The collective value of all cryptocurrencies peaked near $3 trillion in November. That's especially impressive when you consider how quickly they achieved that valuation -- the crypto market didn't even exist 15 years ago. Of course, it hasn't been a smooth climb. Crypto assets have become known for their volatility, and the market is down 43% from its high.
On the bright side, that sort of thing has happened many times before, and it has always ended the same way: Crypto prices rebound, and the market goes on to hit new highs. With that in mind, now looks like a good time to put money to work, and Cardano (ADA 1.92%) and Terra (LUNA +0.14%) look like smart long-term investments.
Here's what you should know.
Image source: Getty Images.
1. Cardano
After leaving Ethereum, Charles Hoskinson started the Cardano project in 2015. Rather than rushing to complete the platform, the developer team has moved slowly and methodically, submitting new features for academic peer review. That differentiates Cardano from other blockchains. In fact, it features the first blockchain consensus mechanism based on peer-reviewed research, Ouroboros.
CRYPTO: ADA
Key Data Points
Ouroboros is a proof-of-stake (PoS) protocol in which validators are randomly selected to add new blocks to the chain. That differs dramatically from proof of work (PoW), a system in which miners compete based on computing power for the right to add blocks to the chain. That makes Cardano far more energy-efficient than PoW cryptocurrencies like Bitcoin and Ethereum.
The academic rigor of Cardano's developer team has also influenced the blockchain in other ways. For instance, the project itself has been divided into five stages that focus on the following features: the foundation, decentralization, smart contracts, scalability, and governance. Most recently, smart contract functionality went live last September, an event that could supercharge Cardano's growth in the coming months, as developers can now deploy decentralized applications (dApps) and decentralized finance (DeFi) products on the platform.
In the next phase of development, the consensus protocol will be upgraded to Ouroboros Hydra, which will enable multiple side chains. Think of side chains as additional blockchains connected to the core chain. They help distribute the network load more efficiently, thereby increasing performance. In fact, early tests have clocked side chains at 1,000 transactions per second (TPS), meaning that with 1,000 side chains, the network could achieve 1 million TPS.
Cardano's scalability should bring more developers and DeFi investors to the platform. And because those products aren't free -- users must pay transaction fees with the blockchain's native cryptocurrency -- demand for the ADA coin should rise, making the cryptocurrency more valuable over time.
2. Terra
Terra is a programmable blockchain powered by two different tokens. First, TerraUSD is a stablecoin that tracks the U.S. dollar, though Terra coins can be pegged to other fiat currencies as well. Second, LUNA is a cryptocurrency that absorbs volatility, keeping each stablecoin at the target price. For instance, if rising demand pushes TerraUSD above $1, the network will incentivize token holders to convert LUNA to TerraUSD, thereby reducing its price by increasing supply. The system works the same in reverse.
CRYPTO: LUNA
Key Data Points
Terra is built on the Cosmos framework, which itself is powered by a high-throughput PoS consensus protocol known as Tendermint. To that end, Terra can theoretically scale to 10,000 TPS while finalizing transactions in two seconds. For context, Ethereum can handle about 14 TPS, and it requires at least one minute to finalize transactions. That lack of scalability has caused transaction fees on the network to rise sharply in recent years.
So why invest in LUNA? Terra's throughput has made it popular with DeFi investors. In fact, it's the second-largest DeFi ecosystem (behind Ethereum), with $29 billion invested on the blockchain. And two products are particularly noteworthy: Anchor and PaywithTerra.
Anchor is a DeFi protocol designed to replace traditional savings solutions. Investors lend TerraUSD to the platform in exchange for interest, and the payout currently sits at 18%. Similarly, PaywithTerra allows e-commerce merchants to accept Terra stablecoins. And because it's built on Terra's highly scalable blockchain -- a platform that circumvents traditional financial institutions -- transactions are settled more quickly, and they incur fewer fees. In fact, merchants pay a flat $0.05 per transaction. For context, PayPal charges 3.49% plus a fixed fee of $0.49 for domestic transactions settled in U.S. dollars.
In short, disruptive DeFi products like Anchor and PaywithTerra create demand for Terra stablecoins, which translates into demand for LUNA because the network incentivizes token holders to convert LUNA to Terra to keep the stablecoin at the appropriate price. And that demand should drive the token's price higher. Put another way, the more Terra is used, the more Luna is worth. That's why this cryptocurrency looks like a smart buy.
