Cryptocurrency Series #1 — Cardano (ADA)
Hi folks, in this series of stories, I would like to share few insights that were gained by me in the crypto-currency space over the past few months. However, I do assume that many people have a good amount of insight about the two most popular cryptos that exist in the world — Bitcoin and Ethereum which I will skip in this series. Hence, I would start with the Cardano which at the time of writing this article, has a market cap of around 94 billion dollars (3rd biggest) which contributed around 4% of the total crypto market cap.
Evolution of Cardano
There were 2 generation of cryptos that were available before the third generation of crypto — Cardano (ADA) was available. The first generation was the Bitcoin. It was the first publicly available crypto-currency that was tradable. Bitcoin was seen as a digital gold, meaning it was deemed as a digital asset that has a value which can be used to store and transfer the money value. But it has a scalability issue. For example, the median number of transactions per second for the bitcoin was around the range of 3.3 to 7. This was initially good considering the amount of users that bitcoin had. But as the time progressed, the users grew and now it seems like a bottle neck for the adoption of the bitcoin as a global currency.
Then came the second generation with the introduction of the Ethereum cryptocurrency. The Ethereum was seen as an upgrade to the existing Bitcoin as it executed the smart contracts. Smart contracts are like the programmes which are executed when a certain set of rules or conditions are met. In, smart contracts there is no intermediate person involved in this. For example, consider a transaction between 2 people - A & B. Person A states that if he is able to get the object C from the person B, then the person A will be transferring some X amount to the person B. In a normal transaction, (consider a fiat money), the money lays with the person A until he lays hands on the object to be received. However, in smart contracts, the money will be resting on the contract node, denoting that the money is allocated in that smart contract which doesn’t belong to either of them until the programme is executed with conditions being met. While Ethereum also improved the scalability issues, it wasn’t significant enough.
Then came the third generation of Cardano. The development of Cardano crypto-currency was done in a time frame of 2 years and it was launched in the year 2017. This was a peer reviewed paper — meaning that the paper which provided the information about the Cardano’s framework and model was reviewed publicly by the developers around the world in order to improve its working.
Cardano’s existence is to solve three main problems in the crypto space — Scalability, Sustainability and Interoperability. In scalability, the cardano targets the metrics of the transactions per second (TPS), Network bandwidth and data storage issues. The Cardano uses a proof of stake algorithms to solve the problem of TPS as opposed to the Bitcoin’s proof-of-work. To put in simpler terms, the Proof-of-Work algorithm allows every person on the blockchain to mine the crypto where as the Proof-of-Stake(PoS) allocates the time-frame to the particular randomly selected people who has the authority to mine the crypto. By this way, PoS reduces the amount of electricity required for the mining of the crypto currency and also multiple transactions can take place parallelly in order to increase the Transactions per second of the crypto.
The network bandwidth issue arises when the crypto’s ledger requires all the nodes (say for example the computer) in the particular network to update the new transactions that are being made every second which is very data heavy (read as P2P network). Cardano aims to solve this by creating a subnetwork in order to reduce the amount of data/ bandwidth needed to regularly update the transaction in each node. Interoperability feature means the ability to transform asset value from one to another. For eg, there is lack of interoperability as to convert Bitcoin to Ethereum requires a intermediate coin. Cardano aims to solve this by being the internet of blockchains there by seamlessly understanding and transferring the asset value from one to another. Sustainability is being sought by Cardano through creation of its treasury. This is a kind of wallet that receives a percentage of every transaction as transaction fee. This fund can be used to fund the developers who wish to solve the problems that are being faced by the Cardano currently. The problems to be solved are then chosen through the fair system of voting in their community which they feel are the most pressing issue and funds are allocated in solving it.
Cardano’s Present and Future
One of the biggest project that the Cardano’s team is currently working is in the space of solving the Ethiopia’s national ID systems and education problems.
In Apr 2021, the Ethiopian government announced that it is working with IOHK, the company behind the Cardano protocol, on a blockchain-based system to track student performance in the African country’s schools. This is being done in a phased manner. The first phase includes the creation of the digital ID asset for the 5 million students who are currently pursuing education in Ethiopia. The project, called “the single biggest entity deployment of blockchain ever,” is scheduled to go live in Q3 2021, with a first deployment of Cardano blockchain-based IDs for 5 million students across 3,500 schools. Some 750,000 teachers will also get access to the system. This will also solve the fake certification issues which are predominant in the Ethiopian ecosystem.
Then this will be expanded to the Ethiopia’s total population of around 110 million people in partnership with a decentralised digital identity solution called as Atala Prism is being used. This will ensure that the financial inclusion shall take place in the growing African economy. The credit history can be tracked through the digital transaction which shall take place through the mobile/any other internet devices.
The future of Cardano lies in its ‘green’ feature — ADA is appx 1.6 million times efficient in terms of energy as compared to the bitcoin. Interest from large corporations like Tesla, which has recently pulled back from using Bitcoin due to its significant carbon footprint, has also played into the hands of Cardano.
Cardano, off late, has been garnering interest all over the world with many people touting it to be the crypto of the future. However, Cardano is still considered to be a work in progress. There ain’t a single big application that is in deployed on ADA network. While the developers hope that with the African country’s project they could turn around the things later this year, it would just be considered as a piece of attractive paper until proven in real world. It has potential to overtake the biggest players in crypto but the developers need to clear a lot of obstacles in paving way for it.
Let me know in comments for choosing the next crypto of your choice as a topic for posting articles. Happy reading!
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