Cardano

Cardano is one of the latest entrants on the cybercurrency scene, being first rolled out on September 29, 2017, but has made quite a splash since.

It’s not even so much the fact that Cardano has rocketed to the top so quickly, reaching the top 6 in the world in just 4 months, it’s the sheer potential of Cardano that really sets it apart from the hundreds of other digital currencies that are out there in the market these days.

Ethereum, another cybercurrency that has grabbed a lot of attention these days, has also distinguished itself with its potential beyond just being a digital currency, given that Ethereum is much more than that, and it is essentially a software platform that just happens to also be a currency.

Ethereum’s main function is actually for it to be used for what are called smart contracts, where the web, the blockchain, can be used to not only verify payments but to also verify just about everything else, including agreements between parties.

Where Ethereum may be considered by some to be Bitcoin 2.0, taking the concept of blockchaining to the next level, Cardano may end up becoming Ethereum 2.0, looking to take what Ethereum does and take that to the next level.

Cardano is led by Charles Hopkinson, who just happens to be a co-founder of Ethereum as well. After seeing Ethereum blossom into the world’s second most popular cybercurrency by market capitalization, in addition to all the excitement it has created surrounding its potential, the goal is now to strive for even higher heights with Cardano.

Like Ethereum is the platform and Ether is the digital currency it uses, Cardano itself is the software platform and the currency it uses is called Ada. This may serve to confuse some people but the idea is to distinguish the technology from the currency, because Cardano is much more than just what it uses to exchange value among users.

Cardano as a Means of Exchanging Value

There are three ways to measure the usefulness of a cybercurrency, its use as a currency, its usefulness apart from that, and its value as an investment, and how well a cybercurrency performs in these categories determines its overall value. All cybercurrencies function as means of trade for instance, and this has presented a big challenge to digital currencies.

CardanoIn order for a digital currency to be useful in the market, it must be scalable. Bitcoin for instance has struggled mightily with this issue, where the system can only process so many transactions efficiently and this number may be pretty low.

Bitcoin exceeded its reasonable capacity long ago and as it has tried to grow, processing times have grown with it, where now it can take up to 2 hours to process a transaction. This is a ridiculously long period of time compared to traditional payment methods which process in just a few seconds.

Ethereum has sought to address this by being able to process transactions faster, although one must still wait several minutes. If Ethereum ever did become a widespread payment method, the load on the system would be much higher than it is currently and the bottlenecks that would ensue would no doubt overwhelm it.

Given the very small percentage of transactions that go through blockchains with digital currency, and the problems we’ve seen, if cybercurrencies are ever to achieve the level of prominence that some envision, traditional blockchaining will simply not be practical.

Cardano does at least seek to go beyond this, and while there is a trade-off between confirming transactions completely by the blockchain for the sake of security and the speed needed to make this practical, digital currencies are now moving toward a modified version of this, looking to balance verification and speed.

We’ve already seen Ripple achieve the goal of scalability, meaning that it can adapt to increased demand, and Ripple was the first digital payment method to raise the bar all the way to being able to compete with the world’s best payment systems, such as Visa, as far as processing time goes.

Cardano is also seeking to at least narrow the gap with its scalability, in a way that neither Bitcoin nor Ethereum has done. Although the results with Cardano have not been as consistent as we’d like to see, with some transactions taking up to a whole day to process, overall, Cardano’s performance has been superior to Ethereum and much superior to Bitcoin.

Having to wait a minute or two isn’t really that bad for online transactions, although to be useful in a face to face setting you do need the no more than a few seconds to be achieved, and longer will produce queues that are too long, lineups in stores for instance.

Given the growth of the online retail market, it may be enough that a cybercurrency is efficient enough for this purpose, where customers aren’t too put out by waiting a couple of minutes. Hours or the next day wouldn’t be seen as widely acceptable though, and Cardano has at least made itself pretty functional in the online realm under the current load at least.

Cardano is a rarely used digital currency though, and if it ever catches on even to the extent Bitcoin has already, which isn’t all that meaningful anyway, we may wonder whether the system will be able to perform even acceptably, although Cardano at least has the potential to adapt much better than most of its competitors.

Cardano as a Tool

The real goal of Cardano isn’t to replace the dollar or even Bitcoin, it is to allow blockchain technology using public ledgers to confirm transactions to be used in new and useful ways.

An example of this would be Ethereum’s smart contracts, where the public essentially monitors and confirms the progress and completion of contracts between users. Cardano sees to take this all to a new level, which is an impressive goal given what Ethereum has achieved.

Cardano seeks to take a more scientific approach to all this, not being merely happy with allowing for it to be used just with smart contracts, and seeks to take the idea of proving things in a blockchain to new levels.

The goal of cybercurrency is to decentralize money, and despite the fairly limited practicality of it generally, this goal has been certainly achieved. Transactions are generally confirmed in a central database, which does have its limitations, and for instance is subject to fraud, manipulation, and potential data loss.

If the ledger is spread across many computers, this decentralized the governance and also renders the system more secure.

Cardano seeks to take this idea and expand it out to where this philosophy can be used with a great many things. There is more than security involved here, as disputes of many kinds can emerge in interactions, and Cardano has the means to make everything it handles publicly verifiable.

One of the real benefits of Cardano is that it is the first blockchain technology to be truly scientific, being built on peer reviewed scientific research. This in a way takes the philosophy of verifiability to not only the product of the software but the software itself.

Cardano’s mission isn’t to replace traditional currency, and its use as a currency is merely a secondary function of it, to use the currency as a means of exchanging value between the users of its software.

Among the goals of Cardano is to look to bring the world of banking to underdeveloped countries who lack the infrastructure to make traditional banking widely available. Cardano would allow banking and other offerings that can be accommodated by the system to be offered efficiently enough to allow for more market participation, especially among those who do not sufficiently trust authorities to manage their money for them.

In some locales this distrust isn’t too far misplaced, and given that Cardano exists on the public ledger, this process eliminates any such concerns. This is all predicated on people having online access, but we’ve seen some big growth with this such that an idea such as this may be possible soon.

The idea of centralized databases may one day soon become somewhat of a relic given the advances we have made in decentralized programs such as Cardano. We’ve got a long way to go here but we’re certainly on our way now.

Cardano as an Investment

The third side of cybercurrencies and related programs is their use as an investment by the public, and given the way that people have taken to them, including with Cardano, this is by far the biggest splash that they have made.

It might even be hard to imagine that what is essentially a start-up company with some good ideas and only being around for 4 months could have a market capitalization over $10 billion, but this has happened with Cardano.

With traditional investments such as stocks, valuation is always going to be somehow linked to either the present or future value of the company. With digital currencies such as Cardano’s Ada, it functions more like gold and silver, where the price is purely a matter of supply and demand, driven to whatever level the present excitement surrounding it wants to drive it to.

Like all cybercurrencies Cardano ended up peaking in late 2017 and early 2018, due to the market experiencing considerable profit taking. After giving back more than two thirds of its advance, things have settled down with Cardano lately, where its price has stabilized more.

Investing in cybercurrencies represent risks that are orders of magnitude higher than any other investment we’ve ever seen, short of Dutch tulips, and while this brings the potential for much higher rewards, these are choppy waters indeed, where prices can change significantly in a matter of mere hours.

In a little over a year, the value of Cardano rose over 60 fold, and this is the kind of return you would not be able to achieve with anything else in a lifetime or probably even several lifetimes. You don’t generally see something both double in value or lose half its value in just a week, and Cardano has experienced both recently, to give you an idea of how extreme its volatility has been.

We are essentially back to around where we started before this huge spike occurred, and although Cardano doesn’t have much of a history of trading, being so new, cybercurrencies do tend to be pretty well correlated with one another and things have really settled down of late after the recent panic has played itself out more.

Whether or not Cardano is a sound long term holding is another matter, and at the very least, those looking to speculate on it need to exercise the appropriate amount of caution, which in this case is a lot of it.

The future of Cardano itself looks pretty bright though, brighter than most, as it looks to take what can be done with public proof of work to new levels.

Andrew Liu

Editor, MarketReview.com

Andrew is passionate about anything related to finance, and provides readers with his keen insights into how the numbers add up and what they mean.