The excitement is palpable in the Cardano community as the network prepares for the long-awaited Alonzo upgrade hard fork this Sunday, bringing smart contract capabilities and other new features to the blockchain. Deployed in three stages, Blue, White and Purple, Cardano’s Alonzo upgrades have been rolled out over the past few months as ADA — the network’s native cryptocurrency — has soared in value to become the world’s third-largest by market cap in late August.
Cardano ADA prices have been on a tear following the late August announcement of Sunday’s release, rising over 40% since then to reach an all-time high of US$3.10 on Sept. 2, according to data from CoinMarketCap.com. In the lead-up to the launch, some industry insiders have described the atmosphere as reaching “fever pitch.”
“Cardano is a platform that has had a lot of hype because I don’t think it’s necessarily got the adoption that some of the other networks have, and this is the upgrade that will make it useful,” said Jonathon Miller, Australian managing director of crypto exchange Kraken, in an interview with Forkast.News. “I don’t want to sound biased, but finally this upgrade is going to allow it to have smart contracts and decentralized finance capability as a result.”
“It’s been an altcoin and now it’s going to look to be a competitive layer one,” Miller added. “The real question will be, who’s going to adopt and who’s going to make use of this?” Events this week have shown market volatility often surrounds significant industry developments. The crypto market experienced a 10% to 15% pullback after El Salvador’s adoption of Bitcoin as legal tender came into effect on Tuesday. Sunday will reveal whether the excitement surrounding Cardano, long dubbed an “Ethereum killer,” is already priced in or if Alonzo will be the launching pad for ADA’s next big stage of development.
Smart contracts
The primary new development coming on board with Cardano’s Alonzo upgrade is the introduction of smart contacts to the network. Smart contracts allow for decentralized finance (DeFi) applications on networks, which Ethereum has come to dominate up until this point. According to DeFi aggregator DeFi Llama — which includes most, but not all DeFi chains — the total value locked in DeFi almost reached US$190 billion recently, though TVL has since pulled back to sit at US$166 billion at press time.
What Cardano’s upgrade will do to the space remains to be seen, but given that DeFi’s total value locked has grown by more than 60% since mid-July, experts say it suggests there’s plenty of room for another blockchain of Cardano’s size.
The lead-up to this weekend’s launch has not always been smooth. Earlier this week, the first Cardano decentralized app on the Alonzo testnet Minswap was forced to shut down prematurely due to “concurrency” issues. Basically, the network had difficulty supporting multiple users who were interacting with the protocol at the same time, with critics arguing Cardano’s use of UTxO, or “unspent transaction outputs” were not up to the task of supporting DApps.
Input Output HK, the Hong Kong-based developer behind Cardano, took to Twitter to defend the use of the model, saying it “offers greater security, allows for fee predictability (no nasty surprises … ) and offers more powerful parallelization.”
The Alonzo upgrade is even expected to include an ERC20 converter, allowing Ethereum tokens to run on the network, which some users may choose to do given Cardano’s transaction speed advantage. The network is capable of supporting 266 transactions per second, as opposed to Ethereum’s 13. This increased speed also assists in keeping transaction fees, or “gas fees,” on the network down, which is particularly important to users given the extreme volatility of Ethereum’s gas prices.
Ethereum’s recent London hardfork, a pivotal step in its process of transitioning to a “proof-of-stake” consensus model, took measures to try and address this issue by burning Ether that would otherwise be paid to miners as part of Ethereum Improvement Protocol-1559. Significantly, Cardano is already running on a proof-of-stake network.
Given the existing popularity of the network — even before the rollout of all these features — Cardano looks set to get a real shot in the arm once it Alonzo launches, especially if the network is able to keep transaction costs down and transaction speeds up. But not everyone is convinced it will be enough to topple Ethereum.
“Just by copying and having bridges for the contracts won’t make you the Ethereum killer,” says Joshua Scigala, co-founder of The Standard.io, a DeFi infrastructure project. “When people say, ‘Well, it’s too expensive,’ I say, ‘Well, Berlin’s extremely expensive to live in. Why? Because everyone wants to live here.’”
Non-fungible tokens
Non-fungible tokens are the hottest thing in crypto right now as NFT marketplaces see record transaction volumes and NFT series fetch astronomical prices. Just this Thursday, a set of 101 “Bored Ape Yacht Club” NFTs sold for US$24.4 million at a Sotheby’s auction, showing there is growing mainstream interest in the speculative digital assets.
Alonzo will allow, for the first time, Cardano to offer full support for NFTs, but not everyone sees value in it.
“I can absolutely guarantee NFTs are a tulip bubble,” says Scigala, referring to the Dutch tulip market in the mid-1600s that drove prices of the flowers to incredible heights before the market crashed effectively overnight.
Scigala sees another issue with NFTs, which is their lack of decentralization. Presently, despite NFTs representing immutable ownership of the token, they are still only encoded with a hash pointing to the location of the digital asset on the centralized web. Which means if that asset is somehow moved or removed, the NFT connected to it becomes useless.
This can occur if an NFT is delisted from an exchange, such as when OpenSea delisted a series of Pepe the Frog NFTs after a copyright dispute with the character’s original creator.
Though the majority of NFTs are found in the domain of digital art for the meantime, they have a myriad of use cases for any aspect of society or business that would benefit from increased traceability of an asset. At The Standard.io, they are working on turning users’ collateralized debt positions into NFTs, which are then able to be traced further down the line. Scigala brings up another example of how the 2008 mortgage crisis was blamed in part on mortgage-backed securities being split up and repackaged, and becoming untraceable.
“If you could use mortgage-backed securities with NFTs, you could most likely track where those mortgages are,” Scigala said. “If some library in South Australia owns a part of a mortgage of a Texas home, you would see that. So, this is probably an interesting use case for Cardano to have a look at instead of just copying what’s already been done in the NFT space.”
Not so fast
Despite all the hype surrounding Cardano’s imminent upgrade, not everyone is convinced the development is as significant as Cardano’s community believes.
“There’s no reason for this to be a top-three token,” says Ben Caselin, head of research at crypto exchange AAX. “My conclusion would be, it’s way overvalued and overhyped, and it still has to find very fair value.”
Caselin argues that the growth of Cardano, which has a market cap of over US$80 billion, is built upon speculation of its future capabilities once it is eventually rolled out, as opposed to what it can do today. Many other networks with a lower valuation already have smart contract capabilities, he added, so why are they not valued as highly? He believes a lot of this comes down to Cardano’s marketing.
IOHK, the developer behind Cardano, did not respond to a Forkast.News request for comment as of publishing time.
While Caselin sees the Alonzo development as significant for the Cardano network, he does not believe it will be for the industry as a whole. But only time will tell if Cardano critics are correct and how the network, the industry and technology will evolve.
“Try not to get into a whirlwind of panic thinking this is the last chance to get rich because you’re going to miss the boat on a certain technology,” Scigala said. “We’re still at the Nokia stage of this technology. As these blockchains start to evolve and come out, we will see a true price discovery happen. But it takes time to really see it.”