Cardano will have its Ethereum moment next bull run

If you want to know what potential Cardano has, don't look at the market value of ADA coins in a bear market. Rather, look at what's happening in the ecosystem and what projects are gradually emerging. It's also smart to look at other ecosystems and think about what led to their rise or eventual fall. That will tell you a lot more about the future. It is very likely that Cardano will have its Ethereum moment in the next bull run. Why do we think so?

TLDR

• Interaction between users is behind the success of any ecosystem.
• Cardano is already processing a similar amount of transactions as Bitcoin.
• If there is a VC fund behind the project, it may be a red flag.
• Technologically promising projects can be thwarted by unfair coin distribution.
• "Move fast, break things" is a good strategy for startups that want to quickly verify that their idea is viable.
• Cardano has several advantages that can make it one of the industry leaders.

Mutual interaction is the basis for success

The success of the Internet is based on the interaction of users. The need to interact with people is a fundamental human trait. All major Internet services allow interaction between users and have managed to build a strong network effect. At the same time, all current services are in the position of intermediaries who somehow exploit their position and profit from it.

Blockchain technology can be seen as a new layer on top of the internet that will to some extent allow the power of intermediaries to be reduced. A blockchain platform like Cardano is a trust machine which makes it possible to build trust between participants without anyone having any advantage derived from a higher status.

Cardano allows you to create value, own value and interact with value according to clearly defined rules without the possibility of third parties influencing these processes.

No third party can change the monetary policy of the Cardano protocol without the consent of a majority of ADA holders. This is a compelling concept that Bitcoin was the first to come up with. Creating your own token on the Cardano platform, including the rules, extends this concept and gives everyone on the planet this opportunity.

People can create NFTs, a local currency, their rewards system, tickets to an online service, or anything else they can think of. Tokens don't necessarily have a high market value, it's more about their usefulness in a given context. What is important are immutable rules that can be defined by a single entity or a group of users.

Users can hold value, i.e. coins and tokens, without intermediaries or send it to each other as they see fit. Smart contracts allow you to define the rules of interaction. Imagine, for example, the exchange of token A for token B between Alice and Bob. If they did not know and trust each other, they would need a third party they both trusted to make the exchange. For example, a centralized crypto exchange. But the exchange is not a trusted intermediary. Cardano makes it possible to create a service that can exchange tokens in a decentralized way.

Transactions on a blockchain network cannot be censored, stopped, or prevented. No one can be bribed. All decentralized applications can have exactly the same properties. When tokens A and B are exchanged, there is no need for a third party who can mess things up. Alice and Bob will own either token A or token B all the time. A decentralized exchange is just a set of rules for trusted token exchange.

Bitcoin is an ecosystem that allows people to send BTC to each other. People liked the idea and adopted the network. Ethereum has expanded the concept by allowing people to create their own tokens and build decentralized applications. People liked it even more and there are more interactions happening on Ethereum than on Bitcoin. Bitcoin processes approximately 200-300K transactions per day. In the case of Ethereum, it is approximately 1-1.3M transactions per day.

If you are asking why Ethereum processes more transactions per day than Bitcoin, you would find a very simple answer. Ethereum offers more useful features and people use them.

Cardano is still a young ecosystem, but the network is already processing a similar amount of transactions as Bitcoin, something around 220-250K per day. The question is whether Cardano will attract more users and get closer to Ethereum, in whose ecosystem a large number of transactions also take place on the second layers. For example, on Polygon alone there are 3M transactions per day.

We think Cardano will attract new users and will explode in the next few years.

Boom and bust of projects

The success of Bitcoin and Ethereum is not an isolated event. Many new ecosystems have grown up alongside these, including Cardano. I believe every new ecosystem has a chance to succeed under certain conditions.

Just as Facebook has surpassed MySpace, just as Google is not the only search engine in the world, and just as many streaming platforms exist side by side, there will be multiple blockchain ecosystems side by side. New ones will emerge, and the older ones may not maintain their dominance when the competition comes up with something disruptive.

Each year that the platform has been in existence adds to its strength and the number of users can grow. Ethereum benefits from the first-mover advantage among smart contract platforms and it is natural that as the oldest project it has the widest user base. How successful are other ecosystems? Without explicitly naming other relevant ecosystems, we must admit that there are roughly a dozen. That's solid competition and good for the development of the blockchain industry.

Some of the younger L1 projects came out of the blue and were able to attract large numbers of users. Many of them are no longer relevant today. Being first on the market is no guarantee of success. Why did these ecosystems quickly emerge and then disappear?

There are several reasons for that.

If VC capital is behind the project, the risk of ecosystem collapse is high. Venture capital is suitable for financing the development and promotion of a project. They can help arrange important partnerships. VC capital participation can attract retail investors. The problem is that VC funds often hold huge amounts of coins (which they bought very cheaply compared to retail investors) of a project just to sell them at the appropriate time. The value of the coins can drop from hundreds of dollars to units of dollars in a short while.

The annoying thing is that native project coins are often considered money in a given ecosystem and users usually don't hold much of it. If they feel they've been screwed, they may leave the ecosystem. If VCs dump their coin on users, it could spell the end of the ecosystem, or at least hard times. The project may be technologically promising, but it will be thwarted by the initial distribution of coins.

In spite of the described problem, it may happen that quality services will be created on the platform which will attract new users and subsequently investors.

The projects that have emerged quickly may not be of high quality technologically and have probably sacrificed decentralization. These projects can scale very well, but block producers need expensive hardware and may be limited in number centrally.

These projects have also managed to attract a large number of users. Unfortunately, they suffer from the fact that the network needs frequent restarts or it turns out that the network can be centrally shut down. People are happy to invest in promising projects but are unable to verify the quality of decentralization. Once these problems occur, many users leave because everything blockchain technology comes with is essentially lost.

Those who have been in the Cardano ecosystem for a long time will remember how difficult it was to launch a PoS consensus. Pool operators were volunteering, learning how to run nodes and helping each other out. Newcomers often get caught up in the fact that the new network is fast and transactions are cheap. They think the blockchain must also be decentralized, but that may not be true.

Another attraction is the high TVL. Users don't understand that if a team holds the majority of the coins, they can inflate the TVL in DeFi services. Not only that, but they can also make decisions in important votes, which we've also seen. A whale (team) can overturn a vote in which the majority of users voted the other way. TVL is definitely not as important an indicator as the number of real users who use the services.

VC funds can manipulate the TVL of the DeFi projects they are rooting for. Once they decide to sell the project's coins, it can bring about the end of the service.

Why will Cardano have its own Ethereum moment?

We have seen the demise of many promising projects that started out well. Many are still around and may succeed. Why should Cardano succeed?

Decentralisation is a priority for the IOG team and the protocol is being developed to a very high standard, much like software for aircraft or nuclear power plants. Cardano will be around for decades, which in itself will attract new users. Building trust takes time.

Some critics, including project leaders who have VC funds behind them, say that Cardano is being developed very slowly and that they have delivered an entire platform in a year and have tens of thousands of users. The reality is that some of these projects are slowly disappearing from the scene. On the other hand, we see other relatively old ecosystems that are slowly starting to gain relevance. The gradual slow evolution of decentralized technologies and the organic growth of the user base are more important than delivering a solution to the market quickly.

In the case of the Cardano ecosystem, you won't find any VC funds that could have bought ADA coins at the outset for many times cheaper than retail. Cardano has a fair coin distribution. It is better for the growth of the ecosystem if the coins are held by hundreds of thousands of people around the world than a few whales waiting for the right time to sell.

"Move fast, break things" is a good strategy for startups that want to quickly verify that their idea is viable. You can't take that shortcut with blockchain technology. Users must not lose money because developers have written poor-quality software and left vulnerabilities. Careful development has its merits and in the long run, the IOG strategy will prove to be the best possible.

For Cardano, the fact that the transaction volume is similar to Bitcoin is already a great success. You have to take into account that the launch of the stablecoins USDA and DJED is planned for Q1 2023. When the stablecoins are available it will be possible to fully exploit the potential of DeFi. Many promising services are still being built. NFTs on Cardano is gaining popularity and will continue to grow with new marketplaces.

Every project should have some clear competitive advantage if it has ambitions to become one of the market leaders. Cardano is probably the only platform on which there has been no major hack of smart contracts. It turns out that the Plutus platform is a good solution for writing a robust application.

The Ouroboros PoS version Leios is probably one of the best solutions to achieve high scalability at the first layer without having to sacrifice decentralization. The implementation may take several years, but it can be done by the next bull run. In addition, work is being done on the second layers, especially Hydra.

One of the other benefits will be a decentralised digital identity. This will also appear on other platforms, so it won't be an advantage that only Cardano would have. However, the team has been working on Atala PRISM for years and this identity management service has seen adoption at the government level.

Privacy is a big topic for the blockchain industry and we will see much more adoption by businesses, banks and governments once we have a solution. Midnight will be a sidechain on Cardano, which can provide privacy while complying with regulations in a given jurisdiction. This could be a game-changer.

We could name other things like Catalyst, which will allow funding of projects from the Cardano treasury, or introducing decentralized governance and putting Cardano in the hands of the community not only at the level of network consensus (which has already happened) but also at the level of software development management.

Cardano has a healthy and strong community that is growing every day. The number of stakers grows by thousands every epoch. New teams are coming in to build their project on Cardano. As we know, most of the ideas will be unrealized and some projects will be scams. However, this happens in every ecosystem and despite this, in every successful one, you will find a few flagships. They are for projects with a large number of users that will maintain dominance for a long time. Such projects are bound to appear in the Cardano ecosystem as well.

Conclusion

The success of internet giants like Amazon, Google, Twitter and Facebook is built on the interaction of users. All services fight for your attention and try to enable you to communicate through their protocols. Blockchain technologies are exactly the same in this and their success depends on how many people adopt them and start using them in their daily lives.

Imagine holding the stock in your own wallet and using DEX to sell it on Sunday night. DEX will protect your privacy. The sale will be between you and someone on the other side of the world, yet the token exchange will cost a few cents. You will receive USDA for the sale and instantly pay to buy goods in the online store, or lend them to someone through the lending platform to make a profit. This is very likely our future and Cardano will be one of the platforms you can use for this.

Cardano is growing organically regardless of the ongoing bear market. However, periods of market growth tend to be accompanied by user growth and it would be nice if DeFi was ready to show the strength of Cardano. If history repeats itself, the increased interest in cryptocurrencies can be expected sometime around 2024 when the next Bitcoin halving will occur. That's plenty of time for the IOG team to deliver more Cardano upgrades and for third-party teams to launch their services. Cardano will have its Ethereum moment and explode when it comes to the number of users and adoption.