Long Only, Deep Value, Contrarian, Momentum
Contributor Since 2014
The proof of stake cryptocurrency Cardano or ADA has become the ninth most popular altcoin, but how much value does it have?
For example, Cardano had a Market Capitalization of $2.124 billion, a Coin Price of 8.2¢, and a 24-Hour Market Volume of $27.811 million on 5 October 2018. Particularly, Cardano had a Circulating Supply of 25.927 billion ADA on 5 October 2018.
Therefore, Mr. Market likes Cardano but does it have any real value? I ask this question because Cardano looks like a dozen other cryptocurrencies I have examined.
Is Cardano (ADA) better than other cryptocurrencies?
For instance, Cardano has its own blockchain platform just like Ethereum , NEO , Quantum etc. Conversely, Cardano’s blockchain platform is not being used by a zillion other blockchain platforms like Ethereum.
In particular, Cardano is not ERC20 compliant so they cannot convert it directly into ERC20 tokens. Currently, it is not clear if this adds to or reduces Cardano’s (ADA) value.
Cardano (ADA) is different because of other cryptocurrencies because of Proof of Stake mining. In detail, they based Cardano on Ouroboros, a supposedly mathematically proven proof of stake concept.
By adopting proof of stake Cardano is a trying to eliminate mining which allows a small group of affluent creators to dominate a cryptocurrency market. Instead, Proof of stake cryptocurrencies select ownership at random.
Cardano (ADA) is at the Mercy of Speculators
Cardano’s creators claim Ouroboros will ensure randomness with math. Therefore, Mr. Market; rather than miners or speculators, supposedly determinesthe value of Cardano (ADA).
Despite the claims Cardano is still at the mercy of speculators because the market still determines its price. Particularly, speculation about Cardano’s future capabilities appears to be the only factor driving its prices.
I see nothing justifying the $2.197 billion Market Capitalization at Cardano’s website. For instance, there is no evidence Cardano is being used in real-world situations the way, Bitcoin (BTC), DASH (DASH), and Ripple (XRP) are.
Cardano (ADA) is not being used in the Real World
As an illustration, the Cardano team has not tried to create merchant point of sell (POS) terminals for its altcoin. Conversely, DASH has deployed merchant solutions in Venezuela.
Importantly, Cardano has not tried to integrate with banks or Automatic Teller Machines the way Ripple has. For example, Ripple (XRP) is now being used for remittances and money transfer in Japan and Thailand. In addition, Ripple is reportedly being accepted by 61 banks in Japan.
I have to wonder how much value a cryptocurrency that is only traded for other cryptocurrencies really has. Obviously, that is not the Cardano team’s intentions but it is the practical result of their labors.
Cardano (ADA) is a Flawed Cryptocurrency
I think Cardano (ADA) is a flawed cryptocurrency because it only does one thing. Presently, Cardano’s only utility is as a secured means of exchange.
The Cardano team has sacrificed utility for security and privacy. They have a super secure cryptocurrency with no obvious practical uses. Therefore, Cardano is a thought experiment rather than an altcoin.
The greatest flaw at Cardano is that the team has apparently failed to adapt their creation for any real world uses. For example, there is no mention of the blockchain scalability problem at Cardano’s website.
The problem is the speed and capacity limit that prevents blockchain from quickly processing large numbers of transactions. Present-day blockcahins are simply too small to process the numbers of transactions needed for commercial applications.
In particular, Ethereum has an estimated capacity of 14 to 20 transactions a second. Bitcoin (BTC) is even worse; the online experts estimate it processes less than transactions a second.
Conversely, Visa (NYSE: V) claims its platform can process 65,000 transactions a second. Therefore, to compete with Visa a blockchain solution will have to process tens of thousands a second.
Solutions like Ripple (XRP), Plasma, the Lightning Network, the Raiden Network (RNT), and Uphold are trying to get around the blockchain scalability problem with sidechains. A sidechain is a secure digital shortcut around the blockchain.
A sidechain has less encryption, so it offers higher speeds and capacity by sacrificing security. Obviously, sidechains are less secure and private than blockchain but they are theoretically faster.
Is Cardano (ADA) a Useless Cryptocurrency?
Tellingly, there appears to be no mention of the blockchain scalability problem at the Cardano (ADA) website.
All the Cardano team has apparently done is to work out a better proof of stake algorithm. I have to wonder how that makes a good cryptocurrency.
Cardano is like a bank that invested all of its resources in building the most secure vault in town. Meanwhile, another bank that devoted its resources to lending and customer service gets all the business in town. Eventually, the bank with the great vault goes bankrupt and customer focused bank moves into its building.
I have to wonder if that is what will happen to Cardano. In detail, Cardano will collapse and another blockchain project with a sidechain like Ripple (XRP) will buy its technology.
Thus the only clear value at Cardano is some of its technology. Since that technology is not being applied in real world solutions it is use.
Speculators should stay far away from Cardano (ADA) and invest in cryptocurrencies with real world uses. Avoid Cardano until a real world use for it appears.
This arrogant commentary first appeared at Market Mad House your front row seat for all cryptocurrency insanity.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.