The Cardano blockchain has shown a good level of growth since its inception as a third-generation blockchain. The growth of this blockchain network in extension has led to a meteoric rise in the value of its native token ADA.
While ADA might pose as a good investment for crypto investors looking to make some money off it, it is important to know what has led to Cardono’s rise and what the future holds for the blockchain network and its token.
To fully understand what has led to Cardano’s rise it is important to have a scope of what makes it different from other blockchain networks.
What is Cardano?
Like Ethereum, Cardano is a blockchain network with a smart contract feature. But unlike Ethereum, Cardano is capable of more.
Interestingly, Cardano’s birth happens to come from one of the brains that birthed Ethereum. Charles Hoskinson, one of the co-founders of ethereum is also the founder of Cardano. According to Hoskinson, Ethereum smart contract innovation is a profound addition to blockchain technology, however, it is a second-generation blockchain technology with several problems facing it.
Hoskinson’s creation (Cardano) hopes to tackle these problems at the same time maintaining decentralization.
Cardano’s remarkable growth can be attributed to the number of organizations that are involved in its smooth running. These organizations exist so that Cardano creates and executes successfully, some of the most innovative ideas in the blockchain sphere.
Specifically, there are three organizations responsible for Cardano’s heavy lifting
- The Cardano foundation
The Cardano Foundation is the custodial organization for Cardano. It is a not-for-profit entity that “standardizes, protects, and promotes the Cardano Protocol technology”. IOHK is a software research company also co-founded by Hoskinson. Finally, Emurgo is a Japanese company that merges commercial ventures with blockchain technology.
Cardano as a third-gen blockchain.
Although blockchain is not the only application of crypto, it is fair to say that Bitcoin championed the usage of the technology and brought it to the limelight. However, like any form of technology blockchain (relatively young technology) it is going through its stages of development and innovation. Hoskinson opines that we have gone through three generations of blockchain.
The first generation was Bitcoin. Bitcoin’s launch in 2009 changed the way the world perceived money. After failed attempts to create a decentralized, general and secure digital currency, Bitcoin started the revolutionization of traditional finance. The Bitcoin concept was perfect, it, till today, leaves many marvelled. At the same, time it sparked a wave of innovation to its “perfect” concept.
Ethereum, which is the second generation of blockchain, was the first to build Bitcoin’s innovation. While Bitcoin solved significant financial problems, it only allowed monetary transactions. Sending and receiving funds was all it could do. Ethereum changed that with a unique innovation called smart contracts.
Smart contracts made it possible to add conditions to the funds that were being transferred. Ethereum began to show the world that more could be done with blockchain technology than just monetary functions. Money, shares and anything of value could be exchanged with a binding contract without the need for a third party. For example; a person sending Ethereums could add conditions to the transaction, saying that the receiver will only get the currency after something has been done in return.
This innovation by Ethereum opened even more doors for further innovation in the blockchain space. The open-source blockchain ethereum created made Defi a possibility. However, the improvement on the technology still had its deficits.
According to Hoskinson, “Bitcoin and Ethereum are smaller systems in a much smaller economy when they came out” The Cardano CEO says the team only hoped-for $100 million in market cap after they successfully raised $18 million for Ethereum. The development of Ethereum only anticipated a few thousand people building on the platform but the numbers grew faster than the development that could accommodate them. Now Ethereum is at $210 billion in market capitalization.
Instinctively, Cardono learnt from the first two generations, added new elements that were lacking to become the third generation of blockchain.
Three key elements highlight Caradano’s position as a third-gen blockchain.
Usually, the benchmark for scalability is TPS, transaction per second. Bitcoin can only handle 7 transactions in one second, Ethereum can handle 15. In contrast, VISA can handle about 1700 transactions per second. If either network went mainstream, they would not be able to handle a lot of transactions. Cardano hopes to solve this by creating Ouroboros, a consensus mechanism on the proof-of-stake algorithm. Cardano’s Ouroboros is the first proof-of-stake protocol mathematically proven to be secure.
Bitcoin and Ethereum use the proof-of-work consensus mechanism, an extremely tedious process called mining. Mining takes an incredible amount of hardware energy to do. Proof-of-stake, on the other hand, needs less. The process can be done easily on a PC or even a good smartphone. Although Ethereum started working on proof-of-stake a year earlier than Cardano, the new consensus mechanism will not be on the Ethereum network anytime soon.
Practically, Ouroboros and the proof-of-stake algorithm could enable Cardano to handle a whopping 30,000 transactions per second.
Besides transactions per second, there are other scalability benchmarks is; network. Blockchain or distributed ledger technology means data is constantly moving through networks. Speed and seamlessness then become a must. However, Bitcoin doesn’t do too well with speed. Cardano on the other hand has an innovative response to the speed limits facing Bitcoin. Recursive Inter-network Architecture or RINA. Interestingly, RINA is so fast that it could serve as the new backbone of the internet. The technicalities of the technology are however immensely complicated.
The second element in Cardano’s third-gen framework is Interoperability. Hoskinson believes that there won’t be one main cryptocurrency. He is of the premise that most cryptocurrencies we have in existence today will continue to exist. In fact, traditional banks will continue to operate. What Cardano proposes is unity between every blockchain network and by extension traditional financial institutions. This has been termed the internet of blockchains, a network where Bitcoin, Ethereum and even banks can coexist. The need for intermediaries will be eliminated. SIdechains is one way Cardano is looking to solve this problem.
Cardano’s innovation will revolutionize the blockchain scene immensely, but sustaining the constant development of a blockchain entity is no easy task. Hoskinson himself, admits that this is a major hurdle. ICO’s are known ways of raising funds for a blockchain entity. ICO’s are, however, not sustainable. Cardono hopes to raise funds for development through a treasury model.
How does the treasury model work? Any time a block is added to the Cardano blockchain, part of the mining reward goes to developers.
More than finance
Cardano’s native token, ADA, has been profitable over the years. It is however important to note that there’s more to Cardano than ADA. Cardano hopes to revolutionize not just the financial industry, it is harnessing the full potential of blockchain, promoting a blockchain revolution.
Like Cardano, there are several other companies doing exploits with blockchain. Cardano will definitely be among the key players innovating blockchain for mainstream adoption.