What is Cardano? What You Need to Know About ADA?
What Is Cardano (ADA)?
Originally invented as an alternative to Ethereum and now commonly known as ‘Eth killer,’ Cardano is the first open-source & peer-reviewed decentralized blockchain protocol employing a scientific approach. Founded by Charles Hoskinson, co-founder of Ethereum, it is a third-generation public blockchain and Dapp development platform. The platform earned international media attention due to its novel characteristic of incorporating a peer-reviewed research strategy into its core principles. Today, ADA is among the top cryptocurrencies in the world.
The Cardano blockchain essentially allows people to build smart contracts, create decentralized applications and protocols, and instantly send and receive funds with nominal fees. Its developers aim to create a blockchain platform that can process more transactions at a minimal cost and deliver advanced features based on a rigorous scientific and research-based process. While simultaneously protecting users’ data by integrating the distributed ledger technology and the smart contract infrastructure.
Like many other Crypto tokens, the Cardano utility token ‘ADA’ is used as a transfer of value. However, its functionalities differ from other cryptocurrencies. Stake pool operators utilize it in the staking system to keep up the security of the protocol. Moreover, those who stake their ADA tokens on the blockchain use them to verify & substantiate transactions.
How does Cardano Work?
Cardano employs a unique two-layered framework. As mentioned above, one is used to settle transactions with minimal transaction fees, while the other is used to run smart contracts and decentralized apps. They are known as The Cardano Settlement Layer (CSL) and The Control Layer, respectively.
Cardano strives to address & tackle some of the most common issues facing large-scale blockchains as a third-generation cryptocurrency member. These issues cover the ploy of blockchain, including topics such as scalability, interoperability, and sustainability. Cardano strives to overcome these issues through the development of design principles and engineering best practices.
The respective methods Cardano’s team is employing to address the problems are explained below:
There are many cryptocurrencies in the market in the current era, each with its own unique characteristics, benefits, and functionalities. Cardano attempts to introduce standards into the market to enable interoperability across the networks. These systems include blockchain governance models, system upgrade protocols, and feature sets.
Initially, Cardano could only manage about ten transactions per second (tps). Recently, however, Hoskinson released a paper explaining a new scaling solution for the network – Hydra. Hydra is a Layer 2 scaling solution that makes use of state channels to process transactions off-chain. Utilizing this technology, Cardano has earned the capability to process over one million transactions per second.
Permitting blockchain interoperability introduces a new set of risks that developers must address and manage. Managing these security concerns is a segment that Cardano intends to dominate. Currently, the platform has regulations for managing privacy, security, and decentralization.
Cardano has a great development team behind it:
Due to its infamous founders, who were ex co-founders of Ethereum, Cardano gained a lot of popularity after its official release in 2017. Moreover, Cardano’s peer-reviewed framework ensures that there are no weaknesses in the protocol.
Cardano has Academic backing:
Cardano benefits from being one of the very few coins that have received positive reviews by academics. Moreover, many academics work for IOHK and write papers on what they believe would improve its prospects. This gives Cardano credibility that most coins do not have.
Cardano uses multiple layers:
By implementing a settlement layer and a computational layer, Cardano ensures unlimited scalability and quick transactions. It also allows updates to be performed without interfering with payments and transactions.
Novel Third generation blockchain:
Cardano is proclaimed to be a third generation blockchain. It is considered more reliable than other cryptocurrencies as ADA keeps overcoming challenges that other platforms have encountered (mentioned above). It is also more decentralized than Bitcoin (first generation) & more scalable than Ethereum (second generation) and as it scales horizontally (through its protocol Ouroboros Hydra).
Cardano is more secure & can provide digital identity:
Cardano employs a proof of stake protocol that ensures mathematically proven safety. Due to the increased number of cyberattacks, hacks & hacking attempts in the crypto sector, there’s no doubt that security is a crucial aspect. This is an edge Cardano has as its system has unparalleled plans for managing security and privacy.
Companies positively regard Cardano:
Charles Hoskinson claims there are now more than a hundred companies looking to switch from Ethereum to Cardano. Moreover, the number of companies investing in Cardano is predicted to increase with the announcement of Cardano’s recent upgrade and the surge of Cardano’s price. Furthermore, Cardano is now listed on Coinbase, which adds to its credibility & will make it easier for more traders to purchase it, increasing its market cap.
Like every investment where there are pros, there are bound to be cons. The following are some of the negative aspects of Cardano:
Cardano is still in the developing phase:
Although Cardano is known as the ‘academic blockchain’ with essential review and testing, the crypto is undeniably still in its developing phase. This is the primary reason why Cardano has been losing its position against Ethereum and other cryptos as it’s still dealing with incomplete smart contract, token standards and is still working on its scalability aspect.
All the while cryptos like Ripple can process 1,000 transactions per second, Cardano can only facilitate 257 transactions per second. Moreover, in mid-2020, Cardano went through a lot of work to decentralize when they released their Shelley upgrade, but unfortunately, decentralization is still an issue. But perhaps the most worrying of them all is that Cardano does not have smart contract and dApp capabilities yet. This is a significant concern because they are the primary features essential for the crypto’s prospects.
Concerns that Cardano’s value is highly speculative:
The fear that most of Cardano’s value is based on hype has been widely circulating. Claiming that they are the best in research papers but not delivering much in the way of evidence. Unfortunately, investing in Cardano is indeed, at this point, largely speculative until they deliver.
Cardano’s plan to implement a voting system:
Although having an open voting system where upgrades can be proposed & democratically decided is an appealing factor, however, it seems to be a double-edged sword simply because token holders are not always tech-savvy and may vote for an unreasonable decision. Ethereum’s PoS researcher Vlad Zamfir argues that on-chain voting is dangerous. He notes that the system forces rule changes on full nodes. This strategy removes an important check and balance provided by informed node operators.
Charles Hoskinson’s unpredictable behavior:
Due to his erratic behavior, Charles Hoskinson has induced mixed perceptions about himself in the eyes of the public. Some perceive him to be self-centered and indecisive due to his experience of backtracking his comments. Such an image has adverse impacts on the currency.
Conclusion: So, is Cardano a Good Investment?
Considering the Pros & Cons above, despite all the criticism and negative aspects surrounding Cardano, it can be said that Cardano is still a good investment, further considering its current ranking of number 5 by market capitalization.
Since the total number of tokens is limited, the risk of inflation is also limited as the demand for the coin continues to grow. There are also many technical advantages, such as Cardano’s proposed decentralized nature and layered architecture, making Cardano a good investment.