Top Ten Cryptocurrencies – Cardano (ADA)

Cardano (ADA) is a distributed blockchain network launched in 2017 by Input Output Hong Kong (IOHK) led by Charles Hoskinson, a former co-founder of BitShares, Ethereum and Ethereum Classic.

The Cardano project has ambitious goals of building a robust high-specification blockchain system to smart contracts, decentralized applications and side chains. as well communicating with other blockchain networks and the legacy fiat financial system.

Current Market Data for Cardano ADA

Cardano Price: $0.073
Total Market Cap: $1.8bn

(Data as at 27 October 2018)

What is Cardano?

Cardano is the first blockchain project to be designed and built to a highly robust standard by a global team of academics and engineers.

The development of Cardano relies strongly on peer-reviewed academic research and feedback. The project is being developed to a high level of design integrity as used for mission-critical systems such as those deployed in the aerospace and banking sectors.

Cardano is named after a 16th century Italian mathematician. The Cardano token is named Ada after Ada Lovelace, daughter of the poet Lord Byron and the 19th century mathematician regarded as the first computer programmer.

There will be a maximum of 45 billion ADA coins created. 

Cardano held a lengthy Initial Coin Offering or ICO for ADA which ran from September 2015 until January 2017.

The ADA cryptocurrency price remained relatively stable until November 2017 when it suddenly saw a massive rise in value from around $0.03 to $0.14 in just three days, increase of over 360%.

Since then the price has fallen through 2018, in line with general market trends in the altcoin sector.

Cardano’s two founders, Charles Hoskinson and Jeremy Wood, were involved in the early days of Ethereum. After leaving Ethereum, they created Input Output Hong Kong (IOHK) in 2015.

Three organizations are involved in the development and operation of Cardano: the Cardano Foundation, Hoskinson’s IOHK company, and a Japanese company called Emurgo.

The Cardano Foundation is a non-profit organization ultimately responsible for Cardano. IOHK or Input Output Hong Kong was founded by Hoskinson in 2015 and describes itself as “research and development company committed to using the peer-to-peer innovations of blockchain to build accessible financial services for all.”

IOHK has been contracted to build, design, and maintain Cardano until 2020.

Emurgo is a Japanese blockchain project incubator that provides much of the funding for Cardano.

Unlike many other cryptocurrencies, Cardano aims to balance the needs of both users and public financial regulators.

The digital wallet for Cardano is called Daedalus. It’s an open-source multi-currency wallet developed for the project which can also be used for other supported cryptocurrencies.

Cardano is a Third-Generation Blockchain

Charles Hoskinson describes Cardano as 3rd generation blockchain technology.

According to the blockchain generation model, Bitcoin represents the first generation.  Bitcoin was created to provide a fast and decentralized method of money transfer without any financial intermediaries involved.

However, one major limitation of Bitcoin is that the system is only capable of processing financial transactions. Bitcoin has no means of adding conditions or other functionality to transactions.

The second generation of blockchain tech began with the creation of Ethereum, which added additional functionality to the original blockchain concept.

The aim of Ethereum was to realize the idea of using the blockchain to operate “smart contracts” .

Smart contracts are a means to transfer money, property, shares, or any other assets again without the need for an intermediary. They also enable you to stipulate conditions that are to apply for the transfer to be completed.

However, the Ethereum and other second generation blockchains then revealed another problem. This second generation of blockchain was not easily scalable to manage high volumes of users and traffic.

This is where the third generation of blockchain, and with that Cardano, comes in.

A Technical Overview of Cardano

Cardano aims to resolve the problems of blockchain network scalability, interoperability and sustainability. The project is committed to adhering to  “a collection of design principles, engineering best practices, and avenues for exploration.” A list of these principles can be found on the Cardano website.

Cardano uses two programming languages – Haskell for the system itself, and Plutus for the smart contracts running on the system. These languages are used because they give Cardano a “High Assurance Code” level of security.

A problem with the choice of these two languages is that they are new. There exist far fewer Haskell developers than for example C++ or Java developers.

The Ada cryptocurrency operates using the concept of blockchain layers. Cardano currently has two layers. The first is the Cardano Settlement Layer or CSL. The CSL is an accounting layer which supports ledger transactions.

There is also a second layer called the Cardano Computation Layer or CCL whose role is to run the smart contracts and decentralized applications.

This two-layered architecture contrasts with Ethereum where the two layers are effectively intertwined.

The Cardano virtual machine is called IELE. It differs technically from Ethereum’s Virtual Machine (EVM) in that it is register-based rather than stack-based like EVM.

Cardano uses a Proof of Stake (PoS) mining algorithm called Ouroboros. Blockchain consensus is generated by votes of the Ada coin-holders, known as slot-leaders. The slot leaders generate new blocks in the blockchain and verify transactions.

Scalability refers to more than just the volume of transactions processed per second. Hoskinson maintains there are three distinct aspects to scalability which need to be considered, namely, transaction volume per second, networking and data scaling.

Greater network capacity will be achieved by employing a new type of technology known Recursive Inter-Network Architecture or RINA. RINA will provide privacy, transparency and scalability.  Cardano aims to have implemented this system by 2019.

A common problem with the conventional blockchain model as used by both first and second generation blockchains is the ever growing size of the blockchain. This creates considerable bandwidth and storage overhead for nodes and users and also slows down the network.

Cardano’s approach is based on the simple fact that “Not everyone needs access to all the data”. Cardano takes a three-pronged approach to the problem by applying pruning, subscriptions and compression to the blockchain.

In addition to this, another concept will be deployed known as blockchain partitioning. This refers to dividing the blockchain into smaller chunks. Users only need to have access to that chunk of the blockchain relevant to their transactional or application activity.

Another aspect is interoperability.  At the moment, it is difficult if not impossible for different blockchains to communicate with each other. Each blockchain system exists largely independently of the others.

As a result, cryptocurrency exchanges have emerged to act as portals between the different crypto tokens and the fiat currency sector.

However, unlike the blockchain tokens in which they deal, crypto exchanges are not decentralized entities and as such are highly vulnerable to hacking and service disruption.

A blockchain network needs to be able to communicate both with other blockchains, as well as with the external fiat financial system.

Cardano aims to make possible cross-blockchain communication and transfers. This will enable cryptocurrencies to be transferred directly from one chain to another without having to pass through a centralized cryptocurrency exchange.

To do this, Cardano will employ the concept of sidechains.  As the name suggests, a sidechain operates alongside the main blockchain and is attached to that blockchain via a two-way peg.

Finally, Cordano will connect its blockchain to the external fiat currency system.

Cardano aims to accommodate three other important aspects of data management:   metadata, attribution and compliance.

Metadata can be described as the underlying data or details relating to the transaction. It provides for resource discovery and identification, as well as information about how the data is exchanged between different systems. One practical example of metadata is the information required for a transaction to conform to world-wide AML/KYC regulations.

At present this kind of data is mostly ignored by blockchain networks. However, it is considered extremely important in the fiat currency financial sector. The lack of blockchain metadata records is one reason why the legacy banking system is suspicious of cryptocurrencies and crypto transactions.

A problem with metadata is that it may involve confidential personal or business information.  Data on a permissionless blockchain needs to be transparent and public.

At the same time there is a need to ensure that certain data can be kept confidential and not be read by anyone who has no authorization to read it. Cordano is currently researching possible ways of handling such data.

Attribution refers to the names of the parties involved in a transaction. Cardano aims to give users control over how their attribution data will be accessed.

Compliance refers to the requirement for a financial system to conform to government-set regulations regarding matters such as AML (Anti Money Laundering), KYC (Know Your Customer), ATF (Anti Terrorist Financing) regulations.

So far, the cryptocurrency sector has hardly even addressed this issue. If a blockchain network is going to be able to seamlessly connect with the legacy fiat financial system, then it will have to be fully compliant with these legal requirements.

Cardano is researching ways of using metadata and attribution data to enable the blockchain to meet government compliance requirements.

Financial Sustainability of Cardano

Sustainability refers to how Cardano will finance its future development and growth. Typically, blockchain projects rely on two sources for their funding: startup financing from investors and entrepreneurs, and ICOs or initial coin offerings.

However, both of these sources have their drawbacks.

Startup investment inevitably comes with issues of control and with that possible centralization. ICOs can serve as a single sudden input of cash but do not provide any funding beyond that. As such they are not sustainable as a long-term funding flow source.

Cardano plans to utilize the model employed by the Dash cryptocurrency and set up a treasury system.

As a block is mined, part of that block reward will be passed to the treasury. The stakeholders of the Cardano system will then vote and decide which projects will receive treasury funding.

The Cardano Roadmap

Cardano’s Roadmap contains five stages, each with its own name:

Byron – this launched the Cardano mainnet and enabled users to trade and conduct transactions using Ada. Byron has now been realized.

Shelley – this ensures the network is able to fully operate as a decentralized and autonomous system. This is the next stage in the development process.

Goguen – will integrate smart contracts into the system.

Basho – will be mainly concerned with performance improvements to the Cardano network.

Voltaire – will implement the treasury and governance systems for Cardano.

The latest Cardano Roadmap updates can be found at https://cardanoroadmap.com

Advantages of Cardano ADA

Cardano is being planned and developed from the start to be a highly robust system. Cardano is a highly ambitious project aiming to address a variety of problems in the blockchain industry. This makes it a sound project which has a high chance of success.

The system will use Proof of Stake consensus instead of Proof of Work mining which is much more environmentally friendly and lower cost.

Cardano is being developed with regard to the need to make the blockchain compliant with government regulation, for example incorporating the data structures and procedures necessary to comply with AML/KYC rules.

This contrasts with most other blockchain systems which pay little or no regard to public regulatory aspects and often ignore them completely.

As a result, Cardano is more likely to find favor with government regulators and the existing financial system and be at less risk of potential government authority sanction than some other blockchain networks.

Disadvantages of Cardano

The Cardano project is extremely ambitious and is being developed with a high level of built-in robustness and to exacting technical standards.

While on one hand this is a positive plus, on the other hand it also means the project will take more time to be fully realized than would otherwise be the case.

Cardano relies on two not-widely known programming languages – Haskell and Plutus. While they may be an advantage in terms of helping to assure levels of robustness and security for the system, they also represent a hindrance in promoting usage of the Cardano network.

Another issue is that many of the final actual user features of the system are not yet clear and have yet to be fully formulated. Cardano is strong on the back-end aspects, but front-end user aspects also need to be considered.

My Assessment of Cardano ADA

The Cardano project is backed by several highly experienced professionals with a track-record in the cryptocurrency sector. It is being built using solid scientific principles.

It differs from many other new blockchain projects in that it is not solely the work of investors and entrepreneurs aiming to become rich. Cardano is not a fork of another existing cryptocurrency.

On the negative side, Cardano’s emphasis on security and general robustness will  come at a cost in terms of speed of development.

For these reasons Cardano (and I’m referring here to the blockchain project itself, not the ADA currency) should therefore best be regarded as a long-term project and more of a plodder than a sprinter.

As a smart contract platform, Cardano is in competition with several similar crypto projects – most notably Ethereum, as well as several newer projects focusing on smart contract development such as EOS, Lisk, NEO, and NEM.

Cardano’s closest and most ambitious competitor I would say is EOS. So any assessment of Cardano should always keep a close eye on EOS.

The other issue is the claim to represent “third generation blockchain tech”. In what way does Cardano qualify for this title?

Robust coding and being highly hacker-proof isn’t enough. That is certainly a positive improvement over the current state of blockchain tech, but I would say that would qualify as a blockchain version “2.1” rather than a version 3.0.

As far as I can see given my limited understanding of the tech involved, and Hoskinson may be able to go further than this, the two main qualifications for Cardano being “third generation” are firstly, its aim to be interoperable with other blockchain systems and the legacy financial system.

Secondly, the approach Cardano is taking towards making the system more efficient in terms of capacity and resource overhead.

This involves deploying functionality such as blockchain partitioning, sidechaining, and other features to reduce the blockchain processing overhead on the system nodes.

These are functionalities that something that Ethereum is now slowly and belately starting to implement.

Another aspect that has yet to become clear is userability.

It will not be enough simply to have designed and built a robust, flexible, and hacker-proof blockchain network back-end. The user interface must also be easy to use and as “idiot-proof” as possible.

At the moment most cryptocurrency wallets are cumbersome, difficult to use and easy for the user to make mistakes. They also tend to be very limited in functionality.

Too many blockchain projects get consumed and controlled by the tech geeks and their tech-oriented viewpoint to the detriment of the average user. Hopefully Cardano will pay due attention to this risk and the userability aspects and so avoid this trap.

As for the market price development of the Cardano ADA token,

in common with most altcoins ADA has seen a substantial fall in value during most of 2018. However, this means the currency is now relatively cheap.

As the successive stages of the Cardano roadmap are reached and completed, the price of ADA is likely to experience a boost. The price appreciation for ADA in this case could be substantial in the months to come as well as being a profitable token for a long-term portfolio hold.

To conclude, Cardano ADA is a major player in the cryptocurrency sector and should be included in any medium to long-term crypto portfolio.

Take a look at the https://whycardano.com/ Why Cardano site for more information about the goals and philosophy of Cardano.

This is a presentation Hoskinson gave about Cordano at the Tokyo Institute of Technology. Well worth watching if you want to delve deeper into the technicalities of Cardano.

Disclosures: The above article may include affiliate links for products and services for which this site may receive remuneration. The author or authors may hold investments in the assets mentioned in this article.

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