Cardano: What is it and what does the future hold for the ‘green’ crypto?
Cardano is arguably among the more ambitious and utopian cryptos.
It comes with notable pedigree and has the not-so-insignificant goal of “making the world work better for all”.
Strictly speaking, Cardano is a blockchain platform not in itself a cryptocurrency.
Cardano’s native crypto is called Ada, named after Ada Lovelace, the 19th-century mathematician who is recognised as the first computer programmer.
It was launched by mathematician and entrepreneur Charles Hoskinson who has been influential in crypto since 2013, when he started an online ‘school’ called the Bitcoin Education Project.
He was later a co-founder of Ethereum, currently the second largest crypto by value, before leaving that group in 2014 acrimoniously as his co-founders disagreed with his view that they should develop commercially.
Ethereum’s principal creator Vitalik Buterin, meanwhile, insisted on an non-profit route.
Hoskinson subsequently set up IOHK, a company that built cryptocurrencies and blockchains for customers (including corporations, government entities and academic institutions) and, by taking and retaining payment in Bitcoin struck rich as prices soared.
Cardano again pitches Hoskinson against Buterin and Ethereum.
Compared to Bitcoin and Etheruem, Cardano has a different approach to computation.
Cardano uses a ‘proof of stake’ methodology to run its blockchain whereas Bitcoin and Ethereum use ‘proof of work’, which require complex computation to make new crypto units. Increasingly this is a problem for the scaling, and, more recently, they are in the spotlight due to environmental concerns because of high electricity usage.
Hoskinson believes these problems are bypassed by Cardano’s ‘proof of stake’ approach.
ADA: Cardano’s crypto coin
Cardano’s native crypto coin is tradeable and it is used as unit of value essentially in the same way that Bitcoin, stocks and/or commodities can be.
ADA is presently the fourth most popular asset on the Coinbase exchange. Priced at US$1.27 per ADA it had a market cap of US$40.89bn on June 21.
At the start of the year, ADA was priced at just 17.5 American cents on exchanges and just over a month ago its price peaked at US$2.25.
Participants can stake their ADA in the blockchain mechanism to receive ‘rewards’, or as traditional finance (TradFi) people might say ‘earn interest’, starting at around 4.6%.
In addition to ADA, the developers of Cardano aim to build an ecosystem of technologies and services on top of the blockchain.
Such projects potentially include the tracking and verification of medicines, anti-counterfeit operations, the management of logistics and supply chains, and decentralised certification in the education sector, identity protection and possibly even blockchain-enabled voting in electoral systems.
What exactly does proof of stake mean?
A simple explanation is that success in crypto mining in a proof of stake (PoS) system is based determined based on the amount of the crypto that the miner or group of miners hold – instead of completing difficult calculations as quickly as possible.
In practise, it is more complicated than that, as there are layers of code and mechanisms to regulate and protect the process and the system.
PoS is polarising amongst crypto evangelists.
Detractors claim that POS is less egalitarian, could be more easily controlled by majority stakeholders, and some have also been sceptical about security.
Hoskinson, meanwhile, has pointed to PoS as being more accessible particularly for emerging economies where there are less resources to compete versus those in richer nations, where there’s greater access to power, equipment, and expertise.
Cardano’s POS protocol, which is called ‘Ouroboros’ is described as “the first provably secure proof-of-stake protocol…Proof-of-stake answers the performance and energy-use challenges of proof-of-work, and arrives at a more sustainable solution,” Cardano says.
“Instead of relying on ‘miners’ to solve computationally complex equations to create new blocks – and rewarding the first to do so – proof of stake selects participants (in the case of Cardano, stake pools) to create new blocks based on the stake they control in the network.”
According to Cardano, its networks scale scale horizontally, by adding ‘nodes’ (participants to the pools) rather than vertically (by increasing computing power).
It says, in reference to electricity consumption, by analogy that it is the difference between powering a house and powering a country.
Hoskinson and Cardon believe that PoS can scale for mass market adoption but PoW cannot.