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Cardano (Everything You Need to Know) - Cryptocurrency with Great Potential But Also Risks

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In the autumn of 2017, the Coinmarketcap, a new cryptocurrency with the mysterious name Cardano (ADA) entered the market. It is named after the Italian mathematician and gambler Gerolamo Cardano and the mathematician and first programmer Ada Lovelace. Cardano has been around since 2015, but only entered the market after a long development process. The platform raised funds for its development through a 2-year ICO, mainly from private investors in Asia. The main network is running, but most of the functions (e.g. smart contracts) is still awaiting implementation. How is Cardano as a third-generation platform different from most current cryptocurrencies?

Cardano (EVERYTHING YOU WANT TO KNOW) - CONTENTS

  1. Cardano or the Third Generation Platform
  2. Cardano and Mining? Ouroboros - a Snake That Eats Its Own Tail
  3. Who Is Behind the Cardano Project?
  4. The Unusual Priorities of the Cardano Cryptocurrency
  5. How and Where to Buy Cardano (ADA) Cryptocurrency?
  6. Cardano (ADA) and Wallets. Where to Hold the Cryptocurrency?
  7. ADA - What Is the Exchange Rate and Price of Cardano Cryptocurrency?
  8. The Future of the Cardano Platform
  9. Cardano - Commentary
i Glossary of sci-fi technologies used by Cardano
  • Haskell Haskell is a very safe and stable programming language. The properties of its code can be formally tested and proved mathematically. It is the core code of the Cardano network and its purpose is to be robust and secure. As a result, the foundations of Cardano will run on highly reliable code that can be formally tested before release. 
  • RINA (Recursive Inter Network Architecture) A new methodology that can be used to build network structures and methodically test their properties. RINA will be used in the design and testing of the Cardano network. 
  • Partitioning (Sharding) – A process that is used to increase the efficiency of working with data. Cardano will use it to improve scaling. 
  • Sidechain  is connected to the main blockchain. It is used when the goal is to perform some operations outside the main chain, where only the result is written. The result is less burden on the main blockchain. A good example could be a game that runs on the blockchain it does not need all its rules to be stored in the smart contract of the main chain. The sidechain is used to execute the smart contract, and only the result of the game is written to the main chain when the game ends. 
  • Cardano Settlement Layer Cardano's base layer. It performs a similar function to Bitcoin it is simple, robust and used to write simple transactions.
  • Cardano Computation Layer the second Cardano layer. It has similar features to Ethereum it is used to provide more advanced features such as smart contracts.

Cardano or the Third Generation Platform

Cardano is intended to be a so-called third-generation platform. It learns from and builds on previous generations.

  • 1st Generation: Bitcoin solved sending transactions without a central authority, the advantage is its simple, secure and robust system.
  • 2nd Generation: Ethereum in addition to transactions, it also solves smart contracts, decentralized applications and tokens are created on it, and its programmability is an advantage.
  • 3rd Generation: Cardano

But why is Cardano actually considered a third-generation platform? The answer is all but simple Cardano's main goal is to solve the problems encountered by virtually all Cryptocurrencies of the first and second generation.

Charles Hoskinson covers the essentials of the Cardano platform

Interoperability

Apart from the first attempts at Atomic swaps (decentralized exchange of one cryptocurrency for another), individual blockchains do not communicate with each other (Bitcoin cannot work with smart contracts built on Ethereum, etc. ). Cardano wants to be a platform that will be able to recognize and work with data from other blockchains. In addition, it aims to work with the so-called. metadata. In the banking world, metadata is, for example, information about who sends a transaction to whom and what the transaction is for. This will allow the Cardano platform to work with the traditional financial system.

Scalability

Previous blockchains have run into a problem with scaling  as the number of users grows, the network becomes overwhelmed and impractical to use. Cardano plans to address this problem with technologies that keep the network stably fast. Among the planned methods will be, for example, sidechains, several layers of chains, or sharding. Cardano's goal can simply be compared to Bittorrent a decentralized data-sharing network that gets stronger and faster as the number of users grows, not the other way around.

Governance

Both Bitcoin and Ethereum have gone through a history of so-called "forking," which in both cases was caused by community disagreements over the future development of the network. The developers of Cardano consider fork to be a suboptimal solution to community disputes and are trying to avoid it by implementing a better Governance model (i.e., a model for network decision making). One of the features that is supposed to prevent forks, among other things, is that the Cardano blockchain will be divided into two layers (Cardano Settlement Layer and Cardano Computation Layer).

i Fork  a term universally used across the crypto community to refer to the act of "forking" of a new cryptocurrency  when a cryptocurrency splits. However, the issue of forks is much more interesting and beautiful than you might have thought. In our article we will therefore focus on the smallest details concerning cryptocurrency forks!

Cardano wants to maintain a similar structuring in future developments. The aim is to separate the individual functionalities and modules so that a modification of one part of the network does not affect the running of other "modules". This can prevent a definitive fork of the entire network in case of disagreements about a particular feature. In contrast, Ethereum, for example, is now considering another fork that should free ETH tokens locked in dysfunctional Parity smart contracts. That means, however, that ETH is going to need to fork. This should not be the case with Cardano.

Sustainability

To ensure that the development of the Protocol is sustainable in the long term and remains decentralised, it is important to find an appropriate funding model for further development. Bitcoin development is largely voluntary, and developers are motivated by the idea that if the cryptocurrency's infrastructure improves, its price will rise. But that alone may not be enough. Bitcoin development is also funded by companies such as Blockstream, which employs many Bitcoin Core developers. However, there is a risk of centralisation of the development if the development falls solely into the hands of these companies, as their objectives may not always be aligned with the interests of the network. Ethereum, for example,  was initially funded through ICO, but the funding received through the ICO is capital received just for the start, but does not guarantee any future income.

Cardano wants to combine all methods - ICO, volunteer development and development by companies. However, it adds another element the Treasury as a decentralised mechanism from which the community will fund further development. Long-term sustainability also applies to the development itself the Cardano platform should be designed in a way that allows its features to be improved and changed without the need to fork or paralysis of the entire network.

Cardano and Mining? Ouroboros - a Snake That Eats Its Own Tail

Under the mystical sounding name of Ouroboros hides the Proof of Stake (PoS) algorithm. The Cardano network is not secured by mining computing power (Proof of Work = proof of "work" done). Instead, it uses the so-called "Proof of Stake" a method that replaces computing power with proof of ownership of the tokens themselves (ADA). The number of tokens held by a validator (similar to a miner, called a "slot leader" in Cardano) proportionally increases the probability of finding the next block of transactions.

Cardano, proof of stake
The process of confirming transactions on the Proof of Stake blockchain is by far cheaper and more efficient than the classic mining of cryptocurrencies using a method known as Proof of Work (Bitcoin, Litecoin, Ethereum).

The validator, like the miner, is rewarded with new tokens for storing transactions in the "block." On the other hand, if a validator tries to rewrite transactions in the blockchain instead of verifying them, they risk losing tokens. The more tokens the validator locks, the more likely it is for them to find the next block of transactions (similarly for mining - the more hash rate the miner has, the more likely it is to mine the next block).

The advantage of PoS is that it does not consume as much energy and computing power compared to PoW. The PoS system is not new to Cardano, we have known it for a long time. However, it brings with it some practical and security disadvantages that are beyond the scope of this article. However, the academics and developers of Cardano claim that they have demonstrably eliminated all of these obstacles with Ouroboros. Cardano's PoS algorithm is thus supposed to be as secure as PoW algorithms. However, it should be more scalable, as validators will be able to verify several chains in parallel.

i Useful links
1.
Bitperia. Discover the world of cryptocurrencies with a simple app for your Android or iOS devices.
2. Cardano (platform). What does Wikipedia have to say about this topic?
3. Cardano.org - the official website of the cryptocurrency Cardano.

Who Is Behind the Cardano Project?

Cardano aims to become a truly decentralised global platform. However, the following organisations are mainly involved in its development:

  • The Cardano Foundation Nonprofit: based in Switzerland, and its role is to spread the idea of Cardano, build community and monitor regulations.
  • IOHK (Input Output Hong Kong): Led by Charles Hoskinson. This Hong Kong company is working on R&D (research and development) and the promotion of the project.
  • Emurgo Company: Founded to help organizations implement Cardano, the company's activities include consulting, partnering and investing in start-ups that run on the Cardano platform.
  • Academics: Cardano's research is supported by academics from world-class universities such as the University of Edinburgh, Oxford, Athens and Tokyo.
Cardano, univerzity, akademická půda
Academic institutions from around the world have participated in the development of the Cardano platform.

The Cardano community is very professional. It is based on the principles of peer review the Cardano code (which is of course all open source) is to be under constant scrutiny by a professional global community of experts. Only few projects so openly attract the academic community, especially cryptographers. There are few projects in cryptocurrency that apply academic formal methodologies to the extent that Cardano does.

Developing the Cardano Platform

The academic influence is also evident in the whitepaper the core technical document of any cryptocurrency. Cardano is specific in that it does not have one whitepaper, but several for each module separately. The whitepapers were furthermore written by university researchers, who formally defined what properties the platform should have in theoretical terms in order to meet its goals (i.e. security, decentralisation, interoperability, scalability...).

i Development phases of Cardana
  1. Byron initial phase, network testing, building basic infrastructure and PoS algorithm
  2. Shelley (Q3, Q4 2018) the phase where staking starts to be tested in practice and Cardano starts to decentralize with external validators
  3. Goguen integration of smart contracts
  4. Basho improving network performance, e.g. by sidechains
  5. Voltaire the final phase when the project completely changes hands from IOHK to decentralized community decision-making and a community budget is created

The development itself is also very professional and organized. Roadmap contains not only a description of the new features and the deadline for their implementation, but also the relevant whitepaper or research document, as well as the main leader who is responsible for the development of the functionality, a link to the relevant whitepaper, an academic lecture on YouTube and the relevant GitHub repository. The GitHub project itself, the documentation and technical reports are at a very high level as well.

Cardano
Developers of Cardano are very active on GitHub; according to the website Crypto commits, Cardano has been the second most active project in terms of commits in the last 12 months.

The Unusual Priorities of the Cardano Cryptocurrency

Cardano's approach stands out in other areas as well. While the platform is global, it is trying to establish itself more strongly on the African continent in third world countries such as Nigeria and Rwanda. According to Charles Hoskinson, it is in third world countries where blockchain and cryptocurrency have the best chance of creating real social change.

i Who is Charles Hoskinson? Charles Hoskinson is a cryptocurrency enthusiast, entrepreneur and mathematician. His interest in cryptocurrencies began with bitcoin he is the author of an educational course on Bitcoin on Udemy. He was a co-founder of Ethereum and then, after the ETH fork, one of the main proponents of the original chain Ethereum Classic. As CEO of IOHK since 2015, he has been involved in the development of the Cardano project, of which he has also become the main face  although he avoids the title of "leader" because he believes in the decentralization of cryptocurrencies.

This is because they do not have as good a digital infrastructure as developed countries, so Cardano does not have to compete with relatively capable centralised solutions. The governments in these countries may be corrupt, but they also want to do business with the outside world, and a platform that reduces the need to trust third parties through blockchain can help significantly. Resources that are locked up due to lack of trust and infrastructure in these countries could be freed up. IOHK is already making presentations in these countries, communicating with governments, universities and companies, and offering jobs to talented developers to build a springboard for platform development in third world countries.

IOHK, Cardano
IOHK and Charles Hoskinson have been behind the Cardano platform since its inception.

Cardano's second unusual approach is its attitude towards regulators and banks. The Cardano platform wants to be very "mature" and communicate with regulators where appropriate and necessary (for example, in the ICO area) and wants to enable communication with banks by supporting metadata. On the other hand, the project team is also aware of the need for anonymity and privacy in many cases. That's why IOHK has announced a collaboration with a decentralised anonymous platform ZenCash.

How and Where to Buy Cardano (ADA) Cryptocurrency?

ADA is traded on many stock exchanges, but none of them offers to buy ADA for EUR or USD. The only fiat currency that can buy ADA is the KRW (Korean Won). However, it is possible to buy ADA for Bitcoin, Ethereum or Tether (USDT), using, for example, the exchange platforms Binance, Bittrex or Huobi.

Cardano (ADA) and Wallets. Where to Hold the Cryptocurrency?

Cardano (ADA) can already be stored in multiple software wallets today, and we should soon see integration into leading HW wallets as well. What kind of wallets are they?

Daedalus wallet

Cardano has its own software wallet - Daedalus. It is currently the best way to save ADA. This is a "heavy" or "full" wallet. That means that the data are stored on a hard drive that downloads and synchronizes with the entire Cardano blockchain, so it is more space-intensive.

Cardano
You definitely won't go wrong with the Daedalus wallet it is arguably the best current software wallet for the Cardano cryptocurrency.

Of course, you must back up your private keys and follow all other digital security policies. Daedalus is preparing support for its own debit card, Ethereum Classic and Bitcoin.

CardanoLite

The independent VacuumLabs team is developing its own open-source "light" wallet - CardanoLite. It's supposed to run on mobiles and in the browser. It's not necessary to synchronize the entire Cardano chain.

Cardano, softwarová peněženka
CardanoLite an undemanding open-source wallet for your mobile device.

Hardware wallets

Everyone already knows that the safest way to hold cryptocurrency is to use a hardware wallet. Cardano is planning to implement it in Ledger Nano S. VacuumLabs, working on CardanoLite, will also implement a solution for a Safe deposit box.

ADA - What Is the Exchange Rate and Price of Cardano Cryptocurrency?

Since the ADA was listed on exchange platforms, its price has risen significantly. It is currently (June 2018) the eighth most valuable project by market capitalization, which is pretty high, considering that most of the planned features are only in development and no specific applications are actually running on the platform yet.

Indicator NVT (Network Value to Transactions), which is calculated as the ratio of market capitalization to the number of transactions, is significantly low compared to other large cryptocurrencies. This metric shows that, relative to the number of transactions on the Cardano blockchain, the capitalization is quite low (there are a lot of transactions going on). It must be added, however, that this metric is currently not very meaningful and serves only as a guide.

The total number of Cardano coins will be 45 billion, currently (June 2018) about 57% of the market, while the rest will be "mined" gradually by staking. While Cardano doesn't aim for over-the-top marketing and hype, its goals are truly spectacular. The high future expectations of investors are thus already included in the price. The price of cryptocurrencies, like any other asset, consists not only of current usage but also of anticipation of future developments. And indeed, Cardano's plans raise hopes of solving many of the problems plaguing today's cryptocurrencies.

The Future of the Cardano Platform

Having said all of this, there is yet one more question to answer  what is Cardano's potential? In the following paragraphs, we will present two different scenarios, which I personally consider the most realistic.

cardano, měsíc, raketa

Are we going to fly Cardano to the Moon?

The Optimistic Scenario

The Cardano team will manage to implement the functionalities in time and at the same time manage to generate interest from developers, governments and companies around the world (especially in Africa). By the end of 2018, the staking option will be launched, which will lock up some ADA tokens, reducing supply and increasing price. Thanks to its high quality, interoperability and security compared to the competition (mainly "leaky" Ethereum) at an advantage. Although faster projects have the upper hand in the short term, Cardano's methodical approach will make it a winner over the long haul and make it a dominant platform. At that point, it will likely surpass Ethereum itself in valuation.

The Pessimistic Scenario

While development in collaboration with academics has many positives, compared to faster and more predatory projects, the team will not be able to develop and implement changes fast enough. Other platforms (despite the bugs) will get a head start in terms of usability and network effect in the spirit of "better an imperfect solution now than a perfect one in three years".

i You might be interested in
1. SAFE Network. A project promising a decentralised internet.
2. ZenCash (ZEN). A platform focused on privacy.

Cardano's grandiose goals will thus remain on paper for a long time to come. Another possibility is that, despite efforts to the contrary, a major vulnerability or bug will be discovered in Cardano. This would be less of a problem with other projects, but Cardano's boast of super-secure code may worsen its reputation. This would mean that Cardano would be among the many under-performing or mediocre projects that abound on the crypto market.

Cardano - Commentary

I'll leave it to the reader to decide whether Cardano is an interesting investment. However, I consider this project to be one of the most interesting on the market and it will certainly be worth paying close attention to in 2018. I am especially looking forward to confirming or refuting the security of the Ouroboros Proof of Stake algorithm. It should be added, however, that the platform is indeed broad in scope and will have to compete with many fast-growing opponents that are often more specialised. The goals Cardano has set for itself are very ambitious and it will be a real challenge to meet all the high expectations.

Matěj Galvánek

Matěj Galvánek

Matej Galvánek is an investor, entrepreneur, and fan of modern technology and decentralization. He started dealing with cryptocurrency when he played online poker in the past. Matthew believes that cryptocurrency offers revolutionary changes in the way human society is organized. In addition to crypto investments and business projects, his goal is to spread awareness and help people understand cryptocurrency and its possibilities.

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