The Complete Beginner’s Guide to Cardano: Is it a Good Investment?

Cardano is one of the most talked-about Ethereum alternatives (aka “Ethereum killers”) hitting the crypto markets today. 

A third-generation Proof-of-Stake blockchain platform and home to the ADA cryptocurrency, Cardano was built by a team of engineers and academic experts using peer-reviewed research. Its number-one purpose was to create a robust and eco-friendly blockchain with similar capabilities as Ethereum. 

We know—that’s a lot to unpack. Ahead, we explain what Cardano is, why it exists, and, most importantly, whether Cardano is a good investment in 2022.

Cardano is a blockchain with capabilities for smart contracts, decentralized apps (dApps) and decentralized finance (DeFi). It’s considered a potential alternative to Ethereum and one of the major projects for blockchain enthusiasts to keep their eyes on. 

Cardano itself is a project. Meanwhile, the cryptocurrency built on Cardano is known as ADA. 

Here’s an easy way to remember the distinction: Cardano’s utility token, ADA, was named after the English mathematician Ada Lovelace, who is recognized as the first computer programmer and was the daughter of the poet Lord Byron. (That makes Cardano a little swoon-worthy in our opinion.)

Think of owning ADA similarly to how people think of owning stock in a company. Buying ADA coins is a vote of confidence for the Cardano blockchain. According to the CoinDesk 20, ADA is the sixth-most popular cryptocurrency with a market cap of $52.09 billion as of Dec. 2021.

Cardano’s roots are interesting. Its founder, Charles Hoskinson, is a crypto luminary who actually helped co-found Cardano’s rival and current competition, Ethereum. Hoskinson was one of the original eight founders of Ethereum, notably alongside Vitalek Buterin. 

Hoskinson joined the Ethereum project as a means to utilize blockchain technology (which, at the time, meant Bitcoin) for more use cases other than just money.

As time went on, Hoskinson and Buterin started to have diverging thoughts about the future of Ethereum. Buterin wanted to keep Ethereum as a non-profit operation, but Hoskinson wanted to accept venture capital and create a for-profit entity with a more formal governing structure.

Hoskinson then went on to found an organization called Insert-Output Hong Kong (IOHK). And now, the flagship project of IOHK is Cardano.

Now let’s talk a little bit about utility tokens. It’s important to remember when talking about crypto what exactly utility tokens are and what their value is.

A utility token, like ADA, gets its value from a project that it supports, like Cardano’s blockchain. It’s akin to the relationship between a company share and the company itself. You may see Cardano and ADA are used interchangeably, but when people are talking about “investing in Cardano,” they are usually talking about buying the ADA cryptocurrency.

When asking if ADA, or Cardano is a good investment in 2022, it’s important to remember the general strength of the cryptocurrency markets. ADA can fluctuate in price without that price change necessarily reflective of the Cardano project, similar to how a stock may go up and down in value even though the company is profitable over a longer stretch of time.

Back in May of 2021, when all other cryptocurrencies had tanked due to the FUD (fear, uncertainty, and doubt) that arose with Elon Musk’s Bitcoin-bashing tweet, Cardano hit its first all-time high of the year. 

Cardano went up in value because it was known as the biggest environmentally friendly crypto project. It still is, though now that Ethereum is upgrading its systems, Cardano has some competition. (Solana is also known as a potential contender, among others.)

At the center of the environmental debate is the distinction between the two biggest consensus mechanisms in crypto: Proof-of-Stake (PoS) and Proof-of-Work (PoW). 

Without getting too nitty gritty, PoW was the original consensus mechanism used by Bitcoin. It uses a lot of energy by having computers run constantly to solve complex algorithms. Because of PoW, crypto as a whole gets a pretty bad reputation—perhaps rightly so.

Meanwhile, in the PoS consensus mechanism, cryptocurrency miners can validate block transactions based on the amount of coins a miner holds, without the need to spin computers all day doing mathematical analysis to create new blocks on the chain. 

As climate change becomes a hot-button issue, the market will likely favor environmentally conscious blockchains—hence Cardano’s popularity.

Cardano has two major layers in its architecture: Cardano Settlement Layer (CSL) and Cardano Computation Layer (CCL). 

The CSL is akin to Bitcoin, and it’s where Cardano's cryptocurrency ADA lies. The CCL is akin to Ethereum and where most of Cardano’s utility lies. 

Cardano has several project use cases at the moment. However, in true crypto style, most of them lack traction. The industries that Cardano aims to help are enterprise education, retail, agriculture, government, finance, and healthcare. 

Cardano has created some notable partnerships—specifically, the Ethiopian government has partnered with Cardano to use blockchain to fight government corruption.

When you are trying to ascertain if Cardano is a good investment in 2022, you’d naturally compare it to the project that it is trying to replace. Given its almost poetically epic origin story—with two founders going head-to-head—we can’t guarantee it will come out up top, but it’s certainly worth watching.

The Cardano blockchain has its appeal due to it using PoS and having lower gas (transaction) fees for people who utilize the blockchain. From its inception, Cardano’s team has said that its mission is to build a blockchain with scalability, sustainability, and interoperability. 

With all of the emphasis that is going on related to DeFi, smart contracts, and NFTs, Cardano in theory seems poised to take over. But there’s one little issue: Cardano lacks the community that Ethereum has. 

Not only is Ethereum older, and much more popular, but a Google search for the term Ethereum yields more than 100 million more results than Cardano.

In crypto investing, community (aka internet presence and buy-in) is everything. It is hard to know if Cardano is a better investment in 2022 than Ethereum. Cardano—at the moment—has better, cleaner, and more environmentally conscious technology. But Ethereum has a much stronger community and history. By the time the public loses the notion that all crypto is bad for the environment, Ethereum’s tech may make leaps and bounds.

Solana is an interesting competitor to Cardano, and the Solana vs Cardano race is neck and neck. Backed by legendary VC firm Andreesen Horowitz, Solana also attempts to be an Ethereum killer and has been an even better investment for potential investors this past year. In fact, $1,000 dollars invested in Solana in 2020 would be worth $138,000 today.

Solana also provides a more environmentally sustainable alternative for creating new tokens called Proof of History (PoH). Moreover, Solana has gained a lot of attention due to the NFT boom, since it’s prioritizing having lower gas fees than Ethereum. 

Both Solana and Cardano are “Ethereum killers,” which means they both suffer from potentially having to deal with Ethereum’s powerful community. 

Another blockchain project from earlier this year, EOS, was also thought to be another Ethereum killer in terms of creating useful use cases for the blockchain beyond just money. EOS placed a big focus on dApps, or applications that businesses could use on chain.

EOS had a huge boom around the time it was founded, but it has since then gone down in popularity after running into a few unfortunate PR snags.

​​ADA’s ROI has at times been higher than that of Bitcoin or Ethereum. However, ADA’s value tends to ride the Twitter waves, and its big spike happened around the same time as Elon Musk’s tweet about crypto’s environmental damage.

Such growth is highly unlikely to be sustainable going forward, especially with competitors like Solana entering the arena. Bullish investors estimate that ADA will hit $4, but the worst case scenario is that Ethereum wins and Cardano becomes nothing but a novelty crypto.

You can buy ADA on most crypto exchanges, including Coinbase, Binance, FTX. Notably, you can’t buy ADA on Robinhood. You'll probably want to open a crypto wallet if you don't already have one.