In the realm of cryptocurrencies, names like Bitcoin (BTC) and Ethereum (ETH) have frequently been tossed around in the headlines. One, in particular, recently surged: Cardano (ADA). Since launching in 2017, Cardano presented itself as blockchain 3.0, or third-generation cryptocurrency, as it builds on the deficiencies of its predecessors, Bitcoin and Ethereum.
Cardano aims to improve scalability, speed, and energy efficiency, making it faster, secure, and environmentally friendly than its counterparts. By market cap with a fixed supply of 45 billion coins, Cardano currently ranks as the third-largest cryptocurrency. To date, there are approximately 32 billion coins in circulation. With the promising potential to fulfill, there is much to learn about this altcoin and its network.
In 2015, co-founder of Ethereum Charles Hoskinson began developing Cardano after leaving the Ethereum team in 2014 due to disagreements on the coin’s future road plan. Thus, several similarities exist between Cardano and Ethereum due to Hoskinson’s involvement and development projects. Like Ethereum, Cardano is a decentralized public blockchain-based cryptocurrency network. It’s open-source and contains verifiable smart contract features. It uses its own digital token ADA, named after 19th-century mathematician and the first computer programmer Ada Lovelace.
Unlike the proof-of-work system found in Ethereum and Bitcoin, Hoskinson’s Cardano platform uses a proof-of-stake protocol or the ouroboros consensus system. This system consumes significantly less energy during transactions. With PoS protocols, the more coins a miner owns, the more mining power becomes available to the miner. While Ethereum is transitioning from a PoW to a PoS system, Cardano successfully runs with this protocol. Essentially, Cardano considers itself an enhanced alternative to Ethereum, emphasizing scholarly academic research-based designs.
Since the Cardano protocol system is decentralized, Cardano’s partners—The Cardano Foundation, IOHK, and EMURGO—split the responsibilities to encourage transparency, security, and accountability. The Cardano Foundation, a Swiss-based independent non-profit, partners with regulators of different jurisdictions to improve blockchain legislation and commercial standards. IOHK (Input Output Hong Kong), on the other hand, is the technology and engineering company that built Cardano, which works closely alongside researchers. Meanwhile, EMURGO functions as the commercial component of Cardano as they integrate businesses into their system.
The blockchain’s development comprises five stages, or eras, which focus on certain functionalities and release updates in particular sequences. These stages include:
- Foundation (Byron era)
- Decentralization (Shelley era)
- Smart Contracts (Goguen era)
- Scaling (Basho era)
- Governance (Voltaire era)
Like ADA’s name adoption from a historical figure, each era’s name also reflects names from influential historical figures. Ideally, these phases will improve the network’s functionalities and develop it into a decentralized application (DApp). According to the Cardano Foundation, though the eras are released sequentially, the research and development process occurs in tandem across all the development phases. As of this writing, the latest Alonzo hard fork demarcates the Shelley era’s last significant update, thus transitioning into Goguen.
Scalability, a prevalent issue among prominent cryptocurrencies, has a promising outlook in the Cardano network. While Bitcoin can only process 4-5 transactions per second, Cardano aims to process an astonishing figure of 1 million transactions per second with its native scalable solution, Hydra.
Additionally, estimates put Cardano consuming only six gigawatt-hours per year, compared to Bitcoin’s 100-130 terawatt-hours (100,000-130,000 gigawatts) or Ethereum’s 45-50 terawatt-hours (45,000-50,000 gigawatts). As mentioned earlier, Cardano’s use of the proof of stake system enables limited devices to verify transactions at any given time. In contrast, Bitcoin and Ethereum’s proof of work protocol allows any number of devices, hence Ethereum’s push on transitioning to proof of stake.
Components such as the Hydra layer are currently undergoing research. If proven successful, efficiency in money, time, and environmental-friendliness could enable Cardano to overtake significant cryptocurrencies like Ethereum.
With its assuring blockchain technology, Cardano’s primary goal seeks to improve problems in developing countries. For instance, Cardano’s recent partnership with the Ethiopian Ministry of Education stores academic records of five million students. Meanwhile, the finance sector could use Cardano to streamline identity verification for financial institutions accepting new clients. This administrative process may otherwise take several weeks and involve a multitude of third parties with fees.
Lack of adoption is a significant restriction Cardano faces. Even if Cardano’s ecosystem may be theoretically better than that of other cryptocurrencies, if nobody uses it, then it’s as good as worthless. Adding to this problem, Ethereum already has a first-mover advantage over Cardano. The complete release of Ethereum 2.0 will implement or improve certain features that make Cardano enticing. People may not care enough to invest in Cardano and continue investing in the cryptocurrencies they currently hold.
Currently, primary users of this blockchain technology include start-ups and smaller countries like Ethiopia and Georgia. However, Cardano does have some significant partners like PricewaterhouseCoopers and Wolfram Alpha. With the latest Alonzo hard fork released in mid-September 2021, Hoskinson predicts that the new implementation of smart contract functionality should stir more network adoptions.
One of the many goals of the blockchain platform includes onboarding at least 50 banks to adopt its token ADA, providing banking services to one billion users worldwide. If the Cardano Foundation reaches this goal, holders of the ADA token can convert cryptocurrencies, enabling them to seamlessly move assets from one coin to another with their blockchain.
Also, Hoskinson recently shared on his YouTube channel that the Cardano roadmap project extends until 2025. After the final stage with the Voltaire update, the Cardano ecosystem would operate on a self-sustenance governance model, allowing a fully decentralized network.
At this time, many features of Cardano are still in progress. Theoretically, the ecosystem has a bright future ahead as it strives to revolutionize blockchain technology. However, whether it reaches great heights and exceeds the performance of more prominent cryptocurrencies like Ethereum remains determined.
For those interested in investing in the Cardano cryptocurrency, you can find it available on several major platforms, including Coinbase, Kraken, Binance, SoFi, and Kraken. Bear in mind, however, that like any other cryptocurrency, Cardano comes with inherent risks. Be sure to weigh out the pros and cons when determining whether or not you should purchase Cardano.