Cryptocurrencies, generally, have been a spectacular asset class to own throughout the years. But Ethereum (ETH -0.23%), in particular, is in a league of its own. The smart-contract blockchain's native coin ETH has skyrocketed more than 24,000% over the past five years. This type of return was certainly life changing for the lucky ones who were prescient and bold enough to have gotten in at that time.
However, cryptocurrencies are still a nascent and evolving technology. And there are now more than 17,000 different tokens investors can choose from, providing plenty of opportunity to find the next big winner.
If you missed out on Ethereum, you'll want to seriously consider Cardano (ADA -0.18%). It has the potential for outsized returns in the years ahead.
Overview of Cardano
Cardano was launched in 2017 by Ethereum co-founder Charles Hoskinson, giving it a tremendous amount of credibility. The blockchain is named after Gerolamo Cardano, an Italian polymath, and its native token ADA is named after Ada Lovelace, who's known as the world's first computer scientist. ADA can be used to pay transaction fees on the network, to stake in order to earn rewards, and for governance in the future.
Like Ethereum, Cardano is a blockchain that enables the use of smart contracts, or self-executed computer programs, that run if certain conditions have been met. They eliminate the need for middlemen, leading to the possibility for major disruption.
Smart contracts allow for decentralized applications (dApps) to run on top of Cardano's blockchain. This functionality differs from Bitcoin, which was created to simply be a global, electronic cash system.
As of the evening of Monday, Jan. 31, Cardano's market cap was $35 billion, making it the world's sixth most valuable cryptocurrency.
What makes Cardano unique?
Cardano operates something called Ouroboros, claiming to be the "first provably secure proof-of-stake protocol." This validation process, requiring ADA holders to stake their coins in order to approve transactions, is much more energy-efficient than proof-of-work. Also, Cardano can currently process about 250 transactions per second (TPS), far greater than the 30 TPS that Ethereum can do.
When it comes to the technology underpinning cryptocurrencies, there's a pressing problem known as the "blockchain trilemma." In the industry's young history, it has been extremely difficult for individual blockchains to achieve decentralization, security, and scalability at the same time. Bitcoin and Ethereum face the scalability issue right now, although solutions are in the works.
Cardano, in an attempt to ensure it can overcome the "blockchain trilemma," deploys a peer-reviewed development roadmap. This strategy no doubt takes longer, but it helps to minimize mistakes. The network is currently in the process of implementing its last two phases (out of five total).
The fourth phase, the Basho phase, is for scalability, with a plan to add multiple side chains to expand Cardano's capacity. If added successfully, Cardano will theoretically be able to process 1 million TPS, greatly increasing its potential for use in dApps, including those for decentralized finance protocols.
The fifth and final phase, the Voltaire phase, is for governance, a process needed to make the blockchain fully self-sustaining. This will introduce a voting and treasury system, allowing participants to have a say in Cardano's future development.
Cardano's use cases
The ultimate viability of cryptocurrencies hinges on there being real-world use cases. So far, Cardano shows promise in this regard. It's already being utilized in various sectors. Credential verification in academia, supply-chain tracking in agriculture, and client onboarding in financial services are some examples.
In the world of dApps, Cardano is shaping up to be a top blockchain if it can execute on its growth strategy. The recent launch of SundaeSwap, a decentralized exchange, demonstrates Cardano's potential.
Cardano is attempting to improve upon Ethereum's weaknesses. And it all comes back to the focus of its developers to solve for speed and scalability, both of which are essential in order to grow the network's utility -- and most importantly for investors, its value.
Still a young industry
Don't be discouraged if you missed out on Ethereum's monster price appreciation over the years. Cryptocurrencies are a young, undeveloped, and unproven asset class, so there's still a huge opportunity to attain outstanding returns if you know where to look. Cardano is a promising blockchain that's gaining substantial traction, and it makes for a solid crypto investment today.