As the long-fought battle between bitcoin and ether rages on, newcomers are climbing up the ranks with underlying technology upgrades set to push them onto the main stage — if scammers don’t get to them first.
Smaller tokens known as altcoins have been steadily rising in popularity this year, with one cryptocurrency quickly pulling ahead. Enter cardano, which started 2021 at $0.17 and has jumped 116% so far in August alone to reach $2.90.
Also known by its ticker ADA, cardano is now the world’s third-largest cryptocurrency by market capitalisation, pushing older favourites tether and crypto exchange Binance’s BNB token out of its path earlier this month. It now stands at a total market cap of $93.5bn, according to 24 August data from CoinMarketCap, though it is still a long way from bitcoin’s $934.7bn.
Its rise is largely attributed to the Alonzo hard fork, an upcoming upgrade to the token’s underlying Cardano blockchain network which could see it challenge rival protocol Ethereum for its ability to handle smart contracts. If completed smoothly, this would be a major boon for institutional usage.
“If successful, [the Alonzo fork] will bring smart contract functionality by allowing the writing and deployment of smart contracts for the first time on the Cardano blockchain. This upgrade will be significant as it will enable developers to build projects on the network, helping Cardano to position itself as a real ‘competitor’ to the likes of Ethereum,” said Simon Peters, crypto market analyst at online brokerage eToro, last month.
“The price of ADA climbed [steadily] over the last quarter, suggesting investor optimism around the Alonzo hard fork and Cardano’s ability to challenge Ethereum long term.”
Smart contracts have long been a major weapon in Ethereum’s arsenal, allowing it to take over the decentralised finance space and win favour with large projects such as non-fungible tokens (NFTs), and institutional adoption. No significant challenger has yet to emerge to take on that title, but the Cardano network’s next upgrade is hoping to change that.
The Alonzo hard fork
Cardano’s Alonzo hard fork is expected to roll out in the third quarter of this year, with developers working to meet a series of milestones that will signify the start of a new phase around 12 September.
As Cardano is relatively young compared to its larger rivals, the protocol still has several major structural updates to undergo, in phases known to the community as ‘eras’ — an indicator of the cryptocurrency’s fledgling maturity next to bitcoin or ether. Later eras will include changes such as establishing side chains to Cardano resulting in a network with multiple blockchains, and a voting system for decentralised governance purposes.
However, Cardano founder Charles Hoskinson, who also co-founded Ethereum but is no longer involved with the project, said the token’s price rise and upcoming upgrade has led to a bump in scams attempting to convince users to part with their assets.
“Any time you see major events coming, large-scale price appreciation and a lot of volatility, you will always see an enormous increase in scams,” Hoskinson, who runs IOG, the main development firm behind Cardano, said in a 23 August video.
“[Giveaway scams] are really rising up. There’s about 10 times as many of them right now than there were just a month ago because of the value appreciation of ADA, and those will continue for the foreseeable month or two.”
Scammers are also trying to hoodwink investors with fake applications on smartphone app stores, impersonation on social media and fabricated news stories with false claims that users need to change where they keep their cardano tokens because of the upgrade, Hoskinson said.
He added that tens of millions of dollars worth of cardano are likely to be stolen as a result of the scams before the end of September when the upgrade is set to complete.
Altcoins such as cardano have been making their strongest challenge yet to bitcoin’s premiership in recent weeks, according to data from CoinShares, as the world’s largest digital asset recorded its seventh consecutive week of outflows on 23 August at $2.8m.
Cardano, meanwhile, reported inflows of $6.4m, as investors flocked to tokens where they might potentially make long-term windfalls similar to those of bitcoin’s earliest backers.
But its appeal has mostly remained with retail investors, for the moment.
While cardano was eToro’s most held cryptocurrency in the second quarter, overtaking bitcoin with a 51% increase in demand during the period, hedge funds have largely eschewed the token’s growth. In May it was the sixth most traded altcoin by hedge funds, according to a report by the Alternative Investment Management Association and PwC, ranking below ether, litecoin, chainlink, polkadot and aave.
Though bitcoin was steadily recovering from its 2018 crash, it wasn’t until the advent of institutional investors into the market last autumn that the cryptocurrency’s price took off — rising from around $11,000 in October to an all-time high of $64,829 in April this year.
If cardano is to gain traction for market share in decentralised finance, a smooth upgrade will be vital in providing evidence for adoption of the token’s network in the real world. Without hard evidence of its viability as an asset class or usefulness, institutional investors are yet to be convinced.
To contact the author of this story with feedback or news, email Emily Nicolle