Cardano is a third-generation decentralized blockchain that works with the proof-of-stake (PoS) mechanism. PoS goal is to make it more efficient in terms of scalability, interoperability, and sustainability. PoS is an improvement of the proof of work (PoW) mechanism that Ethereum and Bitcoin use.
In this review, we analyze the fundamental components of this fast growing cryptocurrency to see if it’s worth considering in your crypto investment portfolio.
Background
Cardano is one of the biggest cryptocurrencies in the crypto space by market cap. Powered by its native cryptocurrency, ADA, operates in two layers. The first layer, Cardano Settlement Layer (CSL) is for exchanging ADA by traders.
It’s primary aim is to power a digital economy with ADA as the primary monetary unit. This is to allow people to send and receive digital currency on a secure and decentralized blockchain. However, it is known to be more than just a cryptocurrency. The second layer is the Cardano Computation Layer (CCL), which is the layer used for smart contracts. Ethereum, on the other hand, has combined both the settlement and computation on the same layer.
Cardano Development
The project was founded by Charles Hoskinson, who was also the co-founder of Ethereum. Hoskinson had experienced the limitations of Ethereum’s PoW mechanism and began to develop its native cryptocurrency, ADA. The development of Cardano began in 2015, but it wouldn’t be launched until 2017.
The team’s developmental approach is based on a peer-review academic system. This system will help pinpoint accurate information, with the least complexity.
Guiding Principles of Cardano’s Design
- It’s not possible to be certain about the future, hence the need to build in wiggle room
- Simplicity wins, even though complexity may look good on paper
- Continuous improvement is necessary, even if the start is bad.
These were the guiding principles for development, which led to their decision to keep the ledger aspect of the blockchain (accounting of value) separate from its computational aspect. The dual-layer setup ensures that the ecosystem remains neat and encourages flexibility in design.
Cardano Smart Contracts
ADA enables smart contracts compatibility, which automatically self-executes when the contract’s conditions are fulfilled. The smart contract was included in the recent major software upgrade in September 2021. The upgrade will allow people to use the blockchain for decentralized exchanges (DEXs), decentralized finance (DeFi), non-fungible tokens (NFTs), and external data (oracles) to power smart contracts applications.
The implementation of smart contracts has been slow, however, its yet to be fully accepted among the larger crypto community. Some pundits believe that smart contract compatibility will determine the value of the project’s future. So far, investment funds are slowly streaming in to help developers make Cardano-based apps.
Partnerships
The ecosystem has attracted some big investors and partners looking for solid bets for the future. One of the most prominent partnerships is with the Ethiopian government. The partnership involves 5 million students using a technology known as Prism, which has been integrated into the blockchain.
Prism will allow every student to be allocated a digital ID (DID), which contains metadata that will travel with them throughout their entire academic and work life. Outside school, DIDs will be used in property management, payments services, voting, and many other economic and social activities.
The scalable project is expected to incorporate the over 107 million Ethiopians in line with the country’s digitization goal by 2025. Cardano expects to extend this project to many other African countries in the future. Furthermore, they also announced other new strategic partnerships during its latest summit in September 2021.
- Veritree- to fight climate change
- Dish- to help the latter provide 8 million digital identities to its customers
- Chainlink Labs- to encourage Chainlink developers to build smart contracts for Cardano DeFi applications.
Cardano vs. Ethereum
Cardano’s PoS system is known to have better scalability, energy efficiency, and faster transaction speed than Ethereum’s PoW. Unlike PoW, PoS does not involve the mining of tokens, but users participate in the block-validation process by staking the native token.
Pros of Cardano
- Environmental-friendly: One of the most environmentally-friendly cryptocurrencies due to its efficient PoS system.
- Scalable: Built to scale, hence ease of improving features.
- Interoperable: Cardano is working to solve the problem of interoperability, which has limited other blockchains such as Ethereum.
- Low gas fees.
- Faster transaction time.
Cons of Cardano
- Cardano’s biggest limitation is that it has few projects that seem to slow down its adoption.
Pros of Ethereum
- Ethereum as the market leader has established a reputation as the most robust with a large number of users.
Cons of Ethereum
- High gas fees
- Slow transaction speed
Where to Buy Cardano
There are many options available if you intend to buy Cardano. It depends on the scale of your purchase. Some platforms are good for long-term investors while others are best for day-traders. Some of the leading exchanges you can purchase Cardano on are Coinbase, eToro, Binance, Crypto.com, and SoFi.
Staking Your Cardano
Staking is one of the best ways to safely use Cardano. If you are already a long-term holder of ADA, Cardano staking is one of the simplest ways to increase your returns overtime.
So, Is Cardano a Good Investment?
Cardano still has a long journey to travel, however, it seems to be a solid cryptocurrency project to invest in if they’re able to execute on their long term plans. Cardano is in a strong position to challenge the dominance of Ethereum, and address some of the most common problems facing the earlier generation blockchains.
If you’re looking for an up-and-coming token, Cardano should be a top prospect to keep on your radar. However, just like any other cryptocurrency, Cardano is volatile, and it’s only advisable that you do your research well before you invest. As always, only invest what you can afford to lose.
