Shiba Inu (CRYPTO:SHIB) was a hot topic last year. The meme token, which cleverly borrowed its name from Dogecoin‘s canine mascot, skyrocketed 42,000,000% in 2021. Put another way, if you had invested $10 in Shiba Inu last January, your tokens would have been worth over $4 million at the year’s end. Even more impressive, Shiba Inu has actually lost 62% of its value since peaking in late October. To say its performance has been unprecedented would be an understatement.
However, if you failed to make a fortune on Shiba Inu, don’t beat yourself up. More importantly, think very carefully before buying the dip. The odds of a repeat performance in 2022 are virtually nonexistent. Meme tokens are unpredictable in nature, and by definition they lack real world utility. Shiba Inu is no exception.
Building on that idea, there are dozens of other cryptocurrencies I’d buy before adding Shiba Inu to my portfolio. And Avalanche (CRYPTO:AVAX) and Cardano (CRYPTO:ADA) are at the top of that list. Here’s why.
The Avalanche blockchain is a developer-friendly smart contract platform. If that term is unfamiliar, smart contracts are simply computer programs that automatically execute when predefined conditions are met. More importantly, they are key to building decentralized applications (dApps), including decentralized finance (DeFi) products, a type of software that exists on a peer-to-peer network rather than centralized corporate servers.
Avalanche is secured by snow protocols, a type of proof of stake (PoS) that allows the platform to validate transactions rapidly. Just like other PoS blockchains, validators must stake ADA tokens in order to participate in securing the network, but rather than requiring each node (computer) to verify every transaction with every other node, the snow protocols make it possible to achieve consensus through repeated and random sampling of a small subset of nodes. For that reason, Avalanche can handle 4,500 transactions per second (TPS), and those transactions are finalized in less than 2 seconds. That makes Avalanche the fastest smart contracts platform in the blockchain industry in terms of time to finality (i.e. the point at which transactions are irreversibly incorporated into the blockchain).
Why does that matter? Many programmable blockchains are burdened by a lack of scalability. Case in point: Ethereum is the largest dApp and DeFi ecosystem by a wide margin, but the platform can only handle 14 TPS, and it takes six minutes for those transactions to reach finality. As Ethereum-based dApps and DeFi products have become more popular, the resultant network congestion has caused transaction fees to spike, creating a significant headwind to mainstream adoption.
Avalanche appears to have that problem solved, and that has translated into popularity. In fact, despite going live in 2020, Avalanche is already the fourth-largest DeFi ecosystem, with $12.1 billion invested on the platform. More importantly, it’s compatible with Ethereum dApps, meaning developers can easily deploy their programs on both blockchains. That quality in particular could be a significant growth driver in the coming years.
Regardless, as more people make use of dApps and DeFi products on Avalanche, demand for the AVAX token should rise, sending its price higher. That’s why I’d buy this cryptocurrency before Shiba Inu any day of the week.
Cardano is a programmable blockchain powered by the ADA token. Like other smart contract platforms, it was designed to be an ecosystem of dApps and DeFi services, though the developer team has taken an uncommonly rigorous approach. For instance, Cardano is secured by a proof of stake consensus mechanism known as Ouroboros, the industry’s first peer-reviewed blockchain protocol. In fact, the developer team frequently submits new features for academic peer review, taking a very methodic approach.
The Cardano project itself is divided into five distinct phases: deploying the foundational blockchain, decentralizing the network, introducing smart contracts, scaling the network, and implementing a long-term governance solution. Currently, the project is in its third phase, as smart contracts went live on Sept. 12, 2021. That event could be a significant catalyst in the coming months and years, as developers can now build dApps and DeFi products on the Cardano blockchain.
Of course, that won’t mean much if Cardano lacks scalability. Fortunately, the team plans to address that in the fourth phase of development, when the consensus protocol will be upgraded to Ouroboros Hydra. Like the mythical multi-headed snake, Hydra will add side chains (i.e additional blockchains) to the core chain, dividing the network load more efficiently. Think of it like this: Businesses are divided into multiple departments, so small groups of employees can focus on particular jobs. That’s more efficient than tasking every employee with every job. Side chains serve the same purpose. Once complete, Cardano’s throughput could theoretically reach 1 million TPS.
As a caveat, Cardano is far from the only blockchain looking to be the next Ethereum, but its evidence-based approach to development differentiates it from other projects. And if the launch of Hydra goes as planned — an event expected to take place in late 2022 or 2023 — Cardano’s scalability would likely make it quite popular with both developers and consumers. And as demand rises for dApps and DeFi services on its blockchain, demand for (and the price of) the ADA token should rise, too.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.