Eliézer Ndinga is Research Lead at 21Shares AG, a crypto asset manager from Switzerland. In this guest post he deals with the new Smart Contract function from Cardano, the billing model eUTXO and with the potential that the cryptocurrency still has.
The majority of the crypto market has seen price falls of over 15 percent over the past seven days. These were clearly triggered by liquidations of long positions worth over $ 2 billion on traditional trading platforms as well as DeFi platforms. Last week, positions valued at $ 168 million were liquidated primarily on Aave and Aave v2. On September 12th, Cardano led the long overdue one Smart contract function
on their platform – nevertheless, the in-house crypto currency ADA is currently being traded 22 percent below its maximum value. The same also applies to Ethereum (around 25 percent below the maximum value).
Misunderstanding about billing model
This latest ADA price development is primarily due to the market correction that is currently taking place. Still, ADA has it too technical problems
as well as a fundamental misunderstanding on the part of the community about its accounting model eUTXO (Extended Unspent Transaction Output (eUTXO). This model represents the complete opposite of the account-based system of Ethereum, which monitors the balances of users and enables investors to spend your assets multiple times without having to spend your entire wallet.
In the case of ADA, the billing model is based entirely on individual transactions that are grouped into blocks – comparable to Bitcoin’s UTXO model, for example. If a Bitcoin user has two BTC in his wallet and wants to send one BTC to a friend, two BTCs are transferred to this friend via the UTXO model. The problem is solved in such a way that the user transfers a BTC to himself at the same time, which results in two separate transactions; one for the user and one for their friend. This billing model makes transactions, especially with the highly complex DeFi applications, more complicated than it would be necessary.
Cardano is facing increased usage
The Cardano team recently announced that smart contract applications on Cardano would be able to perform multiple transactions in a block (i.e. multiple UTXOs) in order to avoid Bitcoin’s problems and benefit from scaling effects. Although it is still too early to be able to say with certainty, we assume an increased use and acceptance of the platform as soon as Cardano-based applications are put to practical use and both developers and users demonstrate the possible uses of Cardano will.
This adoption will only become noticeable in a few months, and in the same period other Ethereum competitors such as Solana and Fantom as well as L2 solutions such as Arbitrum will experience growth – both in terms of market value and in terms of the number of applications. But even in this case, Cardano should not be written off: after all, it is absolutely possible that Cardano will also undertake a hundreds of millions of dollars in liquidity program, as Fantom and Avalanche did in the past, in order to attract new users.
The material contained in this post is for informational purposes only. 21Shares AG and its affiliates do not recommend any measures based on this information. The material is not to be construed as an offer or recommendation to buy or sell any security, or as investment advice. Furthermore, this information does not represent a guarantee that the systems described here are suitable or useful for a person. Past performance is not an indicator of future price developments.