If you’re familiar with crypto, it’s likely you know the name Vitalik Buterin.
In 2015, Buterin and a team of co-founders launched a little project called Ethereum. Now known as the second largest cryptocurrency with incredible potential, Ethereum had a few other important founding members. One of these members was Charles Hoskinson.
Just a couple short years later, Hoskinson found himself at the center of a brand new project launching - Cardano, named for the Italian mathematician Gerolamo Cardano.
What is Cardano?
To make things simple, let’s give a very basic answer - Cardano is just a proof of stake cryptocurrency. Cardano is a proof-of-stake blockchain created by Charles Hoskinson to solve the scalability and sustainability problems that Ethereum faces. To really explain what that means, and summarize why it’s not just some random altcoin, let’s hear what its founder has to say about it.
What problem does Cardano solve?
Basically, Hoskinson saw that cryptocurrencies would suffer from three main problems. These problems are scalability, interoperability, and sustainability. Let’s go through these issues to understand the intentions behind the project.
Fans of Bitcoin know this problem all too well. Because of Bitcoin’s block size, the network can only confirm around 5-7 transactions a second. This is not even comparable to the Visa behemoth that can do tens of thousands of transactions per second. The block size debate in Bitcoin raged on for years, but at least one question remains for basically any cryptocurrency - how can this project scale?
As Hoskinson has said, we actually want things to speed up as more users use a system, not slow down as many do. If the network is being used, it needs to speed up in order to be consistent for its users. What he meant was that a blockchain’s capability should scale linearly with its usage. Cardano solves this by using what are called “epochs” which basically divide up who validates the blocks in the blockchain.
To be even more precise, they use “slots,” and any of the nodes (computers from people or organizations that are running the blockchain) can be nominated to be a “slot leader.” These terms don’t really need to mean much to you, but they are what allows Cardano’s proof of stake to scale. Cardano calls this system Ouroboros, but it could warrant it’s own video due to it’s complexity.
The important thing here is that slots can be divided up further, which lets the network scale.
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This is a very old technological problem. Let’s think about this using an example of early wireless networking. If you’ve ever set up a wireless network in your house, you know you have to connect your devices with the router so the signal can reach your device.
But what if your Apple iPhone only connected to Apple routers? It wouldn’t be very useful if everybody had to get all the same hardware for everything from the ground up all from the same brand, and in fact would probably be considered a monopoly by the US government.
So how does Cardano make sure that crypto doesn’t suffer from this problem? It allows for people to easily bridge Cardano and other cryptocurrencies that use other blockchains by using something called the KMZ sidechains protocol. This is basically the crypto version of being able to very easily change US dollars to Canadian dollars, Euros, or some other currency. Unlike other cryptocurrencies, Cardano knows it won’t be the only cryptocurrency and proactively works on an interoperability solution using bridges. If you want to learn about the technicals of how a blockchain bridge works, check out our video on it!
If Cardano, or any other cryptocurrency, is going to host much of our financial lives, obviously we would need a way to guarantee that the system stays functioning. So when we say sustainable, we don’t necessarily mean environmentally sustainable.
Although many say that Cardano, because it uses proof of stake instead of proof of work, is more environmentally sustainable, there is a huge debate about environmentalism in the crypto world. (Nic Carter has great insight on this subject.)
Regardless, what we are talking about is the network’s ability to keep the lights on, continue to make improvements, and have a healthy development community. Cardano solves this by establishing a “treasury” which collects fees and pays them to those who make contributions to the network. In short, Cardano is a self-sustainable cryptocurrency that has intentions of improving in the future, and is developed with that in mind.
Let’s Do the Math
You’ll notice that Cardano seems to be designed with one thing in mind - solving problems very rationally and logically. This is a project created and run by a man who used to be a mathematician. This shows up in several ways, namely the fact that it is named after an Italian mathematician.
The token which actually carries value and is used on the network (like ETH on Ethereum or dollars on the banking/Visa system) is called ADA. Cardano is the blockchain, and ADA is coin. This is not the Americans with Disabilities Act, but comes from the name of the woman now considered to be the first ever computer programmer - Ada Lovelace.
Beyond naming conventions, Charles Hoskinson clearly has shown an ambition for tackling big challenges through methodical, reasoned, problem solving. Within the Cardano project, there is tons of research being done, papers being written, and even peer reviews to get third party feedback. Some may say Charles even has a cultlike following and often does livestream ‘update logs’ to update his audience.
But despite Cardano’s unique style and branding, you might just be asking yourself - how exactly is this different from Ethereum?
How is Cardano different from Ethereum?
We’re not going to speculate about individual conflicts or personalities, but the story goes that Hoskinson thought Ethereum should become a for profit entity, whereas Buterin wanted Ethereum to stay as a non-profit.
Both of their wishes ended up coming true in a way - Buterin stayed with Ethereum, and Hoskinson took a sabbatical, shortly followed by a proposition. Fellow co-founder of Ethereum, Jeremy Wood, approached Hoskinson about creating a for-profit entity that would create blockchain projects for companies, governments, and other organizations.
This company became IOHK (Input-Output Hong Kong) an homage to the engineering term and to the place it was incorporated. What does this have to do with Cardano, you ask? IOHK’s main project is what we now know as Cardano.
Although Ethereum and Cardano are both smart-contract platforms, they are different in several ways.
The first is that Cardano has been a proof of stake blockchain from the beginning. This means that, instead of Bitcoin’s method of doing hard math problems to mine coins (the proof of work method which requires more energy) they validate transactions according to how much people of a token validators stake. So if you own a lot of ADA, you have more power than those who have little ADA. Ethereum started as a proof of work chain, but is migrating to become a proof of stake chain.
Like Bitcoin, Cardano is deflationary. This basically means there is a fixed amount (in the case of ADA, 45 billion total will be minted) as opposed to Ethereum, which mints more ETH every year. From an economic perspective, this would generally mean that, all other things being equal, ADA would increase in value, or appreciate, more than ETH, which could theoretically depreciate simply based on increasing the supply. However, that is as close to price speculation as we will get today. With the future in mind though, let’s look at where Cardano is being used in the real world and where it might be useful in the future.
Where is Cardano going?
Despite the ICO (initial coin offering) craze of 2017 which was known for some very shady scams, Cardano also initially started with an ICO. Where it differs, is from that point on.
Cardano showed it should be taken seriously through its commitment to rigorously researching and testing its solutions. IOHK helped both the University of Edinburgh and the University of Wyoming support their blockchain initiatives, and from there, has launched into several real partnerships.
We can see the breadth and depth of Cardano’s potential when we look to its partnership with the government of Georgia (the country, not the state) to build an ID verification system using both Cardano and IOHK’s enterprise solution, Atala. They followed this in 2021 with an agreement with the government of Ethiopia to use Cardano for ID verification for students.
Commercially, and likely its most impressive partnership is with New Balance. That’s right, IOHK has been hired by New Balance to use its technology to verify the authenticity of its sneakers, similar to how VeChain is used to authenticate supply chains using a blockchain.
As a methodical and precise organization, IOHK has released a “roadmap” for Cardano’s future which includes five eras - foundation, decentralization, smart contracts, scaling, and governance. Each of these eras takes on a new challenge, and adds new products and features to Cardano’s capabilities. It’s safe to say that, regardless of any future utility, Cardano will always have a plan for what they do next.