17.04.2024

Reasons for the growth of the ADA token, prospects and competition with ETH 2.0

Since the beginning of February, the price of the ADA token of the Cardano project has grown by 300% – from $ 0.35 to $ 1.33. Its market capitalization is now $ 32.7 billion, which has pushed Cardano to the third spot on CoinMarketCap’s rankings.

Analysts believe that this is far from the limit – by the end of the year, the coin may grow another 10 times.

The main driver of such rapid growth is the upcoming launch of the Goguen update, which will allow users to create their own tokens, launch smart contracts, decentralized applications (dApps) and DeFi protocols.

In light of this, let us recall how the project developed, why Cardano is considered one of the main competitors of Ethereum 2.0, and what is the likelihood of a further price rally for the ADA coin.

Why are developers updating Cardano?

Cardano is a decentralized blockchain system, conceived as an alternative to Ethereum, but faster, more scalable, and more secure. Now the project has only the native ADA coin, but soon users will be able to launch smart contracts and sidechains and create decentralized applications (dApps). What’s more, in the future, Cardano users will also be able to create, transfer and accept custom tokens with minimal fees.

Cardano runs on a dPoS consensus algorithm called Ouroboros – there is no mining in it, and new coins are generated due to ADA staking. ADA coin holders can also vote on future platform development decisions.

One of the main differences between the Cardano blockchain and its competitors is that the network is divided into two levels: one for transactions with ADA coins, and the other for smart contracts and dApps. An error in one of the levels does not affect the work of the other – they work in parallel with each other.

Work on Cardano began in 2015 under the leadership of mathematician and Ethereum co-founder Charles Hoskinson. By 2017, the project team conducted several initial coin offerings (ICO), which brought in a total of $ 63 million. Curiously, the project is most popular in Asia: Japan, South Korea and Thailand.

The development of the Cardano project is divided into five phases, named after famous writers. Each of them must launch one of the key components of the project, namely the main network, decentralization, smart contracts, scalability and the transition of project management to the community.

To date, Cardano has successfully activated the first two stages and is preparing to launch the third: 

  1. Byron (Byron). From September 2017 to June 2020, the Cardano blockchain mainnet and ADA coin were launched.
  2. Shelley (Shelley). From June 2020 to March of this year, the dPoS algorithm is activated, staking is launched with a yield of 4-5% per annum, as well as the ability for users to independently launch nodes, join pools and take part in voting on the development of the project is being integrated. The activation of this update was the main driver of ADA’s growth last year – in 2020, the coin grew by 430%.
  3. Goguen (Gauguin). In March of this year, smart contracts, decentralized applications (dApps) and custom tokens should be launched, as well as the possibility of using coins from other blockchains.
  4. Basho – Will increase and improve basic network performance, scalability and interoperability, as well as allow the launch of new blockchain sidechains compatible with the Cardano main chain.
  5. Voltaire – will launch a voting mechanism for decisions on the future development of the network, and will also be the beginning of the transition of project management to the community. This will make Cardano a completely decentralized system.

The exact timing of the updates is not named, but it is assumed that we are talking about the next year or two. Developers are working on all these stages in parallel.

A new programming language was developed for Cardano smart contracts – Plutus, which should become a more perfect analogue of the smart contract standard for launching ERC-20 tokens for Ethereum. Moreover, for the conclusion of financial contracts, the team has developed another new language – Marlowe.

At the same time, Goguen itself is launched in several stages. The first, a separate Allegra hard fork, was launched in December 2020. He prepared the Cardano platform for integrating smart contracts and supporting other tokens, updating all the main components of the system. The second, Mary, was launched on the testnet. We will talk about it below.

What will happen to Cardano after the implementation of Goguen?

On February 2, the Cardano team launched the Mary update (named after Frankenstein author Mary Shelley) on the testnet. If testing is successful, the update will be implemented in the mainnet (mainnet) by March 1. This will be the start of the third phase – Goguen.

Here are the main innovations in Goguen:

  • Users will be able to create their own tokens, including NFT. These custom tokens will be native so they can be used directly on the Cardano blockchain just like ADA.
  • It will be possible to launch smart contracts and decentralized applications (dApps). This paves the way for DeFi protocols.
  • The mechanism for calculating the commission has been revised. It will be fixed and will not depend on the network congestion, as it happens in Ethereum. Therefore, you should not expect an increase in commissions due to network congestion. The commission is charged in the ADA itself.
  • Custom tokens do not need separate smart contracts to run. They use the same protocols as the Cardano blockchain itself. This makes the network easier and more convenient to use, and also reduces the chances for hackers to withdraw funds by exploiting the vulnerability of the smart contract;
  • All network components will also be updated.
  • After it becomes clear that the system is working properly, a virtual machine (KEVM) will appear in it, which is responsible for the execution of smart contracts. It will allow you to transfer applications from Ethereum to Cardano.

ADA Fundamental Growth Drivers

The upcoming update isn’t the only reason for the rise in ADA’s value. After all, the entire Cardano ecosystem is actively developing.

So, back in the spring of last year, the Cardano team presented a solution for scaling the Ouroboros Hydra network – a second layer protocol that runs on top of the main network. This solution should increase the speed of transactions and allow efficient micropayments.

And according to AdaStat, there are now 1,687 staking pools in the network, in which almost 228,000 people participate. The company has partnerships with hundreds of companies.

At the same time, Charles Hoskinson recently said on his YouTube channel that in March the Cardano team will announce new major partners, including the Celsius Network and other DeFi projects, as well as talk about the launch of the dApps store. Hoskinson even hinted that among the new partners could be the largest American cryptocurrency exchange Coinbase.

Charles Hoskinson talks about upcoming partnerships and plans :

Cardano’s competition with Ethereum 2.0

Ethereum is the dominant player in the smart contract market today. However, the Cardano team believes that the upcoming updates will make the project technically a better network than Ethereum. Moreover, even after the transition of Ethereum to the 2.0 state, Cardano will still outperform Vitalik Buterin’s blockchain in many respects.

Hinrich Pfeiffer, secretary general of the nonprofit Cardano Foundation, told Cointelegraph that the team hopes the «Cardano value proposition» will be popular with firms and bring institutional investment. Indeed, in addition to scalability, large investors can be attracted by the high level of Cardano security. Pfeiffer believes that «Cardano can take a completely different market share than Ethereum» – this blockchain ecosystem can be used at the state level for user identification and workflow, as well as in financial infrastructure and in large business.

We’ve been hearing about numerous Ethereum «killers» for years. This role has been claimed by Binance Smart Chain, EOS, NEO, and TRON, among others. However, Ethereum is still the main blockchain for launching smart contracts, and ether is almost invariably the second largest coin in terms of capitalization.

We think the Cardano team is overly optimistic. The project is still in the development stage for key updates. It is developing, albeit thoroughly, but very slowly. Despite the fact that the project started in 2015, only now smart contracts will be added to the network. So far, we see a lot of promises and promising developments, but Cardano’s functionality is still very far from the current capabilities of Ethereum.

The team is confident that there will be no problems with the launch and transition to the next stages of updates, but this seems too presumptuous – there are always difficulties. In the end, Vitalik Buterin was also not going to stretch the preparation for the Ethereum 2.0 update for several years, but everything turned out to be more complicated than expected. Ethereum is the most actively developed blockchain protocol.

We think it will take several years for Cardano to fully launch and configure all updates. During this time, the upgrade of Ethereum to state 2.0 should be completed. As a result, on the one hand, we will have a project, the full functionality of which has just started, and on the other, a project with a developed infrastructure, a huge army of users and developers, as well as with a capitalization that is several times higher than the competitor’s assessment. We don’t think Ethereum is worth worrying about.

However, it is worth noting here that Ethereum will still lose its monopoly position – several platforms will compete on the market. We believe Cardano will be one of the strongest players.

ADA Pricing Prospects

The ADA coin is up 1,200% since last February. Sustainable implementation of the roadmap is critical to the long-term development of the project. If Cardano continues to pursue it, the ADA should continue to rally in the short to medium term.

As for price predictions, analysts are confident that the uptrend will continue, but warn of possible corrections. However, such a rapid rise in the ADA in recent weeks has come as a surprise to many.

So, back in early January, when the coin cost $ 0.25, some analysts predicted its growth from $ 0.50 by the end of the year and up to several dollars in a couple of years. And already in mid-February, others predict $ 1.1 by the end of the year and a rise to $ 1.50 next year.

There are more optimistic forecasts: up to $ 10 by the end of this year and about $ 22 by the end of 2022.

If Ethereum has problems with scaling and implementing the update, then we can see prices even higher – any problems with ether play into the hands of ADA.

Conclusion

Cardano is not a new project. It develops without haste, without haste. The rise of the ADA proves that investors believe in it. There is also room for an upturn – if the updates are successful, take place on time, and the market remains bullish, ADA may well grow several times more by the end of the year.

The developers promise that Cardano will become the most advanced blockchain and solve most of the problems of decentralized networks, but which project did not make such promises? In the meantime, Cardano is not technologically very different from the rest of the Ethereum «killers». Moreover, the project has not yet offered the market any new functionality – the team promises only to improve the current one. Doesn’t sound too revolutionary.

Perhaps, if the developers launched the updates several years earlier, then Cardano would now be in second place in terms of capitalization after Bitcoin. But this did not happen. Technology has long ceased to be the main component in the blockchain. Much more important is the real and practical application, as well as the infrastructure built around the blockchain network.

We are confident that Cardano will make a big statement yet. But competitors will step on their heels, and the project team cannot relax.

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