Up to this point, cryptocurrencies have mainly been characterized by financial speculation. While this leads to extreme volatility in the short term, the huge inflow of investment dollars also supports developer activity and helps spawn actual use cases.
Ethereum (CRYPTO: ETH), the first programmable blockchain, is showing the potential for decentralized applications (dApps) to bring utility to the crypto space. Cardano ( ADA -1.70% ), a promising project that also enables smart contracts, opens up the opportunity for major innovation even more.
Cardano’s network possesses some important characteristics that give it a remote chance to become the next Visa (NYSE: V) of the crypto economy. Let’s take a closer look.
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It’s all about speed and scalability
Cardano’s development process consists of five separate stages, with it currently being in the last two phases that focus on scalability and governance. The founding team employs a peer-reviewed, academic-focused system when introducing new features and upgrades. This might mean longer development times, but it undoubtedly fosters an environment where every possible factor is thought through. And this is Cardano’s competitive advantage.
The network can process 250 transactions per second (TPS) right now, thanks to its proof-of-stake consensus mechanism called Ouroboros. This is a more energy-efficient process to validate transactions on the blockchain when compared to the proof-of-work that Bitcoin and Ethereum use today. While Cardano doesn’t even come close to Visa’s theoretical capacity of 65,000 TPS, it is much higher than Ethereum’s current speed of 14 TPS.
One thing is strikingly obvious, though. If Cardano hopes to achieve mainstream adoption, throughput needs to rise significantly. As the crypto economy continues growing, demand from users will surely increase. And for a cryptocurrency to hold the title of the “Visa of crypto,” 250 TPS just won’t cut it.
Luckily, Cardano’s development team is working hard to introduce Hydra, a key component of the fourth phase. Hydra will use off-chain ledgers, called Heads, to substantially increase capacity to support 1 million TPS. While this is an astronomical figure that crushes even Visa’s throughput, what Cardano really hopes to achieve is to decrease latency, or the time it takes to complete a transaction. But having a network that can fulfill growing demand is paramount.
There’s a ton of uncertainty with any major upgrades in blockchain technology. But if Hydra is implemented without any big hiccups, and scalability skyrockets as a result, then Cardano will be a huge force in the world of dApps, especially when it comes to decentralized finance (DeFi) protocols.
Temper your expectations
To believe that Cardano could get on the same level as Visa’s dominance is definitely a stretch, no matter how promising the blockchain’s future might look. As I mentioned earlier, the technology is still very early in its lifecycle, and there are just too many question marks as to the future of digital assets in general. Investors would be wise to hold off on giving Cardano the title mentioned in this article’s headline.
If I had to make a bet, however, I’d say that Solana (CRYPTO: SOL), with its ability to process 50,000 TPS today, has a higher chance of becoming the next Visa of crypto than Cardano does. The team at Solana just introduced Solana Pay, a disruptive and innovative payments system that could upend the relationship between merchants and consumers. This takes a direct shot at Visa’s business.
It’s becoming increasingly obvious that DeFi will be the major use case for cryptocurrencies in the years ahead. In particular, electronic payments, dominated by the card networks, are ripe for disruption. But I think it’s prudent to assume right now that Cardano isn’t the next Visa of crypto. This is the case today, but with most things in the crypto space, anything can happen.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
