Is Cardano a smart cryptocurrency to buy now?

The Cardano project has garnered significant interest in the crypto community.

Group of shocked people gather around screen

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

In recent years, the cryptocurrency space has become quite crowded. Gone are the days when just a few digital assets dominated the headlines. There are now over 8,000 different crypto assets, and new tokens join the fray all the time. Of course, the crypto market itself has already created tremendous wealth, rising 240% in the last year alone. But given the sheer volume -- not to mention the hysteria around meme tokens like Shiba Inu and Dogecoin -- it can be challenging to separate the good from the bad.

That being said, Cardano (CRYPTO: ADA) stands out from the pack. Not because of its functionality -- at least, not yet -- but because of its experienced developer team and strong growth strategy. Does that mean Cardano is worth buying? Let's take a closer look.

The value proposition

In 2015, ex-Ethereum founder Charles Hoskinson started the Cardano project along with former colleague Jeremy Wood. Two years later, the Cardano blockchain (powered by the ADA token) made its debut, featuring the first peer-reviewed consensus protocol: a type of proof of stake (PoS) known as Ouroboros.

Compared to Ethereum, which relies on energy-intensive proof-of-work consensus, Cardano's PoS consensus makes it more eco-friendly and sustainable. Moreover, rather than rushing to implement new features, the developer team has based each decision on academic research, dividing the Cardano project into five stages that address its foundation, decentralization, smart contracts, scalability, and governance.

The project is currently in phase three, and smart contract functionality was added to the blockchain in September 2021. If you're new to cryptocurrency, smart contracts are just computer programs that run under predefined conditions, and they form the heart of decentralized applications (dApps), including decentralized finance (DeFi) applications. Of course, this functionality is new, meaning Cardano's ecosystem of dApps is quite limited compared to other blockchains like Ethereum and Solana. But that should change in the future.

There's also another point to consider. Cardano has been clocked at 257 transactions per second (TPS) -- that makes the platform much faster than the likes of Ethereum, which can handle roughly 30 TPS. But it pales in comparison to Visa's theoretical limit of 24,000 TPS. If Cardano is to achieve widespread adoption, it needs to be faster (i.e., more scalable).

Phase four will solve that problem with the implementation of Ouroboros Hydra, an upgraded version of the consensus protocol. Specifically, Hydra will enable multiple side chains to be added to the main blockchain, thereby distributing the network load more efficiently. Hydra is still in development, but simulations have clocked side chains at 1,000 TPS, and with 1,000 side chains, Cardano could theoretically support 1 million TPS in the future.

The investment thesis

Cardano is certainly a more speculative bet than other cryptocurrencies, and that's saying something. However, its academically driven developer team is executing a smart growth strategy. Assuming Cardano makes good on its promise of tremendous scalability, the platform could be quite popular with dApps builders and DeFi investors a few years from now.

On that note, increased adoption of services on the Cardano blockchain would translate into more transaction fees, meaning more demand for the underlying ADA token. That should drive its price up over time. Likewise, owning ADA tokens makes you a stakeholder in the network. You could start your own stake pool to help verify transactions and secure the blockchain, or you could simply lend your tokens to an existing stake pool -- either way, you'd earn rewards.

Of course, all of this is contingent upon Cardano achieving the necessary scalability, and upon adoption by both dApp developers and consumers. But with 4,000 projects currently in the works, I don't think it's a stretch to imagine Cardano as a thriving ecosystem a few years down the road. That's why this cryptocurrency looks like a smart long-term investment. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trevor Jennewine owns Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and recommends Ethereum and Visa. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »