Cardano (ADA)

By Aidan Kalish | Crescent City Capital Market Analyst Intern

Cardano is a project that intends to become a third-generation blockchain that solves the problems of scalability, energy consumption, and interoperability that its predecessors Bitcoin and Ethereum currently deal with. Originally developed in 2015 as a research project to explore how cryptocurrencies could be improved, Cardano has evolved into a blockchain platform whose creators, led by Charles Hoskinson one of Ethereum’s co-founders, believe can be the answer to the issues plaguing other blockchains by building a new platform from the ground up.

Cardano is unique for two main reasons. The first is that the Cardano team has taken the peer-review approach originally used for their research project and adopted it for the blockchain. This means that every new feature and change added to Cardano is developed, reviewed, and agreed upon by academics before being used. The second reason Cardano is unique is due to its consensus method. Bitcoin and Ethereum use a proof of work (PoW) consensus to verify transactions which uses a lot of energy and has a limited TPS. Cardano uses a proof of stake (PoS) consensus which consumes less power. The network uses an algorithm called Ouroboros to choose who creates the next block and to validate blocks. Ouroboros operates by dividing chains into epochs which are then further divided into time slots. A slot leader is then chosen for each time slot and is responsible for adding a block to the chain. The Cardano team call Ouroboros “a meld of innovative technology and philosophy. Its research explores how we behave as a society, to discover an ideal balance – defined through game theory – between individual and collective interests.” This unique version of PoS allows the blockchain to significantly reduce power consumption, increase TPS and make the network more secure.

Cardano is still in development and its roadmap can be broken down into five phases or “eras.” Although the phases are segmented, the Cardano team is working on all of them simultaneously. Therefore, each era can be seen to resemble a development track rather than a fixed timeline.

The first phase is named Byron after the poet Lord Byron. In this era, the network’s primary architecture was created and basic functionality was implemented. The Shelley era takes its name from the romantic poet Percy Bysshe Shelley. The Shelley era saw the Cardano establish a higher degree of decentralization by shifting to more of a reliance on community-run nodes.

The Goguen era, named after computer scientist Joseph Goguen, is the era Cardano is currently in. Goguen brought smart contracts to Cardano, enabling the creation of decentralized applications (dApps).

The fourth-era Basho is named after Japanese poet Matsuo Basho. This era will involve scaling the blockchain network by adding performance and stability enhancements. Interoperable sidechains will also be introduced which will help Cardano handle higher levels of traffic, resulting in a high TPS despite the increase in activity. The final era of Cardano is Voltaire, named after the famous French writer. Voltaire will transfer the responsibility of Cardano’s future to the community. This means that instead of development and maintenance being undertaken by a singular entity like Cardano’s team, the community will be tasked with upholding the network. Participants will be able to help the network grow by proposing improvements for stakeholders to vote on with transactions fees being distributed by the protocol to fund various development activities. The Voltaire era is what will make Cardano a truly autonomous decentralized network.

Cardano’s Roadmap

Named after Ada Lovelace, the first computer programmer, ADA is Cardano’s native token and can be used to conduct peer-to-peer (P2P) transactions. Instead of being mined Cardano uses a validation system to produce ADA. Validators are chosen depending on how much ADA they currently own. The selected validator then validates the transactions on the block. If the blockchain verifies the validator’s block, they get a reward in ADA. At the time of writing, ADA has a market cap of $32.9 billion and a fully diluted market cap of $43.9 making it the eighth largest cryptocurrency. ADA entered 2022 with a price of $1.37 per token and has fallen to a current price of $0.97.

While Cardano is a very ambitious project it has had a series of recent struggles. The Cardano team has missed multiple deadlines on its roadmap, choosing to take a slower route and sacrificing the first-mover advantage the project could have had. While Cardano has a well-managed team, the size of the project is still significantly smaller than the second-generation blockchains that serve as competition. Besides the blockchain giants that are Bitcoin and Ethereum, another competitor to Cardano is Solana’s network. These struggles and competitors show a significant amount of risk for Cardano.

While there are risks to the project, Cardano is still one of the most promising alternatives to second-generation blockchains due to its academically rigorous approach to research and development and aspirations to establish an autonomous, decentralized network. While dubbed by some as an “Ethereum-killer,” it is more likely that Cardano will carve out its own niche and will continue to benefit from the growth of the global blockchain ecosystem. One positive point to note is that there have been recent increases in total value locked (TVL) for Cardano. TVL has become one of the key metrics for gauging interest in crypto and is a good indicator of when an asset is over or undervalued since the TVL moves in tandem with a token’s value. ADA’s TVL has given a bullish view on the token, showing promise for an increase in value. If an investor is bullish on crypto in general, then ADA’s current low price may promote the idea of long-term investment. ADA may also be a good hedge for those who own Ethereum as the token will likely gain in value.

Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. Please conduct your own due diligence before making any investment decisions.