How secure and sustainable ADA really is.
Cardano functions differently from other cryptocurrencies and tries to tackle long-standing and fundamental problems
What is the Cardano project?
The Cardano project was launched in 2017. It provides a unique approach to scaling and securing a blockchain network. The cryptocurrency which operates in the Cardano network is called ADA and is, like others, can be used for direct value transfer. To understand Cardano, we need to understand where Cardano is coming from. Charles Hoskinson, who is one of the founders of Ethereum explains, there are three generations of blockchain technology. First-generation was introduced by Bitcoin developed in a programming language that is not Turing Complete. Bitcoin is plagued with scalability issues. Ethereum is a second-generation cryptocurrency that brought us smart contracts. It improves scalability but not to an extent that it can be accepted as a global currency.
Ethreum is developed in the programming language Solidity which is Turing Complete. It essentially means that one can write programs (contracts) that can (for the most part) solve any reasonable computational problem. Turing completeness is important for Ethereum smart contracts because you can implement sophisticated logic. Bitcoin, on the other hand, does not have this feature. Bitcoin and Ethreum both cryptocurrencies have three main issues — Security, Scalability, Interoperability, and Sustainability
Cardano which is a third-generation cryptocurrency tried to solve all three main issues. When Ethreum will implement a proof of stake and solve security issues it might transition into 3.0 but we need to see how it plays out because it is already established.
Security
Cardano developers have written the whole platform in Haskell and they will be using Plutus for smart contracts. Both of them are functional languages. These are in contrast to imperative languages like C++, Java, or Solidity. It is easier to reason mathematically in functional languages which helps the programmers to develop more secure smart contracts by formal verification. The negative side of functional languages is that they are less popular and there are fewer Haskell and Plutus programmers.
Scalability
- Transactions per second — Cardano uses the Ouroboros Proof of Stake (PoS) algorithm to improve this. A global currency should be able to handle a lot of transactions per second and Cardano has significantly improved this by adopting Proof of Stake over Proof of Work. Bitcoin is using the Proof of Work algorithm and lets everyone mine new blocks. This process is slow and consumes a lot of electricity. Cardano elects a few nodes to mine the next blocks. Cardano divides time into epochs and epochs into slots. The network then elects slot leaders for the slot and this is the only person who can mine the block for that particular slot. The number of slots per Epoch can be increased and multiple epochs can run in parallel.
- Bandwidth — Rina network protocol which is more tailored for a decentralized network. Blockchain is stored in the P2P network. Each node received a copy of the new transaction. Cardano splits the network using RINA. Each node will be a part of the subnetwork and can communicate with other networks.
- Data — Bitcoin stores all the transactions that ever happened. Cardano uses Pruning, Compression, and Partitioning. When huge applications running on Cardano will make it huge. Everyone having the same copy is not scalable. Interoperability — Cardano should be able to communicate with other currencies. If you are a node, you should not get the entire blockchain instead you should only get the part of the blockchain. The level of certainty is almost the same but with way more scalability. However, storage space is fairly cheap, so, it is not the top priority at the moment.
Interoperability
There are numerous cryptocurrencies out there but they don't work together. One more common issue with cryptocurrencies is that banks and governments are still very unsure (don't trust) the cryptocurrencies. There is a good chance that multiple cryptocurrencies will coexist and these don't talk to each other now. Cardano project will serve as an internet of the blockchain which will be able to understand what happens in other blockchains to allow the seamless transaction. The government is worried about crypto as they don't adhere to government norms. They don't trust the transaction as they don't have any metadata about the transaction. The government wants to know who made the transaction and why it is against the idea of anonymous transactions. Cardano, however, allows people to attach the metadata to a transaction if people want to and this will allow the traditional banking system to work along with it.
Sustainability
There are a lot of companies offering ICO to bring continuous improvement in technology. But there is a possibility of the company running out of funds. Should they create a new cryptocurrency and hold another ICO in such circumstances? This is not sustainable and there is no definite answer. Cardano tries to provide a solution to this by creating a treasury that is not controlled by anyone. A small fee for every transaction goes to the treasury which serves as a special wallet. It serves as a smart contract that can release a fund when a developer wants to improve the Cardano project. The developer submits a proposal which contains the detail of the improvement with how much money they need for it to the community. Treasury takes the most popular proposal and thus over time it will ensure continuous improvement in the system.
Although the world of cryptocurrencies carries a lot of speculative value, I still strongly believe that Cardano is one coin that has an edge over other cryptocurrencies. It finally may be the cryptocurrency that answers all the questions but only time will tell.
Disclaimer: None of this is an investment or financial advice. Please do your own research before investing.
At the time of writing this blog, ADA is priced at $1.22.
