Smaller cryptocurrencies like Polkadot and Cardano are challenging Ethereum’s dominance in the general-purpose blockchain space.
Ethereum’s 1 330% sprint over the last 12 months has been driven by the dramatic emergence of decentralised finance (DeFi) and non-fungible tokens (NFTs) but there are other cryptocurrencies that are nipping at its heels for dominance in this space.
Smaller cryptocurrencies like Polkadot and Cardano are challenging Ethereum’s dominance in the general-purpose blockchain space
Chief among them is Cardano, up more than 3 500% over the last year, and Polkadot, up 1 360% since it first traded in August 2020.
How are these cryptocurrencies different to Bitcoin?
Bitcoin’s primary purpose is to establish itself as a viable alternative to traditional fiat currencies (like rands or dollars) and was designed to be peer-to-peer digital cash. Today, Bitcoin is used as both a store of value (similar to gold) and a medium of exchange (like a normal currency).
Unlike Bitcoin, Ethereum, Polkadot and Cardano are cryptocurrency projects that provide the blockchain technology to do more than just act as a store value or digital cash. They offer multi-purpose blockchains for smart contracts and decentralised applications to run. This means that their blockchains can be used in multiple ways depending on what the end-user wants to accomplish.
As an example, ether – the native cryptocurrency of Ethereum’s blockchain – can be used as a digital currency just like Bitcoin, but that is not its primary purpose. Instead, ether’s primary purpose is to power its blockchain, much like oil is used to power the global transportation networks.
What are smart contracts and decentralised DApps?
Smart contracts and decentralised applications (DApps) sound intimidating but are actually simple concepts – they refer to some code or programmes that runs on top of a blockchain that automatically executes actions based on certain conditions.
As an example, if a food order is delivered (action completed) and the customer acknowledges receipt of the order (condition completed) then a payment can be authorised to the food delivery service (payment completed).
And, when you combine multiple smart contracts you get what is we now call decentralised apps, or ‘DApps’, which are really just like apps that run on your IOS or Android phone but instead run on top of a blockchain (like Ethereum, Polkadot or Cardano’s).
For these smart contracts to be executed or DApps to work, you have to use the native cryptocurrency on each blockchain to pay for the costs that miners charge to process and verify transactions. It’s through the increased usage of these blockchain networks, that the value of smart contract blockchain native cryptocurrencies gain in value. It’s simply a case of demand outpacing the supply of the cryptocurrency in question.
What does this all mean?
Ethereum, Cardano, and Polkadot offer blockchains that act…