What is Cardano (ADA)

February 12


What is Cardano? Ultimate Guide to Cardano (ADA)

Ilir Salihi

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Ever since Ethereum exploded onto the cryptocurrency scene and enriched early investors, numerous blockchain networks have been jockeying to capture a piece of its market share. This is understandable— smart contracts and programmable money could disrupt many sectors of the world economy in much the same way email disrupted the post office or Amazon disrupted retail, especially in areas like government and law. Cardano is one of the frontrunners in this competition.

This article will cover some of the essentials about what sets Cardano apart from other projects challenging Ethereum, and why it has been among the biggest cryptocurrencies by market capitalization over the past few years. 


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The Origins of Cardano

Cardano is one of a number of projects that spun off of Ethereum. Ethereum’s early success also highlighted some problems, most notably scaling limitations. Ethereum developers Charles Hoskinson and Jeremy Wood felt they could do better, and left in 2014 to found Cardano. In 2016, Cardano raised $62 million in an ICO.

One of the disputes that led Hoskinson to leave was the long term vision about how to structure the organizations behind developing Ethereum. One issue was that Hoskinson felt that the Ethereum Foundation’s non-profit structure was not ideal for supporting the project. When he started Cardano, he established two for-profit corporations, Emurgo and Input Output Hong Kong (IOHK), to support Cardano’s development. 

Generally speaking, Cardano aims in every way to be a “better Ethereum.”

Related: Buy Cardano (ADA) on Bittrex - Secure & Trusted U.S. Based Cryptocurrency Exchange 

Cardano’s Design Philosophy

Cardano’s design philosophy was born largely from Hoskinson’s experience with Ethereum, including fiascos like the DAO hack. For example, Cardano was designed from the ground up to involve cybersecurity experts in design, divide computation and accounting into separate layers, and apply modular software engineering principles. 

These considerations were intended both to increase security and scalability. Ethereum has had major issues with the network overload and high transaction costs as popularity of the network grew. The Ethereum 2.0 update was intended to alleviate these problems, but the Ethereum developers have struggled to meet deadlines, postponing the update multiple times. Features like modular architecture are intended to facilitate future upgrades and make Cardano better able to scale up to accommodate more users.

Cardano also emphasizes interdisciplinary teams, including social scientists and economists, whereas a large majority of Ethereum developers are software developers and programmers by trade. 

Related: Cardano (ADA) Now Available in IRAs and 401(k) Retirement Accounts

Proof of Stake

Cardano falls firmly in the Proof-of-Stake camp when it comes to the debate on consensus mechanisms. As such, the Cardano team has invested a lot of resources into the project’s proof of stake consensus. Since it was first proposed, proof-of-stake has been the subject of intense and polarized debate. Cardano attempts to address some of the criticism of proof-of-stake by improving on certain aspects, in particular the game theoretical balancing of economic incentives. 

The team argues in one of their research papers that Cardano can be mathematically proved to be as secure as Bitcoin’s proof of work. 

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The Academic Connection

In many ways, Cardano attempts to leverage academia. It was one of the first projects to use the academic peer review process to test and improve the theoretical assumptions underlying design choices. 

IOHK has established a number of research labs, partnerships with universities, and regularly releases research papers. Numerous professors work in some capacity with the Cardano team, giving the project a more scientific character than many other blockchain projects. Enhancing this intellectual image even further, Cardano's updates and features are named in honor of famous historical intellectuals; Cardano itself was named for 16th century Italian polymath Gerolamo Cardano, and ADA, Cardano’s native currency, was named for Ada Lovelace, a mathematician and early pioneer of computer science.

Related: What is Uniswap? Complete Beginner's Guide


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Governance Structure

The agonizing, years-long debate on the SegWit upgrade to Bitcoin highlighted a major constraint of decentralized networks. Of course, many argue that this is a feature, not a bug— Bitcoin may be difficult to upgrade, but that also means it is highly robust and resistant to interference.

Cardano is attempting to leverage “the best of both worlds” to achieve the same advantages of decentralization such as censorship resistance and immunity from corrupt politicians, while still enabling rapid deployment of upgrades. One of the main ways they intend to achieve this is by building in voting rights for all ADA holders. 

The partitioning of development responsibilities is also intended to act as a system of “checks and balances.” IOHK is responsible for technical development of Cardano, while Emurgo handles commercial ventures, and the Cardano foundation supports community development. 

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Cardano’s Africa Plans

Cardano’s strategic vision prioritizes design choices that make it easier for the software to run on mobile phones. Hundreds of millions of internet users, especially in low-income countries, only have access to the internet through their phones. From early on, Cardano has focused on achieving widespread adoption in areas like sub-Saharan Africa.

This approach makes sense in several ways. Africa has a proven track record of adopting digital innovation more quickly than other parts of the world where infrastructure is already present— the classic example is skipping the development of landlines and going straight to mobile phones. The rapid rise of mobile payments is another.

Many believe that blockchain technology could solve many problems in Africa, especially in the area of government, and government is one of the areas of highest potential for blockchain projects like Cardano. Securing legal documents on a blockchain network can dramatically reduce costs associated with government officials, notaries, and others responsible for authenticating documents and transactions. 

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This transformation has high potential to increase the effectiveness of governments in low income countries. Many governments already struggle because lack of funding prevents them from hiring enough officials to provide services. Low salaries also result in rampant corruption, and some believe blockchain networks could improve this situation.

IOHK has been actively working to establish relationships with African governments since at least 2018, when IOHK signed a memorandum of understanding with the Ethiopian government. If Cardano can successfully deploy its technology on a large scale in Africa, it could pave the way for mass adoption elsewhere.

The Cardano team recently announced that they are in the final stages of negotiating a contract that would onboard millions of users in Africa to the Cardano platform, possibly making it the largest real-world blockchain use case in history. This was a major factor driving ADA’s 100% price increase in January and February 2021.

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The Cardano team’s strong academic credentials may come with some advantages in terms of credibility, but it has also brought some criticism. Bitcoin advocates in particular can be quite anti-establishment, and some view academic institutions as overvalued. Some critics suggest that PhD holding Cardano developers live in “ivory towers” and place excessive focus on theory. These critics argue that a methodical, research based approach is not well suited to the fast-moving world of software development. 

The practice of selling “vaporware,” where companies raise money based on software that doesn’t actually exist, is very common in the cryptocurrency space. Cardano’s “slow and steady” approach and lack of real-world applications has led to accusations that the developers are enriching themselves at the expense of investors. However, recent advances have put to rest some of the criticisms of their lack of progress, contributing to ADA’s rise to the top 5 cryptocurrencies by market cap in early 2021.

There are also still many vocal critics of Proof-of-Stake. Most proponents of Proof-of-Stake cite Bitcoin’s energy use as a problem, but Proof-of-Work advocates argue that it ties Bitcoin’s value to a real world commodity— energy. Other general criticisms of Proof-of-Stake suggest that its security guarantees fail to take into account worst case scenarios (a.k.a. black swan events) and is more prone to centralization.

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Cardano was criticized in the past for being overly centralized, and promising that the network would be decentralized at some undefined time in the future. Now, it looks like they are finally going to make good on that promise, with the broader community scheduled to take control of block production on March 31st. 

The supply of the currency has also been criticized for being “pre-mined,” because Cardano developers created 70% of the currency upon launch, and assigned a considerable amount to IOHK, Emurgo, and the Cardano Foundation to finance development. Since Proof-of-Stake consensus secures the network via security deposits, centralization of the supply of coins is viewed as a security risk by some, in the same way too much control of Bitcoin mining could pose a risk to Bitcoin. This situation becomes more pronounced as time goes on, because newly minted ADA are awarded to those in proportion to how much ADA they already own.


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A Long Term Vision

Cardano is betting big on the long term. The team endured years of criticism and ridicule, fuelled partly by rival projects, as they worked on building a foundation for future growth. With the price rally of early 2021, they may finally be seeing some of the fruits of their labor. 

Cardano’s vision is not only long-term— it’s also big. The headquarters of IOHK, Emurgo, and the Cardano Foundation are located in Hong Kong, Japan, and Switzerland, three of the most crypto-friendly jurisdictions in the world. This enables them to take advantage of legal and tax environments for different activities, but also serves as a hedge against changing regulation and geopolitical instability. 

Cardano is clearly “in it to win it.” The development team is, on average, quite a bit older than the Ethereum community, and some might say less idealistic and more pragmatic. Ethereum has a substantial head start in terms of brand recognition and adoption, but Cardano has succeeded in consistently narrowing that lead.

It is not at all certain, however, that the future belongs to decentralized smart contract platforms. In cases where decentralization is not absolutely necessary, centralized platforms have vastly better performance. Some argue that estimates on the future valuation of smart contract platforms like Ethereum or Cardano are overinflated.

Related: Digital IRA Guide Reveals IRS "Loophole" to Buy Cryptocurrencies Tax-Free

Cryptocurrencies benefit strongly from network effects, which may mean that there is a tendency for users to gravitate to a single network. Some believe that Bitcoin will fill this role, and faster programs will be built on top of the simple but robust Bitcoin architecture, eliminating the need for any other digital currencies. 

But even if these platforms can do a fraction of what they aim to, there will still be plenty of room for growth. With its long term strategic vision, growing track record of slow but consistent progress, and academic credibility, Cardano has earned its position as a top contender in this market.

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About the Author

Ilir Salihi is the founder and senior editor at IncomeInsider.org. He oversees all content for IncomeInsider and its partner sites. His articles and insights have been featured on Barchart, Benzinga, and Investing.com, among other prominent media channels.

Ilir Salihi


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