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What is Cardano?

Among the most significant cryptocurrencies by market capitalization is the Cardano project, found by Charles Hoskinson, former co-founder of the Ethereum cryptocurrency. It is Ethereum that Cardano has the ambition to compete with in the future. In this article, we will walk you through the basic features of this ambitious project, built on strong academic foundations.

Cardano – introduction

Cardano is a smart contract blockchain like Ethereum. It seeks to bring to the world a decentralized environment in which decentralized applications, smart contracts, and decentralized financing projects can operate efficiently and easily. All this without any need for an intermediary. In other words, Cardano is or aspires to be, a direct competitor of Ethereum. However, there are a few differences between these two cryptocurrencies.

Cardano up close and personal

One of the first differences between Cardano and Ethereum, which will immediately stick to your mind, is the Cardano inflation ceiling. This means that one day the last ADA coins will be created and from there on, no more additional coins. This makes Cardano slightly similar to Bitcoin which is also limited.

Cardano coins are called ADA and they are named after the famous British mathematician Ada Lovelace . There will be a maximum of 45 billion. At present, around 70% is already in circulation, which means that Cardano’s final offer will increase even more.

The main face of the Cardano cryptocurrency is Charles Hoskinson , who was also involved in the creation of the Ethereum cryptocurrency, but he does not like to be called its co-founder (which is probably due to the fact that he and Ethereum main founder, Vitalik Buterin, does not have a very good relationship).

There are currently 3 companies involved in the development of Cardano – IOHK , where Charles Hoskinson is the CEO, the non-profit organization Cardano Foundation , and Emurgo . Whether this organizational structure will remain the same in the future is unknown. After the completion of the Voltaire phase, the future of these companies will be decided in a decentralized community vote.

Cardano works on the Proof of Stake Consensus

As long as Ethereum still operates on the Proof of Work consensus, which requires power consumption to verify transactions and maintain the security of the entire network, Cardano is a type of blockchain that has already successfully transitioned to the Proof of Stake (PoS) consensus during the Shelley phase. It is more ecological, but first of all, it brings great potential for a successful solution to the “blockchain trilemma” problem, i.e. to make the blockchain fast, but at the same time safe and decentralized.

In this respect, for example, both Bitcoin and Ethereum (if they do not completely switch to Proof of Stake within a few years) are failing. Although they are secure and decentralized, they have slow and often costly transactions.

Smart contracts

It is important to know that if Cardano also successfully completes the Goguen phase, this blockchain will have the long-awaited ability to run decentralized applications, making Cardano a direct competitor to Ethereum.

At that moment (the start of the Goguen phase is expected in the first half of 2021), Cardano will probably be technologically superior to Ethereum. It will have much faster and cheaper transactions and the same, or better, functionality compared to the current state of Ethereum.

In addition, Cardano will allow easy conversion of ERC20 tokens from the Ethereum blockchain to the Cardano blockchain. It will also have an environment through which Ethereum developers can very easily implement their applications on Cardano. Simply put, Ethereum developers will not have to learn a new programming language.

On the other hand, it should be noted that at the time of writing of this article, these are still only promises and not existing solutions. Moreover, even if these promises are fulfilled, Cardano will still have to face the difficult challenge of attracting developers. The point is not only to be a high-quality blockchain but also to be a used one, a blockchain on which something is actually built.

Cardano decentralization

Some media mention Cardano as the most decentralized cryptocurrency. Even compared to Bitcoin. More than 70% of existing Cardano wallets already take part in the so-called staking provided by the network. In addition, this number is expected to continue to grow. It is also important to add that even this fact is not enough for the authors of Cardano. This is because the so-called parameter K will be modified, which will lead to the fact that all ADA pools that verify transactions will be equal. The security of the network will be, therefore, fairly distributed among all participants.

PoS and Cardano critique

Critics of Proof of Stake consensus on Cardano have one strong argument. How will it be possible to prevent strong players from operating, for example, 30% of all pools? The thing is, that decentralization can be cleverly distributed among 1,000 different pools within a code, but no one can guarantee that a third of them will not actually be run by one or a few strong entities. Such a risk is mainly posed by large crypto exchanges, and it is therefore recommended that cryptocurrency holders do not “stack” their coins through stock exchanges, but through their own wallets, thus contributing to decentralization.

It is true that trying to conclude which cryptocurrency is best in terms of decentralization is a tough nut to crack. With Bitcoin, elements of decentralization can be seen in its mining. There are only a few important mining pools and in addition, a significant part of mining (more than 50 %) is concentrated in China. So which cryptocurrency is ultimately more decentralized? Bitcoin with several large mining pools, to which miners from all over the world join and delegate their mining power, or Cardano with a thousand different pools that are equal, but at risk of some possible large part of them being under the control of several strong players?

Cardano stands on an academic foundation

What is undoubtedly interesting about the Cardano is the fact that it is based on strong academic foundations and on works that have been published in several respected scientific magazines. You could even say that everything that has been and will be built on this blockchain has its roots in the mathematical verification of whether the overall solution can really work or not. After all, the reason for the slower development of Cardano in recent years can be found in the final conclusion of the developers. Which claimed that the original concept was not correct, and therefore a lot of things had to be redone.

Leading cryptographers and several university professors from prestigious universities are involved in the development of Cardano. This all sounds nice, but sometimes investors in ADA coins are hesitant about whether such a thorough and slow process is really necessary. Will Cardano miss its boat because of that? The authors believe not. According to them, it is a long-distance run and they are currently at the start. According to them, it will be important to fight through this race and deliver a product that will work for decades to come.

Conclusion

Let us sum it up. The riskiness of investing in Cardano lies mainly in the fact that not all the promised phases have been completed yet. We still have the era of Goguen, Basho, and Voltaire, which are to ensure the arrival of smart contracts, faster scalability of the network, and its decentralized management.

The question remains whether the smart contracts of Cardano will really be as great as they claim to be and whether the speed of the network will really handle the arrival of potentially hundreds of millions of people. If so, Cardano has huge potential to succeed, but if promises are not kept, it could be a failed investment.

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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