Meet Cardano – the main challenger to Ethereum

Team, history, organizations

The creator of Cardano is Charles Hoskinson. He entered the world of cryptocurrencies in 2011 through mining and trading. He took his first professional steps in 2013 when he launched an online educational course on Bitcoin that was attended by over 80,000 people, and thanks to it, he met Vitalik Buterin, thus becoming one of the eight founders of Ethereum.

Shortly after its founding, disagreements arose between Charles and the rest of the team. The disagreement over the very structuring of the project was the reason why Hoskinson left Ethereum in June 2014. Namely, he wanted to accept capital investments from venture capital funds and create a profit organization with a more formal management system, while Buterin’s vision of Ethereum was in the form of a non-profit organization with decentralized governance. After a 6-month break, he was approached by former Ethereum colleague Jeremy Wood, and together they founded the organization IOHK, through which they designed Cardano. They completed the ICO on December 31, 2016, raised $62 million, and launched the Cardano project in early 2017. Hoskinson graduated in mathematics and is a specialist in number theory. The mathematical link is visible in the name of the project itself, which is derived from the name of Girolamo Cardano, an Italian scientist. The symbol ADA also comes from the name of Ada Lovelace, an English mathematician and writer.

Although Hoskinson and Wood are the founders and main creators of Cardano, they do not own or manage the Cardano blockchain. Cardano is managed by three separate and independent organizations: the Cardano Foundation, based in Switzerland, is a non-profit organization responsible for research and development, assisting in design, security, and oversight of the Cardano blockchain. IOHK (Input Output Hong Kong) is a development company that designed the POS (proof of stake) blockchain system used by Cardano and also assists in the engineering and research and development of the entire Cardano ecosystem. Emurgo is an institution that financially supports Cardano and is responsible for encouraging businesses and larger organizations to adopt Cardano’s technology.

What is it for, what is the idea and philosophy behind it

Cardano is a third-generation cryptocurrency and a type of blockchain developed on the foundations of peer-reviewed scientific studies. The founders like to emphasize that Cardano is built on scientific and mathematical principles by experts in the fields of cryptography and engineering. Cardano’s approach is unique in the crypto space, as it is based on scientific assumptions and peer-reviewed academic research. IOHK, the organization that built Cardano, has published over 90 academic papers outlining its technological solutions. They have also established collaborations with several world universities. The Cardano development team is guided by predefined principles, of which we would highlight only the most important:

• Separation of accounting and computation into different layers
• Implementation of core components in highly modular functional code
• Embedding the ability to upgrade post-implemented systems without destroying the network
• Development of a decentralized funding mechanism for future work
• Long-term view on improving cryptocurrency design so that they can work on mobile devices with reasonable and secure user experience
• Bringing stakeholder interests closer to operations and maintenance

The fact that makes Cardano quite unique is that it is one of the largest blockchains that successfully uses the POS (Proof of Stake) system. The POS consensus mechanism is far less energy-intensive than the POW (Proof of Work) system used by Bitcoin. Cardano has developed a specially designed blockchain POS protocol, which they named Ouroboros. A system that allows sending and receiving ADA easily and securely at any time, while simultaneously enabling the secure functioning of smart contracts. Since it is a POS system, Ouroboros provides rewards to token holders who stake ADA and thus help secure consensus.

At the same time, Ouroboros is fast, scalable, and energy-efficient without sacrificing security and decentralization. It is programmed to issue a new block every 20 seconds, which guarantees high verification speed. The greatest advantage of Ouroboros is the mathematical security in selecting blockchain validators. Other blockchain systems claim to randomly select block validators, but such claims cannot be verified. Ouroboros offers a proven method of randomly selecting validators, ensuring that every participant staking has a fair chance to “mine” a block and receive the corresponding reward. This method eliminates the need for excessive computational power that prevails in the POW system and guarantees a more objectively fair POS model.

The Cardano blockchain itself is divided into 2 layers:

1. Cardano Settlement Layer (CLS) – used for transfers of ADA tokens and documenting transactions
2. Cardano Computation Layer (CCL) – the backbone of the system that contains smart contracts, ensures security, compliance, and the possibility of advanced functions such as blacklisting individual addresses

Like other cryptocurrencies, Cardano (ADA) can be used as a means of preserving value or for sending and receiving funds. The Cardano blockchain can be used to build smart contracts that enable a large number of use cases. Currently, the most well-known are decentralized applications (dapps) and protocols. Besides staking, ADA is used in voting. In Cardano, unlike other POW blockchains, miners are not the ones who vote and decide on changes to the protocol, but that power lies with the token holders. Therefore, when a new change or proposal is suggested, those who own Cardano will be able to vote for or against it. In this way, the decision-making process in blockchain systems would be democratized. The goal of Cardano is to build a completely decentralized blockchain system that will be governed by those who invest in it.

Cardano’s coding is done in Haskell, while smart contracts will be coded in Plutus. Both programming languages belong to the functional programming group, which treats computation through the verification of mathematical functions. It emphasizes the application of functions, unlike the imperative programming style that emphasizes state changes. There are 3 main elements and problems that Cardano wants to solve, namely scalability, interoperability, and sustainability. All types of blockchains face these issues.

Scalability

When scalability is mentioned, one always thinks of the number of transactions per second. However, that is only one part of the problem. There are three elements to consider: network resources, data scaling, and throughput (i.e., the number of transactions per second). The very separation of layers into a settlement system and a computation system gives Cardano an embedded solution for increasing scalability. Basic steps have been taken from the very beginning to make the system faster and more efficient.

Interoperability

In the crypto space, there are a large number of cryptocurrencies that differ significantly. The problem lies in the fact that it is difficult to achieve communication in such a way that cryptocurrencies can be exchanged for one another without crypto exchanges. This is just one example that is the most obvious. Cardano aims to create an ecosystem where each individual blockchain can directly communicate with another blockchain.

Sustainability

How does Cardano plan to develop in the future and achieve sustainable development? There are many elements to pay attention to. It is crucial to leave a positive impact of investment activities on a global scale. Cardano plans to focus on selected areas: climate change and zero carbon emissions, promoting a fairer society, sustainable development of emerging markets…

Development roadmap

Cardano has presented 5 phases for the development of its blockchain. They have currently gone through the first two, but the process of testing and implementing new technological solutions is very complex. The phases are named after people who left a historical mark in science.

1. Byron – creating the core architecture and design of the blockchain network, testing initial functionality to ensure the system works correctly
2. Shelley – launching the mainnet and starting the decentralization of the system
3. Goguen – implementing smart contracts that would enable the building of decentralized applications
4. Basho – scaling that would allow optimization of the blockchain and improvement of performance
5. Voltaire – introducing a treasury and voting system to create a self-sustaining system

Tokenomics

It is important to emphasize that Cardano (ADA) has a fixed monetary policy, namely 45 billion ADA tokens that will be created in total. At the time of writing this analysis, just over 32 billion are in circulation. Between September 2015 and January 2017, IOHK enabled interested investors to support early development and reserve their tokens in 5 cycles through the ICO. 57.6% of the total supply was distributed to investors who participated in the ICO. About 2.5 billion tokens were allocated to IOHK after the network launch, 2.1 billion to Emurgo for their early work on the foundations of the Cardano protocol, and another 648 million tokens were allocated to the Cardano Foundation for promoting the platform. When everything is summed up, 16% of the circulating supply went to founders and related organizations, while the remaining 84% went to investors. Since there is a fixed number of ADA tokens that will ever exist, it is expected that this monetary model will create increased demand for ADA tokens in the future. Although another 30% of tokens have yet to enter circulation, unlike other monetary models in the crypto space, Cardano, due to its fixed supply and increased demand, certainly has the potential for further growth.

Smart contracts

The biggest and most common criticism from advocates of other cryptocurrencies that are direct competitors to Cardano (such as Ethereum and Binance Coin) is that Cardano does not have smart contracts. Which is actually true at this moment. In the third phase of development (Goguen), the implementation of smart contracts is planned. Recently, Charles Hoskinson stated via the virtual conference Cardano 360 that the Alonzo testnet, which will enable smart contracts, will go live at the end of April or the beginning of May, while the mainnet is expected in August. The implementation of smart contracts will mark a significant milestone for Cardano, which plans to compete with Ethereum, on which a rich system of decentralized finance has already been developed.

African strategy

Cardano is one of the few cryptocurrencies that has recognized the problem of underdeveloped countries, which is the lack of banking infrastructure. In line with this problem, one of the key use cases of blockchain as a technology is in the area of supply chains. Cardano has noticed that it could help Ethiopia, a country where the coffee industry is crucial and makes up a large part of GDP. One of the applications of blockchain within supply chains is proving the origin of coffee. In the future, there is potential for using smart contracts in a way that encourages coffee producers to adopt more productive agricultural practices. Coffee is the product that Ethiopia exports the most, and improving this industry would certainly bring significant social benefits. The first goal is to connect with local stakeholders through projects that address real market problems. The second goal is to educate local developers so they can create solutions for their local problems. The IOHK organization has even signed a memorandum with the Ethiopian government for training and employing young programmers and using Cardano’s blockchain in the agricultural industry. They have also recently partnered with the Ethiopian Ministry of Education to start working on a national ID system based on blockchain. The system is expected to create secure records of educational performance for 3,500 schools, 5 million students, and 750,000 teachers, giving all students verifiable digital qualifications, increasing social mobility, and enabling planning and tracking of lessons and achievements. Residents of Africa are increasingly using digital wallets, with which they can execute transactions via mobile applications, as an alternative to cash. The cryptocurrency market is also increasingly developing in African countries, as their official state currencies are becoming worthless over time due to high inflationary pressures. Cryptocurrencies become a perfect alternative, which of course do not have such problems.

Competition

Competition in the area of platforms that use smart contracts is probably the largest in the entire crypto space. Ethereum is currently number one with a market capitalization of $365 billion. As the biggest drawback of Ethereum, challengers see high fees. Scalability currently represents Ethereum’s Achilles’ heel. Until it resolves its key issue, other cryptocurrencies have certainly taken a ‘larger slice of the pie’, of which Cardano is a leader and one of the main competitors. Hoskinson believes that no cryptocurrency will be the main and only option in the area of smart contracts. Therefore, one of Cardano’s main goals is to develop an interoperable system in which various blockchain platforms can achieve simple and direct interaction. Some competitors worth mentioning are: Binance, Polkadot, Solana, Neo, EOS, Tezos, and Icon.

Price predictions

During the last bull market, which peaked in January 2018, ADA rose from $0.03 to $1.20, bringing Cardano to a market capitalization of $32 billion. At the time of writing this analysis, ADA is currently at $1.51 with a market capitalization of $48 billion (as it has more tokens in circulation). Comparing Cardano with its biggest competitor Ethereum, currently Cardano is worth only 12% of Ethereum’s value. ADA is currently hovering around its ATH (all-time high), and given that the bull market does not seem to be nearing an end, Cardano certainly has room for significant growth. The largest price movements usually occur in the last weeks of a bull market, when enthusiasm turns to extremity and prices become overvalued. Cardano has grown over 700% since the beginning of the year.

Future expectations

Cardano is an innovative and unique project aimed at providing a new form of blockchain infrastructure, combining the advantages of many technological and mathematical concepts. This third-generation blockchain project has the potential to become one of the leading smart contract platforms, but it still has a long way to go in development. The number of wallets is constantly increasing, and it is expected that the number will continue to grow. It is clear that Cardano is a very well-thought-out project. The quality of its technical documents, the generation of new and interesting concepts for technological solutions, are just part of the potential that Cardano possesses.

The main drawback of Cardano is the fact that this project still has a long way to go. The lack of smart contracts and complex updates leave it behind other blockchains and cryptocurrencies at this moment. However, this weakness is quite temporary, and soon Cardano could surprise many if it successfully implements the planned upgrades. In any case, Cardano is a project with strong development, and everyone involved in its progress, especially Charles Hoskinson, is doing everything in their power to make Cardano as successful as possible.

Here you go: Fima

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