmable blockchain that supports side chains (called parachains in this context). Currently, parachain slots are being auctioned to developer teams. The first five parachains were onboarded on Dec. 17, and the long-term goal is 100 side chains operating in parallel.
Currently, Polkadot handles 1,500 TPS, but once the parachain ecosystem is complete, throughput could reach 1 million TPS, according to Wood. That means Polkadot's scalability should be on par with that of Cardano. But there is another important facet of the Polkadot blockchain: interoperability.
Specifically, the platform can "bridge" with external networks, allowing data transfer between different blockchains. For instance, Moonbeam is a bridge that allows Ethereum dApps to run on Polkadot. That interoperability is critical because the future of blockchain probably doesn't involve one dominant platform. Instead, there will likely be many successful blockchains, each tailor-made to a specific use case, and all capable of interacting.
To that end, Polkadot aims to power Web 3.0, a decentralized internet that will allow users (i.e. individual people, businesses, and governments) to access secure applications that exist beyond the control of any single entity. And those dApps could be anything, from video games and social media platforms to financial services and productivity software. Polkadot can act as the developer-friendly glue that ties these separate blockchain assets together.
So why invest? The investment thesis here is virtually identical to the one outlined for Cardano. As dApps and DeFi products become more popular, Polkadot's tremendous scalability (and its interoperability) should make it popular with developers, users, and investors, which in turn inspires more demand for the underlying cryptocurrency. And that demand should drive the price of the DOT token higher over time.
