An investor's guide to Cardano, which has mysteriously become the No. 3 crypto in the world

Published Sat, Sep 4 20218:02 AM EDT

The Cardano blockchain's ada token , the third largest cryptocurrency by market capitalization, according to CoinGecko, hit an all-time high Thursday of $3.09, after breaking past $3 on Wednesday. The surge in demand for the altcoin comes amid renewed interest in NFTs, or nonfungible tokens, and continued enthusiasm for DeFi, or decentralized finance. Both parts of the crypto world build most projects on the Ethereum blockchain, but alternatives including Cardano have become more attractive to developers. Here's what you need to know about investing in ada and the Cardano network. What is Cardano and why is it so popular right now? Cardano is a public blockchain network that was founded in 2015 and is open-source and decentralized. The native token of the Cardano blockchain is ada. Cardano has been rallying for about two weeks, since its chief developer announced a planned update scheduled for mid-September that would include smart contract functionality. With smart contracts, it could host a larger variety of projects, including DeFi applications, and many believe that will make it even bigger competition for Ethereum. How ada became the third-largest coin by market cap is still a mystery to many in crypto. Many investors remain skeptical because Cardano hasn't launched anything yet, while other Ethereum alternatives like Solana are getting more developer and user activity. "Cardano certainly seems to attract a decent amount of attention and momentum, but in terms of actual development activity on the network it has lagged considerably behind Ethereum, which has a plethora of DeFi applications, yield aggregators, NFTs and other applications built on top of it," said John Todaro, an analyst at Needham. How is it different from Bitcoin and Ethereum? Cardano uses less energy than Bitcoin and Ethereum and can process more transactions per second. Of the two, Cardano is best compared to Ethereum. While bitcoin is also a cryptocurrency on a blockchain, the Bitcoin blockchain isn't the most efficient one for building apps on, which is why most crypto projects you hear about are built on the Ethereum blockchain. And ultimately, people are interested in owning ether and ada not just to transact on the network, but to participate in and own a piece of the overall ecosystems. "There are all these tokens and sometimes they try to have a purpose, but they don't," Michael Sikorsky, chairman and CEO of Copia Wealth Studios, said of altcoins. "The reason why we love Cardano and Ethereum as allocators is we don't think about it at all like coin, we think about it like owning a piece of a platform – like if I was allowed to own a piece of the iPhone, which I am by buying Apple stock." Why do people think it's better than Ethereum? It is more efficient to transact on Cardano than it is on Ethereum, largely due to network congestion and notoriously high gas prices on Ethereum, according to Sikorsky. For example, he talked about a friend that bought a $200 horse racing NFT, but paid about $80 in gas for it. Gas prices are the network's transaction costs; they're set by miners based on the supply and demand of computational power needed to process transactions and smart contracts. There's also a fixed supply of 45 million ada tokens, whereas ether has an unlimited supply with an annual max of 18 million ether tokens. However, the ada supply may not always be fixed, and people are divided on the whether that's best for the network. Sikorsky said he likes it. "I would argue that in the early days of adopting these coins, it's better" to limit the supply, "just like when the dollar was pinned to gold as America emerged," he said. "I love that it's pinned, but it wouldn't bother me as an investor if I was told that 20 years into the future they have to put Modern Monetary Theory in and release more coins. Upfront it give people lots of peace of mind, because they know the code won't let more than a certain amount of coins get written so there are classic supply and demand curves." Sikorsky said he believes Ethereum will see a lot of competition by Cardano as well as others, but noted it has strong first-mover advantage and as an investor, it's just too early to pick winners and losers. "You might be in the Apple ecosystem or the Android ecosystem," he said. "There's almost always two and think about how many apps brought you to the iPhone and how many apps brought you to the Android." What are the risks? Ada is just as volatile as any other cryptocurrency. It's also really young and prone to the same technological and regulatory risks as other cryptocurrencies, or emerging technologies in general. "All this stuff is new and past results can't dictate future performance. If you haven't already allocated to crypto, I would not do this," Sikorsky said, adding that investors shouldn't start their forays into crypto with altcoins. However, he added, "if you have some crypto experience and you've already done bitcoin and ether, this to me is the best altcoin for people who have a long horizon. You've got to be thinking about this over time."

Ether is the second-largest cryptocurrency in the world by market value.

Jaap Arriens | NurPhoto via Getty Images

The Cardano blockchain's ada token, the third largest cryptocurrency by market capitalization, according to CoinGecko, hit an all-time high Thursday of $3.09, after breaking past $3 on Wednesday.

The surge in demand for the altcoin comes amid renewed interest in NFTs, or nonfungible tokens, and continued enthusiasm for DeFi, or decentralized finance. Both parts of the crypto world build most projects on the Ethereum blockchain, but alternatives including Cardano have become more attractive to developers.

Here's what you need to know about investing in ada and the Cardano network.