We began, last week, to look at cryptocurrencies that create value with innovation and business applications. Cardano, Tezos and Binance Coin are in focus.
One of the best-known of these is Cardano (ADA). The crypto was invented by Charles Hoskinson, a mathematician and a collaborator in the creation of Ethereum.
There is about $4 billion invested in Cardano, and about 40 billion coins extant. This makes it one of the most secure of existing cryptos, even though the price of an ADA has not risen above $0.13 for some time (it has gone up to $1.18 in the past).
But, in investing in Cardano, you are participating in a scientific project of considerable prestige.
Cardano set out to create a cryptocurrency and blockchain that would be a distinct improvement on ether and bitcoin both. Cardano was launched in September 2017 via ICO. The project would create a network that values privacy and security, but at the same time met the needs of regulators as well.
The Cardano blockchain is built in two layers: The settlement layer has the account units, while the control layer runs smart contracts. The control layer will be programmed to recognise identity, assuring compliance and enabling management of users.
As a whole, the protocol’s design is geared towards protecting privacy rights of users, while also taking into account the needs of regulators.
Cardano uses proof of stake, which is a blockchain design that adds a mechanism to introduce secure voting, has more capacity to scale, and permits a greater choice of incentive schemes.
With proof of stake, to add a block to the blockchain, investors must first stake some of their coin, and then choose a potential block. Investors with stakes also vote on changes in policy or other issues that affect the cryptocurrency as a whole.
Cardano’s proof of stake protocol is called Ouroboros and it has been designed by an extremely talented team of cryptographers from five academic institutions led by Professor Aggelos Kiayias of the University of Edinburgh. It offers modular and flexible design that allows for the composition of many protocols to enhance functionality.
However, it has also been proven secure, and it operates with a high level of decentralisation.
All of this is to say that Cardano is here to stay, and has a good chance of rising in value. As it does not seem to be very volatile, most investors see it as a long term investment – one that can be had cheap at the price.
Tezos (XTZ), the tenth-largest crypto in market cap at $2.3 billion, is also a purveyor of a new blockchain technology, but with a very different approach from that of Cardano.
With its current price at $3.10, Tezos has had a more active investment history than Cardano. It has been volatile, but has never traded higher than $4.00. Investors are more likely to see a short-term profit with Tezos than with Cardano, however.
Tezos (XTZ) is a multi-purpose platform that supports decentralized applications (DApps) and smart contracts. It was developed by Arthur Breitman, with support from his wife Kathleen Breitman, and launched an initial coin offering (ICO), based in Switzerland, in 2017 that raised $232 million – one of the largest ICOs in history. A year after the ICO, Tezos launched its beta network in July 2018.
Tezos addresses key barriers facing blockchain adoption to date: smart contract safety, long-term upgradability, and open participation.
What’s special about Tezos is that it upgrades itself. Bitcoin, for example, must ‘fork’ each time a change in the functioning of the blockchain is to be made.
The Tezos platform is self-amending. “Self-amendment allows Tezos to upgrade itself without having to split (“fork”) the network into two different blockchains. This is important as the suggestion or expectation of a fork can divide the community, alter stakeholder incentives, and disrupt the network effects that are formed over time. Because of self-amendment, coordination and execution costs for protocol upgrades are reduced and future innovations can be seamlessly implemented,” as the crypto’s website explains.
Like Cardano, Tezos offers a platform to create smart contracts and build decentralised applications that cannot be censored or shut-down by third parties.
But Tezos offers a further innovation in the form of formal verification of smart contracts, an additional layer of security that makes it attractive to companies for automated operations. About thirty companies around the world currentl use the Tezos platform for a variety of applications.
Tezos also utilises Proof of Stake to build the blockchain. This creates a commitment between investors and the platform.
With these two, highly technical cryptos, it’s worth taking a look at Binance Coin (BNB), which works on a kind of gimmick.
Binance is the world’s largest cryptocurrencies exchange; it trades more than 100 cryptos. It launched Binance Coin in 2017 with the simple object of having its own cryptocurrency to use in trading. Today it has a coin cap of 200 million, and a market cap of $155.5 million.
The Binance Coin ‘gimmick’ is what the exchange calls “the quarterly burn.”
“In short, every quarter 20 of the exchange’s profit is spent to buy back and subsequently burn the tokens (sending them to an address that cannot be accessed). It’s a mechanism used to increase the value of each coin by decreasing supply.”
This is highly controversial, because many crypto experts believe that there is no direct link between coin supply and price. It is rather the speed of circulation that has an effect on price, they say, but this is a very complex area.
We can simply observe, for now, what happened to the Binance Coin price after the last quarterly burn. For the 11th quarterly BNB Burn (January to March 2020), Binance burned 3,373,988 BNB, equivalent to $52.5 million worth of tokens.
The price of the token, however, did not rise sharply. It stayed between $15 and $16 (approximately) throughout that time). Currently the price is $16.10 and the historic high is $39.68.
Will Binance Coin rise sharply in value? As Binance expands as an exchange, it acquires more users and hence greater demand for the coin, whose supply is fixed. More users also mean more rapid circulation, and that factor may boost the price of the coin. There is little risk with Binance Coin, but there is also little certainty about return on investment.
We’ve tracked some of the best crypto investments in this series, and will, from time to time, come back to the topic as new possibilities emerge.