Here’s your ADA 101 course, and how it’s different from Bitcoin & Ethereum.
Hi there, it’s me again. I usually write about living a simple life doing meaningful work. But I’m kind of a geek too, so every once in a while I’ll write about personal finance and (even more exciting for nerds) cryptocurrency.
It’s common knowledge at this point in 2021 that cryptocurrency has become mainstream. If you’re still confused, start here.
As you get more and more sucked into the cryptoverse like Neo and the Matrix, you may have started noticing the vast expanse of various digital coins and blockchain projects, all trying to solve different problems, which is great (except for Dogecoin, which was created as a joke lol).
Most laypeople stumble upon Bitcoin, then hear about Ethereum, which are the #1 and #2 cryptocurrencies by market cap and have been around the longest and have the most track record. After that, they get dumped into the vast sea of other crypto projects referred to as a whole as ‘altcoins’ (just keep scrolling down on the market cap link above and you’ll see what I mean).
One ‘altcoin’ out of the bunch however should catch your eye. Maybe you’ve heard it mentioned before by more level-headed researchers and experts (i.e. not the mass media), and that’s why you clicked on this article. That cryptocurrency in question is Cardano, or ADA. I’m going to tell you what the heck Cardano is, how it differs from Bitcoin and Ethereum, why it’s interesting and how it’s being applied in the real world. Let’s jump in.
Cardano, at the time of me writing this article, is now the 4th largest cryptocurrency by market cap, worth around $55 billion.
It was created in 2017 by Charles Hoskinson. This guy was actually the co-founder of Ethereum along with Vitalik Buterin, but left in 2014 after a dispute over accepting venture capital funds for the project.
Technically, ‘Cardano’ is actually the blockchain platform and ‘ADA’ is the cryptocurrency that fuels that platform, just as ‘Ethereum’ refers to the blockchain platform and ‘Ether’ is the cryptocurrency that fuels it.
Time out… what’s a blockchain platform again?
“Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.”
Okay, we’re back.
Just like everything in life and in tech, things are evolving.
Bitcoin.
Bitcoin is now referred to as “crypto 1.0”. It’s the real O.G., the genesis. And it’s pretty simple compared to other projects. It only acts as a store of value. Transactions can be completed on its blockchain platform, but it’s rather slow and clunky.
The innovation with Bitcoin is that it was the world’s first decentralized currency, meaning that there is no need for a third party such as a bank, transactions are transparent and are validated on the blockchain network.
The main draw for Bitcoin is that it’s now a store of value, like gold. So, Bitcoin is like digital gold. It is valuable and worth holding on to.
Ethereum.
Ethereum is referred to as “crypto 2.0”. The Ethereum blockchain platform took things a step further and introduced ‘smart contracts’.
Remember, a contract is an If > then statement. “If I order this item off eBay, then I will receive said item, and eBay facilitates the transaction for a fee” (third party, centralized). There are a series of intermediary steps as well, for example, eBay will have to go through a payment processor to facilitate the transaction.
On the Ethereum blockchain network, programmers are creating apps (or dApps, decentralized apps) to automate real-world contracts. The idea here is to make the eBay process example (and any digital transaction system) way more automated, efficient, and cheaper for both parties.
Ether is the currency used to make
these transactions possible.
Cardano.
Now, Cardano is being referred to as “crypto 3.0”, which takes things another step further by being built on a “proof-of-stake” concept, positioning itself as the “Internet of Blockchains”, and just generally having a faster and more efficient network which addresses the scalability, speed, and energy consumption problems popping up with Bitcoin and Ethereum. Let’s break it down.
Cardano is built on a Proof-of-Stake model. From Investopedia:
“The Proof-of-Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins they hold. This means that the more coins owned by a miner, the more mining power they have.”
This is different from Bitcoin and Ethereum, which both use a Proof-of-Work model. This means that their “miners”, or people who help solve transactions and validate transactions on these networks, are rewarded in BTC and ETH.
Here’s an example. Say you work on a car manufacturing line. All you would really care about is clocking in and clocking out, and doing your work so that you get paid. That’s the essence of proof-of-work.
On the other hand, let’s say now that you love video games, and you happen to be a Director at Electronic Arts, and they offer you an equity package. All of a sudden, you have a vested interest in the company and you really care about how EA performs from quarter to quarter. You have a stake in the success of EA, you’re now a “stakeholder”.
Proof-of-stake means that the more Cardano you hold, the more chance you’ll have of mining even more Cardano… and you have more of a ‘stake’ in what’s going on in the Cardano world.
Proof-of-stake in that sense is more virtuous than proof-of-work, in the sense that it causes people to more easily come together for the common good of the project.
Cardano also has a faster network. Keep in mind, it benefited from the crypto boom in that it was created after Bitcoin and Ethereum had blown up with more adoption.
Bitcoin and Ethereum’s blockchain networks can only work so fast, while transaction volume keeps on increasing. Take a look at this visualization of Bitcoin and Ethereum blockchain transactions. Each person represents an individual transaction. When the bus leaves, the fees are paid and the transactions are validated on the network. It’s starting to look pretty bloated.
In the case of Ethereum, the network has “gas fees”. Gas fees are payments made by users to compensate for the computing energy required to validate and process transactions on the Ethereum blockchain.
The Cardano network has much faster transaction speeds and has the potential to process up to a million transactions per second.
- BTC speed: 4–4.5 transactions / second
- ETH speed: 20 transactions / second
- ADA speed: Up to 1,000,000 transactions / second (though currently capped at 6.5 transactions per second based on demand)
Finally, Cardano is positioning itself to be the “Internet of Blockchains”. This means that it is tackling the project of connecting all cryptocurrencies together, facilitating the task of moving assets from one cryptocurrency to another.
Cardano is then essentially taking a wider view of the cryptocurrency market as a whole, and counting its holistic success, rather than just focusing its own network trying to outperform other cryptocurrency networks.
This is a more inclusive approach that is supportive of the whole market, rather than having a “winner-take-all” mindset.
Earlier this year, the Cardano team announced that Cardano’s blockchain technology will be used to revamp Ethiopia’s education system.
The team is building a system that “identifies students and teachers, performs digital grade verification, and allows for remote-monitoring of a school’s performance”.
According to this article:
“One benefit is that the system will create a tamper-proof system for recording information related to five million students across 3,500 schools. Ethiopia’s education minister Getahun Mekuria believes blockchain technology can widen access to higher education and employment in the East African nation.”
That’s just the tip of the iceberg. There are many exciting use case possibilities in the future that the Cardano blockchain will be able to assist with:
- Education: Credential verfication
- Retail: Product counterfeiting (leveraging the blockchain to ensure every product sold is certified original)
- Agriculture: Supply chain tracking
- Government: Digital identity
- Finance: Onboarding (accelerating administrative processes)
- Healthcare: Counterfeit medicine (authenticate and verify the origin and supply chain of pharmaceutical products)
If you’d like to dive deeper into this, check this out.
The cryptocurrency market has just exploded. It can be hard to keep track of everything, and which projects seem to offer the most impact. The Cardano network is exciting to me because I see it as the natural evolution of Bitcoin and Ethereum, and I’m excited to see the progression of its real-world applications.
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Source: https://medium.com/geekculture/what-the-heck-is-cardano-3bfd3be019d1?source=rss——-8—————–cryptocurrency
