Bitcoin vs. Cardano: A Showdown in the Crypto Space

Bitcoin‘s (CRYPTO: BTC) price has nearly tripled over the last two years. This increase comes from the approval of its first spot-price ETFs in January, a significant halving event in April that reduced mining rewards, expectations of lower interest rates, and supportive crypto policies during the Trump administration. Institutional investors have also started to see Bitcoin as a potential alternative to gold and other precious metals.

While Bitcoin may still have room for growth, investors seeking higher returns might consider some smaller cryptocurrencies. One that stands out is Cardano (CRYPTO: ADA), which has created numerous millionaires since launching eight years ago. Is Cardano a better investment than Bitcoin at this point?

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Cardano and Bitcoin: Key Differences

Bitcoin employs a energy-heavy mining method called proof-of-work (PoW). In contrast, Cardano uses a more energy-efficient strategy known as proof-of-stake (PoS), which allows users to “stake” tokens to validate transactions instead of mining them. This staking process enables investors to earn rewards similar to interest.

Cardano’s validation approach aligns it with other PoS networks like Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL). These PoS platforms also host smart contracts, which enable the creation of decentralized applications (dApps), non-fungible tokens (NFTs), and other digital assets. As a result, PoS tokens are often valued based on the speed of their transactions and the strength of their developer communities.

In contrast, the Bitcoin blockchain’s primary function is to generate more Bitcoins. Mining becomes harder every four years, with the last Bitcoin expected to be mined by 2140. This scarcity gives Bitcoin its value, akin to precious metals like gold.

The Case for Cardano’s Growth

Cardano offers two significant advantages over Ethereum, the leading PoS blockchain. First, it can handle theoretical speeds of up to 1,000 transactions per second (TPS), outpacing Ethereum’s current max speed of approximately 600 TPS.

Second, Cardano calculates its transaction fees based on transaction size and computing requirements, making its fees more predictable than Ethereum’s network congestion-based charges.

Last August, Cardano released its much-anticipated network upgrade, the Chang Hard Fork, which enhanced its speed, security, and scalability. This upgrade could entice more developers to its blockchain for decentralized applications and crypto projects.

Additionally, Grayscale recently applied to the Securities and Exchange Commission (SEC) to create Cardano’s first spot-price ETF. If approved, this ETF could attract more institutional investors and potentially boost Cardano’s price.

Challenges Facing Cardano

Despite its strengths, Cardano struggles to compete with Solana, another PoS blockchain. Solana’s proof-of-history (PoH) system achieves average speeds of 5,000 TPS, with a maximum speed reaching up to 65,000 TPS. Solana also maintains much lower transaction costs, with an average fee around $0.00025 compared to Cardano’s typical fee of at least $0.1642.

For developers, these factors make Solana a more appealing choice due to its speed and lower costs. Furthermore, Ethereum’s founder, Vitalik Buterin, has plans to enhance Ethereum’s speed to 100,000 TPS, which could challenge both Cardano and Solana.

Comparing Cardano to Bitcoin

In the past two years, Cardano has lagged behind Bitcoin and Solana for several reasons. Its inflationary nature makes it less scarce than Bitcoin, and it does not offer the speed or low-cost transactions that Solana provides for smart contracts.

While factors such as Trump’s crypto policies or lower interest rates may temporarily lift Cardano’s price, it currently lacks the qualities that would make it a substitute for Bitcoin. Bitcoin appears to offer a clearer path to long-term gains, while Cardano may still be seen as a speculative investment for the time being.

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Leo Sun has no position in any stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.