There are countless of cryptocurrencies that you can buy but recently, we've seen something called Cardano getting a lot of traction, but why is Cardano is so popular?
Cardano is a new cryptocurrency platform that was launched in September 2017. After more than two years of development. It's rather different than other cryptocurrency projects because it is built around peer reviewed papers. So, instead of writing a white paper and implementing it straight to code, the Cardano team actually makes sure that experts from around the world read their papers, improve them and agree with the outcome.
Cardno claims to be the third generation of cryptocurrencies. The first generation was Bitcoin which is used to transfer and store virtual money but it's plagued with scalability issues. The second generation started with Ethereum and brought smart contracts. It improved scalability somewhat but not enough to become a global currency. The third generation, however, wants to take the previous two generations and improve upon them. Right now, Cardano and IOTA are both considered to be third generation blockchains. Cardno wants to solve three big points of the current generation:
- Scalability
- Interoperability
- Sustainability
Scalability
Scalability which itself consists out of three problems that have to be solved, i.e. transactions per second, bandwidth and data storage.
As the most obvious one for a cryptocurrency to become a global payment system, you need to be able to handle a lot of transactions per second. Cardano solves this by adopting proof of stake instead of proof of work.
You probably know that Bitcoin uses the proof-of-work algorithm and lets everyone mine new blocks. This process is slow and not only wastes a lot of computing power, it also wastes huge amounts of electricity.
Cardano is much more efficient. It doesn't let everyone mine new blocks, instead the network elects a few nodes to mine the next blocks.
The only scalability limitation is network bandwidth. Imagine what happens if there are thousands of transactions per second. The nodes would need a lot of bandwidth to continuously download them all and that is not very scalable. Instead, Cardona wants to split up the network into sub networks by using a technique called rina. Each node will be part of a specific sub network and can communicate with other networks, if needed much like the tcp/ip protocol for the Internet. The final aspect of scalability is data storage blockchain. Store all transactions that have ever happened but how do we handle this ever-growing set of data. The Carano team is thinking about implementing techniques like pruning compression and partitioning. However, they don't consider this a top priority at the moment because storage space right now is still fairly cheap. They'll tackle this problem later in 2018 or beginning 2019.
Interoperability
This again consists out of two problems, first of all there are many crypto currencies out there but they don't really work together. Secondly, banks and governments shy away from cryptocurrencies.
The Cardano team assumes that in the future we won't have one point to rule them all instead multiple different currencies will exist side-by-side, each with its own protocol and rules. Right now, these don't talk to each other. For example, you can not transform your Bitcoin into ether without an intermediate. The Cardano project aims to
be the internet of blockchains or in other words a blockchain that can understand what happens in other block chains. This would mean seamlessly moving assets across multiple chains.
Sustainability
Right now, there are a lot of people who want to build a company around crypto currencies to raise money for their company. They launched an ICO---- initial coin offering. After an ICO---- the team ends up with a lot of capital that they can use to fully start their company. But what happens if after a couple of years this money runs out.
How will they make sure that the development of their technology continues? Should they create a new coin and hold another ICO---- just to get some cash this is still an unanswered question but it's clear that raising money just once isn't very sustainable and doesn't promote continuous improvement. Cardano intends to solve this problem by creating a Treasury. The idea is that the Treasury will receive a small percentage of every transaction that happens on the network. The Treasury itself is a special wallet that isn't controlled by anyone. Instead it's a sort of smart contract that can release a part of the funds to developers. The developers have to submit a proposal to the community saying what they want to change and how much money they need for it. The community can then vote on the ideas that they think is the most important after a certain amount of time. The Treasury takes the most popular proposals and gives them enough money so they can develop their improvements over time. The Treasury model will keep Cardano sustainable by providing a continuous stream of money that can be used to continue to do research and to improve the system.
So far, we talked about all the things that the Cardona project wants to achieve. And as you can see it's quite ambitious and maybe a little bit risky. They are trying to tackle many challenging problems. The Cardano project is very young and has still a long way to go but their way of working is very different from other cryptocurrencies. So, Cardano might be the project that finally solves some long-standing and fundamental issues in other cryptocurrencies.
Let me know your thoughts about Cardano in the comments below.
