The cryptocurrency market has plunged roughly 40% since reaching a high in early November, shedding $1.2 trillion in less than three months. But Cardano (ADA 0.29%) has been hit even harder. The price of the ADA coin has fallen about 60% from its all-time high. Even so, it still ranks as the sixth-most-valuable cryptocurrency, with a market cap of almost $40 billion.
More importantly, Cardano's evidenced-based approach to blockchain development has won the project a loyal fan base, and many enthusiasts see significant upside after the recent sell-off. In fact, some investors are calling for ADA to hit $25 by 2025, a forecast that implies a 2,200% gain from its current price. Is that realistic?
Let's dive in.
Cardano's innovative blockchain
In 2015, Ethereum co-founder Charles Hoskinson left the project and started Input Output Global (IOG), a blockchain research and engineering company. In doing so, he hoped to advance the industry by improving upon Ethereum's lack of scalability and its energy-intensive proof of work (PoW) consensus mechanism. In 2017, Hoskinson took the first step in realizing that vision when IOG launched the Cardano blockchain.
Cardano's key innovation is the proof of stake (PoS) consensus protocol Ouroboros. In addition to being more energy-efficient than PoW solutions, Ouroboros is also the industry's first peer-reviewed and verifiably secure consensus protocol. In other words, it has been rigorously examined in an academic setting.
Since then, evidenced-based development has become a core part of Cardano's DNA. IOG frequently publishes academic research regarding technical updates to the blockchain, and the Cardano project itself is divided into five distinct phases, each focusing on a different set of features. In order, those phases address Cardano's foundation, decentralization, smart contracts, scalability, and governance.
Cardano is currently in the third phase of development, as smart contract functionality went live on Sept. 12, 2021 . That means developers can now build decentralized applications (dApps) and decentralized finance (DeFi) services on the blockchain. And because those products require transaction fees paid in the native cryptocurrency, the resulting demand for ADA should drive its price higher as Cardano becomes more popular.
Of course, Ethereum is the clear leader in the industry, with more than 2,900 dApps deployed and $150 billion invested in DeFi products on the blockchain. But some 4,000 developers have worked with Cardano's test network in the past, according to CoinMarketCap.com, and CardanoCube lists over 280 dApps and smart contracts that are already live. Cardano is also gaining momentum in the DeFi space, as investors have already poured $74 million into financial products on the blockchain.
Looking forward, the next phase in Cardano's development is particularly important, as it involves an upgrade to the Ouroboros consensus protocol. Specifically, Hydra is a scaling solution that will enable multiple side chains -- additional blockchains that will connect to the core chain -- thereby dividing the network load more efficiently. Ultimately, Ouroboros Hydra could boost throughput to 1 million transactions per second (TPS), while allowing for instant confirmation of those transactions.
For context, Ethereum currently handles a maximum of 14 TPS, and those transactions take six minutes to reach finality. That lack of scalability has been a significant problem, because network congestion has caused transaction speeds to slow and fees to rise. For that reason, Ouroboros Hydra is critical to Cardano's future, and the upgrade could take place sometime in 2022, according to IOG software engineer Sebastian Nagel.
Cardano's price target
Price targets are inherently speculative, and that's especially true in the crypto market. Stocks have been around for centuries, but cryptocurrencies are a new asset class, and they don't generate revenue or profits like publicly traded companies. Also noteworthy, if ADA does indeed hit $25 by 2025, Cardano's market cap would exceed $830 billion. Only Bitcoin has ever achieved a higher valuation.
However, Cardano promises much more utility than Bitcoin, and it is certainly possible for ADA to hit that price target. After all, meme tokens like Shiba Inu have generated much greater returns in much less time. That being said, a lot of things would need to go right for Cardano to achieve a market value of $830 billion.
First and foremost, the implementation of Hydra must be successful. If Cardano can distinguish itself in terms of scalability, more developers would be incentivized to learn Plutus, the programming language used to create smart contracts on Cardano. At that point, those developers would need to build an engaging ecosystem of dApps and DeFi products, and those products would have to go viral with consumers and investors. Assuming all of those stars align, demand for the ADA token could drive its price to $25.
However, even if that doesn't happen, Cardano is an interesting blockchain project with a lot of potential, and this cryptocurrency could still be a rewarding long-term investment.