Investment Summary
Company Name: Cardano (ADA)
Date: December 2021
Type: Cryptocurrency/Proof of Stake (PoS)
Investment Description:
Bitcoin was invented over a decade ago based on an 8-page whitepaper that aimed to create a decentralized payment system that was faster, cheaper, and more secure than traditional payment systems at the time. Bitcoin today has a fully diluted market cap of $1 trillion dollars and is the largest cryptocurrency. That being said, Bitcoin falls short in some of its original aspirations and, as a result, causes the need for a 2nd edition cryptocurrency that will offer more than its first edition counterpart. Arguably the second edition of this currency is Ethereum which allows for decentralized applications (DApps) and today has over +3,000 DApps on its platform. This investment summary looks at the third edition of the next major cryptocurrency — Cardano. Bitcoin has failed to scale appropriately and therefore is too slow for real-time payments, requires a lot of energy, makes it quite expensive, and uses proof-of-work, which means the network can be taken over if 51% of users get control. Though this is unlikely for Bitcoin, this has happened with Ethereum.
Cardano uses proof-of-stake, which requires less processing power and instead relies on users of its network to stake the coin to verify blocks on the chain. This means that it can be faster, cheaper, more secure, and have DApps similar to the second edition of crypto coin primary coin.
Market Opportunity:
There are numerous currencies in the world of fiat currencies; however, only a few that matter. In 2019 the US dollar accounted for 88.3% of trades. The second is the Euro at 32.3% (keep in mind that each trade involves a currency pair). In the world of crypto, I expect a similar dynamic to play out. There will be a few mega-cap cryptos with numerous other cryptos with specific purposes. Cardano is currently a superior crypto in terms of speed, cost, and arguably security. Therefore, one could expect it to eventually surpass Ethereum, which is currently the number two cryptocurrency by market cap. Ethereum currently has a $484 billion market cap; if Cardano can match that market cap, it would represent ~7.4x ROI. Given current market dynamics, this make take quite some time to happen. Still, the evolution trend is that individuals flock to the more convenient, cheaper, more beneficial products/services over time. At the time of writing this, it’s also down over 50% from its highs, making it an attractive entry point for long-term buyers and on the back of sentiment rather than any fundamental issue with the blockchain.
Competitive Advantage:
Cardano is the leading PoS coin with the backing of one of the co-founders of Ethereum (more on that below). Its closest competitors by market cap include Alogrand (ALGO), which is 4x smaller than ADA with 50% less volume. Behind ALGO is Tezos (XTZ), which is 25% smaller than ALGO with almost 90% less volume than ALGO. Solana sometimes gets grouped into PoS but Solana is technically a proof-of-history coin (PoH). Carrano’s first mover advantage, the ability to evolve, scale, and be backed by a research-driven team provides little room for alternative PoS coins to catch up or provide value beyond what Cardano currently is or will offer.
Management:
Charles Hoskinson leads Cardano and its movement. He’s been in the cryptocurrency space for almost a decade — first working on the Bitcoin Education Project and then as one of the original founding members of Ethereum. For a brief time, he held a position as CEO of Ethereum. He’s been working on building and scaling Cardano since late 2014. Since then, he’s managed to evolve the crypto through 5 foundational phases and is showing no signs of slowing down.
