The veins of blockchain

Ethereum, Cardano & Polkadot: Part 01

There is a love triangle forming in the world of crypto. Sometimes ignoring the hottest girl in the party (Bitcoin), can give you greater rewards in the long run. Most investors are pushing the masses to invest in Bitcoin, but keep in mind, you should only follow the crowd if you have the money to buy full Bitcoins, and not parts thereof. Investing in a few Satoshi’s with the hope of being a millionaire is not going to work. You can check the analysis in my previous post, investing in crypto. Bitcoin is no doubt a great investment, fast becoming the “gold” of the crypto world, but If you missed the BTC run when it was below $10,000, it’s probably best to let it go. There are many other coins out there that will yield high returns.

Enter smart contract Altcoins to the rescue

Smart contracts are the future of blockchain, and will be the veins of the transactional internet. Whilst Bitcoin focuses on decentralised movement of tokens, Ethereum (ETH) i.e. the father of smart contracts, will have growth in the long run, along with a few other coins in this space. I believe that ETH is undervalued and being held down on purpose, so as the focus remains solely on BTC, thereby blindsiding the retail investor. As BTC rises in value, it is becoming more and more unaccessible to the masses. ETH is facing issues too. One of them being scalability; there are over 3,000 decentralized apps (Dapps) running on the Ethereum network which is causing clogging and driving the cost of transactions known as “gas fees” higher. Basically, the higher the value of ETH, the higher the transaction value. Each transaction on the ETH network can take between 15 sec to 5 mins, and due to the congestion caused in the network, the needle most often points toward the latter. EIP1559 is a proposal to make Ethereum transactions more efficient, by using a hybrid system of base fees and tips to more evenly incentivize miners in periods of high or low network congestion. In the proposal, a base fee is defined as an algorithmically determined price that you can pay for transactions on Ethereum. If you want to learn more about EIP-1559 read the description by Ethereum developer Tim Beiko.

The ETH cartel can control the majority of the network hashrate in the future. Source: Etherscan

The two largest ETH mining pools, Sparkpool and F2Pools initially supported this change. However, Sparkpool changed their stance due to a move from Flexpool. Their blogpost “Don’t be a slave to your mining pool. Blacklist pools that support robbing their miners just so that they can inflate the price of ETH for rich speculators,” saw 400 miners joining Flexpool, as per a Telegram message to CoinDesk by CEO Alexander Sadovskyi.

Twitter Post by SparkPool

The mining pools’ resistance to the change could make ETH retaliate by removing mining all together. Mining cartels aren’t limited to ETH alone, F2Pool‘s action of dumping large amounts of BTC to the market is a good example. The dump made BTC plummet by $10K in a few hours, the largest fall for BTC. Miners threatening the very core of blockchain by centralising the consensus, can have a negative impact on BTC and ETH in the future. Further concerns about the intentions and integrity of these pools can be raised due to them being founded in China. These reasons will increase the support for 3rd generation blockchain and crypto, which will hopefully ensure true decentralisation. Cardano’s sudden growth to reach an all time high during the fall of BTC and ETH, and beating BNB into 3rd place in market cap should give you an indication of the acceptance of the project. Polkadot, another coin focusing on interoperability remains stable too. A recent press release by FD7 Ventures, a Dubai-based crypto investment fund, said it plans to unload $750 million worth of Bitcoin holdings over the next 30 days in favour of purchasing the two altcoins, Cardano (ADA) and Polkadot (DOT).

“I’ve been lucky enough to spend lots of time with the brightest minds in crypto, and I’m willing to bet that each of Ethereum, Cardano and Polkadot will be more valuable than Bitcoin within the next few years,” Prakash Chand, Managing Director at FD7 Ventures

Cardano (ADA)

With ADA performing well compared to BTC and ETH, I was glad that I swapped some of my ETH to ADA. To appreciate Cardano, one needs to understand the journey of the blockchain eco system.

First generation blockchain which started with Bitcoin, focused on moving a token from A to B without an intermediary such as a bank. With time, these tokens would hold real value. However, this system had its limitations. For instance, it wasn’t designed to handle a payment by A to B for the performance of a task.

Ethereum addressed this issue by building a software layer which could manage smart contracts that can be implemented without the involvement of a intermediary. This was the second generation of blockchain technology. Ethereum has a much larger development community, but like Bitcoin, with the growth of the network it too is facing problems with scalability and governance.

So what is the third generation blockchain that Cardano is venturing into? It addresses 3 critical topics; Scalability, Interoperability and Sustainability. This is similar to the change Google made to search engines many years ago, that threatened AOL and Yahoo who were the pioneers of the industry. ADA is created from the ground up using research, peer-review, and a rigorous formal development model. Based on their vision, ADA seems well poised to be a leader in the blockchain space. The CEO of Cardano, Charles Hoskinson was also a co-founder of Ethereum, alongside Vitalik. A disagreement about the direction of the project led to him leaving Ethereum. He then went on to be active in the development of Ethereum Classic and later started on the Cardano project.

Charles Hoskinson third from the left with Vitalik Buterin

In Part 2, I will further elaborate on the Scalability, Interoperability and Sustainability of Cardano.

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