Ethereum and DeFi saw explosive growth since the summer of 2020, along with Bitcoin and the crypto market as a whole. But Ethereum hasn’t solved the problem of scalability yet, and due to rising demand, the transaction fees on the Ethereum blockchain skyrocketed. Simple trades on decentralized exchange Uniswap were costing up to $200. This leaves users jumping ship and looking for alternatives.
Cardano might just be the solution users and developers are looking for, often called the “Ethereum-killer”. Besides solving Bitcoin’s excessive energy usage problem through its innovative consensus mechanism, it will also soon challenge Ethereum’s position as the king of smart contracts and the DeFi ecosystem. So let’s dive deeper and find out how Cardano aims to achieve its vision and dethrone Ethereum.
Cardano is a proof-of-stake blockchain platform that has yet to reach its full potential. It is the first blockchain to be founded based on peer-reviewed research, with researchers and academics spread out across the world. Later this year, smart contracts will be added to the protocol, opening the doors to a host of applications like decentralized exchanges, NFT marketplaces, stablecoins, oracles, DeFi, and so much more.
Charles Hoskinson, the founder of the Cardano project, was one of the co-founders of Ethereum (ETH). He left Ethereum in 2014 after a dispute about accepting venture capital, which was his view, instead of staying a non-profit, as Vitalik Buterin envisioned it. Charles went on to start the Cardano project in 2015, raising just over $62 million, selling ~25.8 billion ADA for $0.0024 per token. After two years focused on research and scientific development, the blockchain was finally launched in 2017.
The project is named after the Italian mathematician Gerolamo Cardano. And its native token, the cryptocurrency ADA, is named after English mathematician Ada Lovelace, widely viewed as the world’s first computer programmer.
Cardano calls itself a third-generation blockchain. Bitcoin is considered a first-generation blockchain, and Ethereum, through the implementation of smart contracts, is a second-generation blockchain. Cardano aims to solve the biggest problem blockchain platforms have: scalability.
Cardano’s development is separated into three organizations: Input Output Hong Kong (IOHK), the Cardano Foundation, and EMURGO. IOHK is responsible for the development of the Cardano protocol, while the Cardano Foundation oversees and supervises the overall project. Lastly, EMURGO focuses on business development and driving adoption.
How does Cardano work?
Being a blockchain, Cardano requires a mechanism to achieve consensus between all peers about the present state of the distributed ledger. Bitcoin (BTC) and Ethereum use proof-of-work to achieve consensus, which is dependent on computing power. The computing power used to secure the Bitcoin blockchain is so massive and energy-intensive, that according to Cambridge University, Bitcoin consumes more energy than countries like the Netherlands or the Philippines.
Cardano, instead, uses proof-of-stake (PoS) as a consensus algorithm, called Ouroboros. Because PoS is so much more energy-efficient, Cardano utilizes about six gigawatts of energy per year, less than 0.01% of the 100+ terawatts Bitcoin is estimated to use.
Ouroboros first divides transactions into epochs, which are five days long. Each epoch is subdivided into time slots, each 20 seconds long, with a leader elected by the stakers for each slot. The leader is responsible for adding a block, containing the transactions, to the chain. In exchange for staking ADA to secure the blockchain, stakers get ADA as a reward. Annualized, stakers get about 7% returns on their staked ADA.
Even though Cardano is currently processing only about 7 transactions per second (TPS), as more isn’t necessary, it can theoretically process up to one million TPS. To do so, it employs a layered blockchain architecture, consisting of the Cardano Settlement Layer (CSL) and the Cardano Computation Layer (CCL). The CSL is responsible for accounting, keeping track of the balance ledger, while the CCL is where the computation takes place, executing all the smart contracts.
Cardano isn’t fully functional yet, as previously mentioned. The biggest updates are yet to come, especially with the addition of smart contracts due in August of this year. To keep track of the development, it was divided into five eras, named Byron, Shelley, Goguen, Basho, and Voltaire.
After two years of research and hard work, the Byron era started with the launch of the Cardano blockchain in 2017. It allowed users to buy and sell ADA, and demonstrated the Ouroboros consensus mechanism in action. It also marks the launch of the full node Daedalus wallet, made by IOHK for desktop use, as well as the light wallet Yoroi, by EMURGO.
Launched in 2020, the Shelley era is marked by a focus on decentralization. During the Byron era, staking was federated, and through the Shelley hard fork, staking was shifted to the community, with staking rewards added.
We are now heading towards the Goguen era, which will see smart contracts integrated into the blockchain. The first milestone has already been reached, with smart contracts being launched on the testnet in May 2021. The integration of smart contracts to the mainnet is expected to take place in August 2021.
The Basho era focuses on optimizing scaling and interoperability. The main feature is the introduction to sidechains, capable of interaction with Cardano’s main chain.
Lastly, the final era focuses on governance, so it can become a self-sustaining system. Through voting and a treasury, stakeholders will be able to influence the future development of the network.
What is Cardano worth?
Cardano saw its market capitalization rise by 1540% in 2021, going from $0.15 up to a top of $2.46 per ADA token on May 18th. It became the third biggest cryptocurrency at the time.
As of the time of writing, ADA is valued at $1.52, after seeing a cool down in the entire crypto market. With 32 billion ADA tokens in circulation, this gives Cardano a market capitalization of $48 billion, making it the fifth-biggest cryptocurrency.
How to buy and store Cardano
As one of the biggest cryptocurrencies in the world, Cardano can be found on a variety of exchanges and investment brokers. These include Coinbase, eToro, Kraken, and Binance.
Once you pick an exchange and deposit funds on it, you can buy ADA tokens. Indicate the amount you want to buy and place an order. After the purchase goes through, you can either keep your ADA tokens on the exchange, especially if you intend to regularly trade with them or withdraw them to your cryptocurrency wallet, which is safer.
You can store your ADA tokens on Cardano’s native wallets Daedalus or Yoroi, or on any of the several other options available, like software and hardware wallets. The hardware wallets by Ledger and Trezor are considered the safest options.
As always, there is no clear-cut answer to this question. Cardano has many points that speak for it, while also having negatives. I’ll talk about the positives and negatives, so you can decide if it’s something worth investing in.
Cardano is already one of the biggest cryptocurrencies around, and it hasn’t even launched smart contracts yet. Once smart contracts are launched, many expect it to drive further adoption and demand, which might result in a higher valuation. Besides smart contracts, it boasts a huge community full of raving fans and developers, ready to spread the word and start developing on it. If Cardano becomes as big as Ethereum, ADA could be worth up to $10 per token.
On the downside, Cardano just went through a massive price increase this year alone. It might take a while until it reaches a new all-time high. Also, since smart contracts haven’t launched yet, there’s still uncertainty in the air regarding how many will actually use the network. If people will migrate from other blockchains over to Cardano.
Cardano vs. Bitcoin vs. Ethereum vs. Dogecoin
Price per coin
Transactions per second
Coins in circulation
Up to 1 million
Is Cardano better than Bitcoin?
Cardano is hardly comparable with Bitcoin, and it has different objectives. While Bitcoin is focused on being a store of value, Cardano focuses on scalability and interoperability, featuring smart contracts and a proof-of-stake consensus mechanism.
When are smart contracts coming to Cardano?
Smart contracts were already launched on the testnet, and are expected to arrive on the mainnet in August 2021.
Why is Cardano so cheap?
Cardano might appear cheap when compared to Bitcoin and Ethereum because it costs just a couple of dollars. But this mostly due to a much higher number of ADA tokens in circulation. The best way to compare cryptocurrencies is by checking their market cap, which is the number of coins in circulation times their price.
How do I stake ADA?
You can stake ADA on many exchanges, and also from your own cryptocurrency wallets. Cardano’s native Daedalus and Yoroi wallets both offer staking within the wallet.
Can you lose money staking ADA?
Your staked ADA is completely safe and remains in your possession. You can’t lose ADA by staking. You can lose money by the devaluation of the ADA token though, so keep an eye on it.
The bottom line
Cardano has so far had impressive achievements while focusing on a slower rollout of new features based on peer-reviewed research. It is an ambitious project and just recently announced a historic deal with the government of Ethiopia, aiming to onboard 5 million students and 700 thousand teachers to the Cardano blockchain for identity and record-keeping system.
It is still in its early days, and the question is if Cardano’s third-generation blockchain is enough to overtake Bitcoin and especially Ethereum. Ethereum has had an early start compared to Cardano and has attracted a huge community and funding, cementing its place in the DeFi ecosystem. Given Cardano still has a lot to deliver, its future depends on the execution of the vision and if it can successfully lure developers and users away from other blockchains.
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