Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
14 de jun de 2022

What Is Cardano (ADA) & Is It Worth Investing After the Breakout?

ADA is the utility token of the Cardano blockchain and it is used as a medium of exchange. The Cardano blockchain was created as a twin of Ethereum by Charles Hoskinson, a co-founder of Ethereum, integrating distributed ledger technology and smart contract infrastructure.

There are thousands of different blockchain projects in the market, and it may be difficult for an inexperienced investor to select worthy options. Cardano (ADA) has become one of the fastest-growing blockchain assets in the cryptocurrency industry, attracting investors’ attention. Today, we’ll take a closer look at Cardano and its underlying technology to find out what makes it so attractive — and why so many investors are sure about its future.

What Is Cardano (ADA)?

Created as an alternative to Ethereum, Cardano is the first peer-reviewed decentralized blockchain protocol to utilize a scientific approach.

Cardano’s developers have aimed to create a blockchain platform that can process more transactions at a lower cost. At the same time, they’ve endeavored to protect users’ data by combining distributed ledger technology and smart contract infrastructure.

The Cardano blockchain allows people to build smart contracts, create decentralized applications and protocols, and instantly send and receive funds with minimal fees. The Cardano utility token, ADA, is used as a transfer of value like many other crypto tokens. Yet it differs from other cryptocurrencies in its functionalities. Stake pool operators use it in the staking system to maintain the security of the protocol. Users who stake their ADA tokens on the blockchain utilize them to verify transactions.

Apart from that, active users are also rewarded with ADA coins for participation in safety provisions. For instance, ADA holders use their coins to vote on changes or improvements to the protocol, thus taking part in its development. In contrast, the developers use it to power their smart contracts, which run on the Cardano blockchain. 

Cardano vs. Bitcoin vs. Ethereum

Though Cardano combines features of both Ethereum and Bitcoin, it has some other tweaks and features inherent to third-generation blockchain that help it overcome its limitations. One of Cardano’s unique approaches is based on scientific philosophy and peer-reviewed scientific evidence. That means that all changes or new features must be developed, reviewed, and agreed upon by academics before implementation.

It’s also worth noting that Cardano was created while Ethereum was still in its early stage of development. All of Ethereum’s limitations, which we’ll discuss below, refer to its 1.0 version — and are now irrelevant since the project will be switched to proof of stake (PoS) and implement sharding technology.

Security

As a smart contract platform, Cardano provides safety and scalability through its unique two-layered architecture. The Cardano Settlement Layer (CSL) handles all transactions using Cardano cryptocurrency, with minimal transaction fees. Simultaneously, the Cardano Computation Layer (CCL) is a set of protocols that help run smart contracts. It enables developers to create decentralized apps, ensures security, and makes small changes for end-users.

Proof of Stake Consensus Algorithm

Bitcoin and Ethereum networks follow the proof of work (PoW) protocol. It requires a massive amount of electricity in order to verify transactions. On the other hand, Cardano relies on the proof of stake (PoS) process, which is far less energy-consuming and helps to reduce transaction fees. While the success of the Ethereum London hard fork serves as a concrete stepping stone for Ethereum 2.0 to move from PoW to PoS. 

Scalability

Bitcoin, Ethereum, and other previous generations’ blockchains can manage only a limited quantity of transactions per second (TPS). Cardano saw this problem in scalability and solved it by implementing the Ouroboros protocol, built on the proof of stake model, to ensure high transaction speed and an equitable chance of earning a reward. It offers such advanced features as separation of layers, mathematical security in choosing blockchain validators, a secure voting mechanism for token holders, and an infinitely scalable consensus mechanism.

The Ouroboros Protocol 

With a PoS algorithm, nodes on a network create new blocks by staking their cryptocurrency as collateral to validate transactions. Ouroboros relies on a different algorithm. The blockchain is split into epochs, each lasting for about 20 seconds, and is made up of fixed periods called slots. Each slot gets its slot leader elected by stakeholders and is responsible for adding one block to the protocol. 

The slot leaders must create at least 50% of the transaction blocks within a given epoch. Each block is approved by input endorsers, whose election is based on stakes. An epoch can be partitioned infinitely, making it possible to run as many transactions as needed. All users who participate in mining an epoch receive rewards for their services. 

Anybody who owns a 2% stake in the Cardano blockchain can choose to mine a block. However, nodes with more significant stakes have greater chances of being elected slot leaders. The multi-party computation (MPC) used achieves a form of randomness to make the slot leaders’ election as unbiased as possible. With this approach, it’s as if each elector is tossing a coin and sharing a fair result with everyone else.

What Are the Uses of Cardano (ADA)?

Centralized structures and archaic management procedures have produced many issues: poor governance, high amounts of manual workflow, limited transparency, procedural inefficiency, high costs, fraud, and data breaches. Cardano, based on blockchain technology, aims to solve these problems.

As an open-source platform for smart contracts, Cardano accommodates a wide range of use cases, solving problems across multiple industries. These include retail, education, government, finance, agriculture, and healthcare. 

Retail

IOHK (the company behind Cardano) offers Atala SCAN. This tamperproof system establishes product provenance and an auditable system to protect brands and customers from counterfeit goods in the retail sector. 

Education

The education sector can benefit from Atala PRISM, an ID and credentials solution, which secures academic certifications within a tamper-proof ecosystem. 

Government

Atala PRISM can be used in the government sector for credential issuance and verification systems, in order to avoid dependence on issuing authorities. 

Finance and Digital Identity

Atala PRISM also provides the possibility of digital identity for unbanked citizens in developing countries of Africa and Asia. In 2019, the Cardano team began cooperating with 54 countries to build blockchain governance tools. 

Agriculture

In the agricultural sector, the Cardano blockchain is used for product certification and traceability via the Atala Trace or EMURGO solutions. 

Healthcare

The healthcare sector can use Atala SCAN to authenticate and verify the origin and supply chain of pharmaceutical products, guaranteeing patients’ safety worldwide.

Generally, Cardano ADA can function as a payment method, be spent or sold, or serve as a voting tool for ADA holders when it comes to changes and developments within the Cardano ecosystem. It helps to maintain security by verifying transactions that are staked to it on the blockchain, in the process staking pool operators, who receive more ADA coins as rewards. 

DeFi

With the launch of smart contracts in Cardano, ADA can now be used in a wide variety of decentralized applications, also known as DApps. The most common use case for ADA in DeFi is being used as the base asset for providing liquidity in DEXes, trading it with NFTs, and even supplying it as collateral to get a trustless loan on it.

Wallets

Daedalus

Though ADA can be stored on exchanges or in different crypto wallets, Cardano provides its native wallet, Daedalus, which is the official full node wallet developed by IOHK. It also an investment tool that allows users to hold and stake ADA. Token holders can earn coins for staking or delegating ADA or running a staking pool within the Daedalus wallet.

Yoroi

For users who do not require all the features of Daedelus, Yoroi is a good choice and it comes in the form of an extension for all major web browsers. Yoroi was also developed by IOHK, and it aims to be a simpler and lighter version of Daedalus and comes with just the key features such as wallet creation, staking, and sending and receiving ADA.

Nami

With the launch of smart contracts after the Alonzo upgrade, users will now require a wallet that can interact directly with the blockchain, and Nami is the solution. On top of the standard features that Yoroi provides, Nami allows you to interact with Cardano DApps such as Sundaeswap.

Disadvantages of Cardano

More environmentally friendly

We've all heard the stories of how much electricity Bitcoin consumes due to its proof of work algorithm. Cardano's proof of stake algorithm makes it one of the most environmentally friendly blockchain systems. In fact, Forbes did an interview with Charles Hoskinson in 2021 and he claimed that Cardano is 1.6 million times more energy-efficient than Bitcoin.

Fast and cheap transactions

Cardano can process more than 250 transactions per second (TPS) and this number is expected go up as they develop further and upgrade the chain to scale better. Cardano is much faster at processing transactions when compared with 4.6 TPS for bitcoin and between 15 and 45 TPS for Ethereum pre-sharding. Cardano transactions are also cheap, costing less than $1 is much more palatable compared to Ethereum's over $10 transaction fee. This makes Cardano more scalable, until Ethereum finishes their sharding upgrade to enhance their scalability as well.

Peer-reviewed networks

Cardano team works closely with academics to generate peer-reviewed research to guide blockchain development. “Its nature as an open-source and peer-reviewed blockchain helps ensure its survival and evolution beyond that of its parent organization,” Gebbing said.

Disadvantages of Cardano

Still in development

Cardano’s drawbacks include the fact that its blockchain is still under development. Many important features such as scalability are still being developed, although progression is steady. Ethereum is also developing scalability improvements through sharding, and that is a key threat of Ethereum against Cardano.

Lack of developer interest

Based on Electric capital's developer report, Cardano was one of the slower growing developer ecosystem with a growth of just 90% compared to other ecosystems, such as Solana and Near which both grew over 4x in developers even though they hold a smaller market cap than Cardano. This lack of developer interest could be due to the complex programming language of Haskell, and can be seen in the low TVL that they have acquried since launching DApps.

Double-spend

Another issue is the potential for double-spending, or 51% attack, as there’s still the danger that input endorsers may approve the same set of transactions from two different slot leaders.

The History Of Cardano

Charles Hoskinson is a mathematician who co-founded Ethereum and Cardano. The ICO of Cardano’s token ADA in December 2016 helped the team raise over $62 million. Subsequently, the project was launched on September 29, 2017.

The full rollout of the Cardano blockchain will be executed in five separate stages, named after great poets, a computer scientist, and a famous French author. 

  • Byron (foundation) tested the initial functionality. 
  • In Q2 2018,  Shelley, the mainnet was launched and the system’s decentralization and PoS implementation began. 
  • In late 2021, Goguen was rolled out to integrate the smart contracts platform. 
  • Basho, the stage that is being developed, will implement blockchain optimization via scaling solutions.
  • Finally, Voltaire will add treasury and governance systems.

Alonzo Hardfork Upgrade

The previous big upgrade was known as Alonzo which went live on September 12th, 2021, which was a highly anticipated upgrade as it finally allowed Cardano to introduce smart contract capabilities, allowing developers to build DApps and NFTs.

Cardano uses their own smart contract platform called Plutus, allowing developers to more easily write and deploy smart contract applications onto the Cardano blockchain. Their smart contracts are written in the programming language Haskell.

Since that upgrade, there are now various protocols on Cardano such as AMM DEXes like Sundaeswap, Minswap, and even a decentralized money market such as AADA.

In order to interact with these DApps, you will need a Cardano wallet as stated above.

However, Cardano's smart contract has not really caught on as of this writing. The total value locked (TVL) in the Cardano ecosystem is only around $160 million. This number is small in comparison to Ethereum's TVL at $72 billion. With the upcoming upgrades, it may attract more developers and thus more traction as well.

Vasil Hardfork Upgrade

On 29 June 2022, Cardano Vasil hard fork upgrade goes live. This upgrade is meant to significantly enhance the speed and scalability of the Cardano blockchain, allowing the network to support more sophisticated DApps with a better user experience, bringing it closer to contending against Ethereum as the top smart contract ecosystem.

These enhancements come from three of the many Cardano Improvement Proposals (CIPs):

1. CIP-31 (Reference Input) allows users to access information without spending a transaction

2. CIP-32 (Inline Datum) allows data to be stored on-chain and makes it easily accessible by other DApps

3. CIP-33 (Reference Script) improves transaction speed and fees by allowing transactions to carry less data

Is Cardano (ADA) a Good Investment?

The price of any digital asset depends on many factors. To critically answer whether an ADA token is worth holding, it’s best to know the factors that drive its value.

Since the total number of ADA coins is limited, the coin is inflation-resistant as the demand for it should keep growing as they develop on it. The decentralized nature of the Cardano blockchain makes it secure, while its layered architecture provides scalability. Taken together, these technical characteristics are what make Cardano a unique coin with good potential. 

Cardano’s success also depends on the number of DApps and smart contracts built on its blockchain. A rigorous process of peer-reviewed research makes the blockchain stable and durable.

Summing up, Cardano stands a good chance of getting its fair share of the crypto market. It’s continually moving upward, becoming an excellent choice for traders and new investors who’ve just entered the crypto market. Simultaneously, ADA crypto remains a solid choice for traders who wish to diversify their portfolios.

Is ADA a Better Investment Than Other Altcoins?

Cardano has been steadily occupying a place at the top10 at CoinMarketCap for a significant period of time. Its value and market cap are competing with — and in some cases beating — those of XRP, PolkadotLitecoinSolana, and Chainlink. Though Bitcoin and Ethereum’s capitalizations may be higher, ADA has shown considerably more growth over the last 12 months. 

Understanding Cardano (ADA) Prices

Current Price Analysis

ADA price chart from October 2017 to June 2022

After reaching an initial high price of $1.33 on January 4, 2018, ADA’s value steadily declined, reaching a low point of $0.027 on December 15, 2018. After that, the price fluctuated within the $0.03–$0.06 range until it reached $0.090 on April 6, 2019.

Cardano had started from $0.032 for one ADA coin, with a tendency to grow, reaching $0.181 on November 24, 2020. This was followed by a drop to $0.128, subsequently fluctuating between $0.131 and $0.16.

Echoing other cryptocurrencies, its price rose meteorically through the early stages of 2021. It finally breached the $1 mark again in February 2021, before hitting $1.48 on February 27 and hitting its all-time high of $2.46 on May 16 following the Bitcoin bull.

ADA then declined steadily following the crypto market sentiment. However, ADA managed to break out from the resistance level on Aug. 10 and went to a peak of around $3 towards the launch of the Alonzo Hardfork, which was met with disappointments and the price has been on a rapid decline since. As of early June 2022, ADA is trading at $0.57. But will it breakout once again before the Cardano Vasil Hardfork that is set in 29 June 2022? Looking at past rallies, upgrades are usually a hugely anticipated event, however they were also sell the news, and this time may be no different considering the weak macro environment as well.

What Do the Analysts Think?

Using opinions from some crypto experts below, we can attempt to determine what Cardano’s price could be by 2025.

Most ADA forecasts agree that the coin’s price will continue its generally bullish momentum. In 2020, Ryan Selkis, CEO of the cryptocurrency-tracking site Messari, mentioned in his Crypto Theses that he believes Cardano will jump from the eighth to the fifth spot in the list of the world’s biggest cryptos. Indeed, this prediction has already proven correct. Today, Cardano (ADA) is ranked no.6 with over $19 billion in market cap, which is below BNB.

In 2022, like many other cryptocurrencies, Cardano experienced a significant dip, dropping from a high of $3.09 in September 2021 down to just over 50 cents per coin in June 2022, according to CoinGecko.com. However, 75% of its maximum supply of coins has been mined, which means the inflation pressure may start to subside soon.

The advanced capabilities of smart contracts on the platform could promise to drive ADA’s price higher in 2022. CoinPriceForecast predicted that ADA will gain some value in 2022 but won’t approach its record high over $3-plus. The site predicted it will reach $0.64 by the end of 2022. Meanwhile, analysts at LongForecast.com believe ADA won’t even hit $1 in 2022. And WalletInvestor.com predicted the coin could reach $0.164 in 2022. These numbers are a far cry from the coin’s high and even further from the $10 value many investors are hoping for. If Cardano does hit $10, it most likely won’t be this year, next year, or any time soon.

The Bottom Line

With one of the most significant market caps and a huge daily trading volume, Cardano is very popular among cryptocurrency enthusiasts. Its five-year history shows stable growth in ADA’s value, despite periodic price drops. A large number of partners support Cardano’s long-term growth potential. 

All this and the latest technical analysis, market trends, and expert opinions indicate that Cardano is a good investment option that will bring great profit to its investors. However, the crypto market remains volatile, and cryptocurrencies are fairly difficult to predict. It would be best to consider all factors before choosing a digital asset to invest in. Do your research (DYOR).