When analyzing any coin in the crypto ecosystem, it’s always important to first get a better understanding of the coin’s backstory and inception. So, before we can go into any detail about Cardano, its token currency ($ADA), purpose or anything, we will provide a brief overview of the founder’s background and his specific affiliation with cryptocurrency.
Currently, Charles Hoskinson is considered to be one of the foremost experts in the cryptocurrency field.
While there are different viewpoints on Hoskinson as a human being and his ethical standard of conduct (we’ll get into that later), few will dispute the fact that he’s legitimate regarding his innovative ideas within the realm of blockchain technology.
Plus, his contributions to some pretty hefty cryptocurrency projects that are still in existence today.
Below, is a short biographical synopsis of Charles that you can find online with ease:
The world came to become familiar with Hoskinson through his involvement with the Ethereum project. If you remember back in time, he teamed up with Vitalik Buterin to start that Ethereum project circa 2013/2014.
Long story short, time went by and Buterin and Hoskinson got into a tiff over whether Ethereum should be some non-profit, open source software like Bitcoin or if it should be monetized. In this debate, Hoskinson was on the side of those that wished to monetize the Ethereum project directly like a business.
Eventually, after some period of bickering and back-and-forths, Hoskinson decided to simply abandon the project altogether, then go after other pursuits. As such, he officially departed from the Ethereum project in 2014.
As you can probably guess, this wasn’t really an amicable parting of ways, and the former CEO more or less vowed to create a rival crypto capable of ‘dethroning’ Ethereum one day.
Soon afterward, Charles Hoskinson started something called the IOHK with a guy named Jeremy Wood:
What Is IOHK?
So, that brings us over to Cardano ($ADA), and it also shows that Hoskinson is closely linked with the Ethereum Classic ($ETC) project as well. Also, to clarify, $ADA is currently ranked seventh among all coins in terms of market cap and sits at $7.6 billion.
So, you can see that $ADA lost a considerable amount of value since the above-posted article was published. What’s crazy is that the original date on that article is February 7, 2018. So, they’ve definitely been getting their asses kicked in the past few weeks.
Ethereum Classic is currently fifteenth with a market cap of $3.13 billion at the time of writing.
So now that we’ve gotten the backstory out of the way, we can begin to focus on which Cardano is purposed.
So, essentially, Cardano is another blockchain that can be used as a method of payments and is also being designed to allow smart contract-based projects and activities to be built on top of the primary ‘settlement’ layer for $ADA.
In order to facilitate this, they will build extra layers, as mentioned above. Thus, they won’t need ‘gas’ to power the transactions in the same way that one would need with Ethereum.
We won’t debate the merits of whether this should be considered an inherent ‘advantage’ or not, but it’s definitely a difference worth noting. This distinction is also present in the Ethereum Classic protocol – no doubt signaling that it’s a manifestation of the IOHK ideology of how such cryptocurrencies should be operated.
As you can see, the principle behind Cardano is fairly similar to what you see from Ethereum. Check out this quote from the picture posted above:
“After the settlement layer that will run ADA is complete, a separate computing layer will be built to handle smart contracts, the digital legal agreements that will underpin future commerce and business. Cardano will also run decentralized applications, or dapps, services not controlled by any single party but instead operate on a blockchain.”
One of the most unique things about Cardano ($ADA) is its consensus algorithm.
Quick Review: What is Consensus?
Consensus, in the context of blockchain technology, refers to the process by which all nodes come to an agreement. A consensus method in the context that we’re discussing refers to how all the nodes on a network come to a consensus on who has the privilege to produce the next block for the blockchain. For example, Bitcoin possesses a ‘Proof of Work’ consensus, so the miner that does the necessary calculations and figures out the ‘answer’ before all other miners becomes the ‘winner’.
…back to the consensus method discussion for $ADA
The $ADA blockchain uses a consensus method called the ‘Ouroboros Praos.’ If you’ve never heard of this before or don’t know how to pronounce it, don’t worry – it’s a very new concept, and no one else had heard of it before $ADA introduced it to the world.
Here’s a description of the consensus method below, as quoted from the IOHK website.
To those wondering what this is saying, allow us to break this down for a moment.
That quote extracted above points out that they’ve created a consensus algorithm where, as long as over half of the all the nodes (>50 percent) in the network are not corrupted by a dishonest party (someone trying to “hack” the blockchain/double spend/attack the network etc.), then the network will remain safe under this consensus method.
There’s nothing revolutionary in that concept itself, so that’s not anything you need to pay attention to. In fact, in another consensus method, the Byzantine Fault Tolerant consensus method that $NEO implements, requires more than 66 percent of the potential actors in the network need to be corrupted entirely for the dPoS to be rendered ineffective.
There are other potential faults within that consensus method though, so it’s far from perfect, but we won’t get into that at this point because this is an article for $ADA. We just wanted to mention that fact so that everyone can have a baseline understanding of the current standard for consensus methods for the blockchain.
So, in terms of Cardano, specifically, the Ouroboros has been described as ‘proof of stake mining.’ Essentially, the actual idea of Ouroboros combines the consensus algorithms of Proof of Stake and Proof of Work.
Here’s a link to learn a bit more on the Ouroboros algorithm.
Primarily, the ‘Ouroboros’ consensus algorithm refers to a type of Proof of Stake. For those that are unfamiliar with Proof of Stake, here’ s a formal definition of the term
This definition above will give you a fundamental understanding of how PoS truly works. There’s a bit of a difference when exploring how this consensus algorithm works for Cardano though.
The most important thing to note though is that stake in the Cardano network is determined by one’s relative stake in relation to all others that are on the network.
For example, if there are ten coins on the network in total and you own four of them, you have a 40 percent stake and would more than likely have the largest ‘stake’ out of all other parties (assuming that no other party owned four or more coins).
However, if there were 100 coins on the network, then those four coins would only represent a four percent stake in the entire network, which isn’t insignificant, but it isn’t substantial either.
According to the Cardano website:
“Nodes with a positive stake are called stakeholders, and only stakeholders may participate in running the protocol. Moreover, to be able to generate new blocks for the blockchain, a stakeholder must be elected as a slot leader. The slot leader can listen to transactions announced by other nodes, make a block of those transactions, sign this block with its secret key and publish it to the network. You can think of a slot leader as a miner in bitcoin, but the above-mentioned consensus, defines who will be able to mine, when and how much.”
Essentially, the setup that Cardano has is very similar to the delegated proof of stake consensus algorithm that you’ll find on other coins such as EOS ($EOS).
Without getting too wrapped up in the flowery speech like the claim that it’s the “fastest, most decentralized, and most flexible consensus model available,” the above should give a pretty good definition of dPoS, making the parallels between this consensus method and the Ouroboros algorithm obvious.
What’s unique about Cardano’s setup is that they reject all of the standard naming conventions of blockchain technology such as ‘blockchain’ and ‘blocks.’
Instead, they divide their blockchain up by ‘epochs,’ which are labeled for a predefined period of time. For example, ten-minute increments could be considered an epoch.
Within these time frames, there are multiple slots. For each slot, there is a ‘slot leader,’ which is the role that we mentioned above when explaining the Ouroboros algorithm.
Below is an illustration straight from the Cardano website outlining how this works graphically:
Take note of the note posted at the bottom outlining that each slot represents a very short time-period of about 20 seconds.
What you see above explains the gist of how the Cardano blockchain is formulated and how transactions are processed. Another critical consideration to take into account for Cardano is the process by which slot leaders are elected:
Thus, as in the other PoS methods, the wealth that one possesses on a given network correlates to their likelihood of being able to contribute to the formation of subsequent blocks. The thinking behind this type of system is that those that own the most coins would have the least incentive to undermine the integrity of the blockchain because they would have the most to lose.
However, what many PoS algorithms (not all) fail to realize is that a bad actor could obtain a substantial amount of the token/cryptocurrency in question for a short period of time specifically to undermine the chain before dumping his/her stake.
Thus, it would be more logical if PoS consensus algorithms accounted for the amount of time that one has been staking their coins on the chain if they wish to truly enforce this principle.
As noted on the website, the slotholders are selected ‘randomly’ using an MPC (multi-party computation) algorithm.
The choices of the electors go through a ‘commitment,’ ‘reveal’ and ‘recovery’ phase, as described below by the Cardano team:
From this point, the values from each one of the ‘electors’ on the chain are condensed into a value that’s called a ‘seed.’ This seed is then inputted into the ‘FTS’ (Follow the Satoshi) algorithm, as alluded to in the last sentence of the paragraph posted above.
Once this occurs, a random coin is selected on the blockchain. Based on who the owner of that coin is, they will be deemed the slot leader for a particular slot in the next epoch. If that node is not available, then the algorithm will seek another candidate using the same method.
Thus, in many ways, this resembles a ‘lottery’ system akin to how the NBA Draft Lottery works (for those that are familiar with the league).
As with most other chains, $ADA notes that their blockchain is susceptible to 51 percent attacks in the event that an attacker owns more than 51 percent of the total coins on offer. An ideal situation would be complete parity among the token holders of $ADA.
Con: No Blockchain Explorer
Personally, this author doesn’t like this aspect of Cardano. In many ways, blockchain explorers are almost mandatory for projects nowadays (with the exception of privacy coins), so that one can see the passage of coins from one wallet to another.
Otherwise, it looks like something fishy can be going on, especially with a coin like Cardano that works via PoS. Transparency would help to ensure investors that there is parity among the coin’s stakeholders. For all we know, Charles Hoskinson owns 75 percent of all of the coins distributed.
Above is the $ADA / BTC chart. As you can see, $ADA has depreciated against BTC by a whopping 70 percent.
The story remains the same for the USD chart as well, below (at the time of writing):
The drop has been steep and noticeable.
What’s the Reason for the Drop in Price?
There are a few reasons why Cardano has dropped so substantially in price:
- Multiple accusations from the crypto community that $ADA is vaporware (bullshit) and has no real utility in their sphere. (This is the main one.)
- Failure to invigorate their investor base with any noteworthy news or updates as of late. There was a roadmap released on March 5, 2018; however, if you look at the prices above, it didn’t appear to have too much of an impact.
- Charles Hoskinson himself.
In regards to the third point, there have been a number of notable criticisms leveled against Hoskinson, some of which are legitimate concerns. See some examples below:
Many have also noted that the ‘Media’ section of his Twitter profile is filled primarily with pictures of him visiting different locations, eating lavish meals, attending raves, and participating in a host of activities that are entirely unrelated to Cardano or cryptocurrency in general.
Others have made the cogent point that Charles is a free, independent thinking adult that has the right to do whatever he chooses.
While this is true, the flaunting of wealth and luxurious experiences appears painfully tone-deaf in the faces of the many investors that have currently lost well over half of their initial investment in Cardano if they bought at any price above $1.
The unprofessional nature of his conduct on his official Twitter account has bothered other individuals as well. For example, denying a reporter the ability to ask questions without first receiving a public apology or doing vlog updates to the Cardano investment pool in pajamas reflects a blatant disregard for common courtesies that one would expect in this sphere from someone in this position.
While this criticism may seem harsh, it doesn’t strike the author as ill-placed. However, the author feels that his apathetic disposition toward the Cardano project and it’s plummeting levels of support are out-of-sync with how he should be reacting to the situation.
What About the Roadmap?
The roadmap that was released by the Cardano team on March 5, 2018, is perhaps even more disappointing than the price action has been over the past few months.
Here’s a link if you wish to view it yourself.
Apart from launching the mainnet in September 2017, there have been no other notable upgrades to the $ADA protocol. There are no approximate dates or estimations for the release of other technology by the team either.
According to their website, it doesn’t look like they’re anywhere near finished any of the upgrades that they have proposed with the highest completion percentage listed on the website being 50 percent.
All in all, the roadmap did little to combat the claims that $ADA is indeed vaporware. In fact, following this release, it’s looking more and more likely that this claim is valid.
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