On Oct. 1, 2017, an unusual event caused a collective gasp in the world of cryptocurrencies. A little known cryptocurrency called Cardano — or ADA, as its corresponding coin is called — showed up on crypto-tracking sites with a market cap of about $600 million.
At the time, it was unusual to see a new coin appear out of thin air with such a high market cap. But Cardano is different. It’s an incredibly ambitious product with a strong team and tons of buzz. By year’s end, the market cap of Cardano was more than $10 billion, despite the fact that the project was in a fairly early stage. In January, it briefly soared to more than $33 billion before receding back to roughly $10 billion as the overall cryptocurrency market shrunk. It is currently the sixth largest cryptocurrency by market cap, behind Bitcoin, Ethereum, Ripple, Bitcoin Cash, and Litecoin.
So what makes the cryptocurrency scene so bullish about Cardano?
Cardano claims it will solve most of the issues that plague well-established cryptocurrencies such as Bitcoin and Ethereum. Bitcoin isn’t flexible enough, and transactions on its network are currently slow and expensive due to protocol limitations and overwhelming demand. Ethereum is far more flexible, but — as prominent Ethereum developer Vlad Zamfir recently put it — it’s not safe or scalable yet.
But Cardano, at least so it claims, has very secure code, peer-reviewed by experts and scientists. It claims to be fast and scalable, thanks to its Ouroboros proof-of-stake technology. It’s written in Haskell, a programming language that’s typically used in critical systems in the banking and defense industries. It provides interoperability between existing cryptocurrencies. And finally, it offers long-term sustainability, by using a sort of cryptocoin treasury that can fund projects long-term.
Cardano has a very strong developer team. Its leader is Charles Hoskinson, who studied Analytic Number Theory at the Metropolitan State University of Denver and University of Colorado at Boulder before dropping out to co-found Ethereum, among other projects. He now travels around the world to speak and educate on crypto and promote Cardano; as he moved between time zones, it took me two weeks to align with him and do a phone interview.
“We didn’t actually do any marketing,” Hoskinson says of the cryptocurrency’s early days. “When Cardano started trading on Bittrex, it was the first time the rest of the world has actually seen it; the first time they kinda saw the vision, which was this idea of a third generation cryptocurrency, and all this things that we’ve set up, the research team that we set up, this enormous team we’ve put together. They saw the code, they saw all the progress, and they said holy moly, we missed this.”
A cryptocurrency built from scratch
Hoskinson refers to Bitcoin and Ethereum as the first- and second-generation cryptocurrencies. They were the first of their kind, and it was impossible for their development teams to prepare for all potential problems in advance. Cardano has the benefit of knowing their history.
“Every component of our system has been built from scratch,” Hoskinson says. And since all of it has been peer-reviewed by experts and scientists, he claims, it should be more reliable and secure than the code of most other cryptocurrencies. This is important. Parity, a popular wallet for Ethereum, suffered a hack in which unknown actors made away with $32 million, as well as a bug that froze more than $150 million in digital assets, due to errors in its code.
Hoskinson isn’t just making claims out of thin air. Cryptomiso, a site that ranks cryptocurrencies according to Github commits — changes in a project’s code — currently ranks Cardano as the second most active project. And this code has seen actual usage: Cardano’s Oroborous proof-of-stake algorithm is live, and its Daedalus wallet is live.
“You pay a higher upfront fee to do things properly, once you’ve done that, what happens is you get acceleration, and you don’t have to backtrack, because you’ve done it right the first time.”
But Cardano consists of two layers: A settlement layer, which is similar to Bitcoin, and essentially only takes care of who has sent how much ADA to whom. The other is the control layer, which is similar to Ethereum and enables applications to run on the platform. That part of the project is still undergoing testing.
While reading up on Cardano, I’ve kept finding similar conclusions: It’s very promising, but it’s unclear whether it’s moving fast enough, due to all the academic rigor involved in its development.
“We’re starting very far behind everybody. (…) A lot of the work that we did in 2016 and all throughout 2017 and we’re still doing now is about building up to a point where we catch up completely with all of our competitors,” Hoskinson says. “The difference between us and a lot of our competitors, is that every time we get involved in something, we write a paper. And the people reviewing these things are cryptographers, experts from universities such as Cornell.”
Better than Bitcoin, better than Ethereum?
“But the good news is that the way we’ve chosen to approach this (…) we’re moving much faster on all cylinders. For example, Ethereum has been working on Casper, its proof-of-stake algorithm, for about three years, off and on. We’ve only been working on our PoS algorithm, Oroborous, for a year and a half. And despite the fact that we’ve followed a far more formal process (…) we’ve made significantly more progress than Ethereum can, to the extent that we have a network running with proof-of-stake at the moment.”
Hoskinson has a deep history with Ethereum. He’s a co-founder and has been the project’s CEO from Dec. 2013 to May 2014. IOHK, the engineering company co-founded in 2015 by Hoskinson and Jeremy Wood, is best-known for building the main components of Cardano, but it also worked on Ethereum Classic, a fork of Ethereum.
However, throughout our chat, Hoskinson appears to be agnostic about his competitors. In the end, he claims, Cardano will be better than every other project out there, because it allows for interoperability between different projects.
“If you’re a smart contract developer, you could be developing for Ethereum today, and when our layer’s ready, you can deploy your Ethereum smart contract on our system, and they’re gonna run more securely, they’re gonna run faster, and they’re gonna run cheaper, than it does on Ethereum.”
Hoskinson says the next version of Ouroborous, Shelley, will be done by Q2 of 2018 and Cardano’s smart contract layer should be connected to it roughly in September of 2018. Once that happens, he claims, “pound for pound, we’re better than Bitcoin, we’re better than Ethereum.”
Solving the big cryptocurrency problems
These days, two arcane terms dominate the discussion on how cryptocurrencies need to move forward: Proof-of-stake and sharding. These are incredibly hard tech problems that nearly every major cryptocurrency team is working on in some form of another. Proof-of-stake makes the energy-intensive cryptocurrency mining largely obsolete as transactions on the network are validated by owners of the coins — i.e. entities that have a stake in the network. Sharding is a term that comes from database tech; in the context of blockchain technology, it splits the chain into smaller parts (shards) that makes the network faster.
Cardano’s team says it has the proof-of-stake part solved, but here’s the problem: The debate on which PoS approach is the best isn’t quite settled.
In a fascinating Twitter exchange from Aug. 2017, Vlad Zamfir, who’s building (alongside Vitalik Buterin) the proof-of-stake protocol for Ethereum, criticizes Cardano’s approach in a series of tweets (click on the tweet below to see the entire discussion).
I can tell you everything I don’t like about Ouroboros in exchange for the sauce 😉
— Vlad Zamfir (@VladZamfir) August 1, 2017
Hoskinson jabs at Zamfir about Ethereum code not being peer reviewed. To this, Zamfir replies that “it takes longer to come up with significant contributions.”
“You guys had a year on us and we still beat you to publication and implementation,” Hoskinson retorts. The back and forth continues and phrases like “semi-synchronous model” are thrown around. Unless you’re an expert in this space, don’t bother trying to figure out who won this Twitter fight.
The worth of ADA
This is a common problem when evaluating cryptocurrencies: It’s complex stuff, and even if you ask the top experts, you’ll likely get a bunch of different answers. Cardano is certainly promising but only time will tell whether it can deliver on its promises. However, what most investors want to know is how to determine a fair price for ADA right now.
Hoskinson doesn’t really care much about daily market price fluctuations. In fact, on his Twitter he’s very critical of people who seem to only care about ADA’s current market price.
If you see me trying to boost the price of Ada, then I’ve been compromised and sell all your Ada. Cardano will be valuable based upon hard work, real world use and the utility of the platform. I’m not here to make day traders rich. I’m here to change the world
— Charles Hoskinson (@IOHK_Charles) February 1, 2018
I asked him about the benefit of owning ADA tokens now, and he pointed me into the far future in which, he thinks, ADA will be the underlying financial system of the world. “We have a vision that one day we can build a system that can have 3 billion users.”
In other words, if you truly believe in the project, it doesn’t really matter what the price is right now. “If you believe in our vision, then you know there will be a very strong demand (for ADA). Which, by basic economics, means that ADA ought to appreciate,” he says.
Who’s running things around here?
As tough as it is for a layman to figure out whether Cardano is better than its competitors and how, it’s nearly equally as challenging figuring out who’s actually running the project. On the official Cardano website, three entities are mentioned: The Cardano Foundation, IOHK, and Emurgo.
“Bitcoin is anarchy,” Hoskinson tells me. “And Ethereum is the ultimate kingdom, with one guy at the top; he gets to decide where Ethereum goes.”
Just like how its underlying technology is split into layers, Cardano has split governance into layers as well. “What we decided is that we need to federate power, so that not one entity gets to be the king,” Hoskinson says. “And you can’t have chaos, because nothing would get done.”
“Bitcoin is anarchy, and Ethereum is the ultimate kingdom.”
So the power in the Cardano kingdom was divided thusly: IOHK, which is headed by Hoskinson, takes care of development. The Cardano Foundation promotes the project to the world and acts as a sort of a middleman between the other entities, and Emurgo takes care of the business side of things. Note that Emurgo is based in Japan, which could be very important in the future given Japan’s lax attitude towards cryptocurrencies.
This structure ensures that there are no conflicts of interest, Hoskinson claims. He names the DAO hack as the example. In June 2016, hackers exploited a vulnerability in the code of the Ethereum-based decentralized VC fund DAO, stealing roughly 3.6 million ether. To repair the damage, Ethereum’s management created a hard fork in the software which undid the theft but also ended up splitting Ethereum into two separate cryptocoins: Ethereum and Ethereum Classic (which Hoskinson was involved in, through IOHK, at one point).
“Vitalik was sitting on the (Ethereum) Foundation board (…) and he’s also the curator for the DAO. So when the DAO had a problem, guess what: he has legal risk, regulatory risk. (…) That scenario cannot happen with us,” he says.
Done it right the first time
On paper, it seems that Cardano has thought everything through. Sometimes, though, you have to jump first and think second, which is what Cardano’s competitors have done.
Despite Cardano’s potential technical and other advantages over both Bitcoin and Ethereum, the fact remains that Bitcoin is extremely well known outside cryptocurrency circles and has the first-mover advantage, while Ethereum has thousands of decentralized apps already running on it, with dozens of ICOs (initial coin offerings) lined up in the near future. Cardano has yet to build the tools for the developers to build such projects. And recruiting developers to a new platform can be a tough task; just ask Microsoft who’d tried, and failed, to bring developers over from iOS and Android to Windows Phone.
Despite his bold predictions for the future, Hoskinson’s well aware that Cardano has a lot of catching up to do. In the end, he says, it shouldn’t matter.
“You pay a higher upfront fee to do things properly. Once you’ve done that, what happens is you get acceleration, and you don’t have to backtrack, because you’ve done it right the first time.”
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH. The author of this text does not own, or has recently owned, ADA.