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.
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.
“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).