Cardano: 3rd Generation Crypto, A World Financial Computer
July 20, 2021 by Marvin Bertin ‐ 8 min read
Series 1: Cardano The Only True 3rd Generation Crypto
- Introduction to Crypto, A Misunderstood Technology
- Bitcoin: 1st Generation Crypto, A Revolutionary Currency
- Ethereum: 2nd Generation Crypto, Web 3.0
- Cardano: 3rd Generation Crypto, A World Financial Computer
Since 2017, a new wave of cryptocurrencies has brought as many fundamental changes to Ethereum as Ethereum has brought to Bitcoin. These projects are coined 3rd Generation Cryptocurrencies and are designed specifically to address the shortcomings of their predecessors (i.e. scalability, fees, governance), while building upon the innovations that seek to revolutionize the global financial system.
It is unclear whether Bitcoin and Ethereum will maintain their first mover advantage and leave all other projects in the dust. These market leaders benefit from strong network effects thanks to their large communities and market caps in the hundreds of billions of dollars. On the other hand, newcomers are more nimble and able to adapt faster. They tend to have more novel architectures and superior blockchain designs. However, better tech doesn’t always guarantee success. In the past, the power of network effects has allowed certain tech companies to monopolize entire market divisions and fend off competition. These companies include Amazon and Facebook with their dominance over e-commerce and social networks, respectively.
That being said, the crypto space is still very much in its infancy and has yet to reach global adoption. In comparison, in the 1990s and the early days of the internet, Netscape achieved over 90% market dominance in the web browser space. However, its reign over web browsing did not last, and Netscape eventually lost to Internet Explorer, which in turn lost to Google Chrome.
Bitcoin Dominance of the Crypto Market (2017-2020)
That is to say, third generation cryptos are still very much in the race and have the chops to dethrone any market leaders as the industry matures and adoption grows across the world. Among the newcomers, Cardano stands out from the crowd both from its bespoke and cutting edge blockchain architecture and from its large and active community. In the following section, we will introduce Cardano and describe why we believe Cardano is the only true 3rd generation crypto.
What is Cardano?
Created in 2017 by Charles Hoskinson, a mathematician and blockchain expert, Cardano’s native token ADA, almost unknown a year ago, has risen around 6400% since March 2020 and now ranks between the 3rd and 4th cryptocurrency in the world by market cap. Functionally, Cardano has a lot in common with Bitcoin and Ethereum. It has modeled its transaction algorithm on Bitcoin and improved on Ethereum’s smart-contract paradigm. However, what really sets Cardano apart from others is its philosophy and approach to design and engineering.
Purpose-driven; banking the unbanked - In contrast to most other projects in the space, Cardano has dedicated its efforts towards global financial inclusion with an emphasis on building out infrastructure where it is needed the most. Developed nations, like the U.S., already have functioning and established institutions, such as insurance, payment rails and banking services. However, most people around the world still live in areas with poor or non-existent infrastructure. In fact, 31% of adults worldwide today still don’t have a single bank account. For that reason, Cardano has focused on African nations and is the only large crypto project that has opened offices in the continent.
“Cryptocurrencies have the potential to create a more fair and just system for all of us by allowing profits to trickle down to individual contributors."
Recently, it has partnered with the Ethiopian Ministry of Education to provide a digital national ID system that would enable students to prove their academic credentials to a future employer. In fact, a decentralized ID is the key to unlocking Web 3.0 and the exciting new world of Defi and Dapps. For example, a decentralized ID can enable small businsses to apply for loans or farmers to prove their land ownership. These use cases are especially relevant in developing nations where poor infrastructure, plagued with corruption, is holding back individuals from achieving social mobility.
Cryptocurrencies have the potential to create a more fair and just system for all of us by allowing profits to trickle down to individual contributors. Such a system would have no loop-holes or corruption, because transparency and accountability would be built in. Cryptocurrency is about redefining modern capitalism with individual freedom and privacy as its core, and Cardano fully embodies that philosophy.
Peer-reviewed and developed by academic experts - Cardano was the first blockchain to take a rigorous scientific approach to the development of its technology. The project has partnered for years with academics in several universities worldwide to develop and validate their designs. In fact, Cardano has published over 108 academic papers and helped the blockchain research space mature tremendously. Being able to reason from first principles and build on top of proven research from the ground up has taken the guesswork out of the equation and allowed Cardano to develop bespoke engineering solutions based on fundamentally novel design improvements, while remaining entirely open source and unpatented. For these reasons, Cardano is sometimes referred to as the “Apple of blockchains.” New releases on Cardano are well researched and tested, as opposed to rushed or experimental releases that plague other cryptocurrencies.
What makes Cardano the first true 3rd generation blockchain?
“Cryptocurrency is about redefining modern capitalism with individual freedom and privacy as its core, and Cardano fully embodies that philosophy."
In the following series of blogs, we will explore what makes Cardano so unique in its design and approach, and how it solves many of the shortcomings and difficulties encountered by current market leaders like Bitcoin and Ethereum.
1. Cardano’s industry-unique and bespoke blockchain design [BLOG COMING SOON]
We will learn how the extended UTxO ledger model expands on Bitcoin’s UTxO expressiveness for smart contracts, while keeping the semantic simplicity desired for complex distributed computing environments. In addition, we will discuss how separating Cardano’s blockchain into two separate layers for transaction settlements and smart contract computation allows for better scalability and less network congestion at a fraction of Ethereum’s cost.
2. Proof of stake is the future and Cardano is leading the pack [BLOG COMING SOON]
The Ouroboros Proof-of-stake consensus algorithm removes the need for power hungry mining infrastructure that is required for Bitcoin’s Proof-of-work protocol. Running the consensus algorithm and maintaining security on the network is possible with commodity hardware at a fraction of the cost, making Cardano one of the most sustainable blockchains. Moreover Cardano is one of the most decentralized cryptocurrencies out there with over 2874 stake pools worldwide mostly owned by individuals. Cardano’s staking model creates strong incentives for ADA holders to “stake” their token in their wallets and earn interest. This has the effect of stabilizing the liquidity and reducing price volatility.
3. Cardano is the only cryptocurrency that got smart contracts right [BLOG COMING SOON]
As we saw with Ethereum, smart contracts open the door to a lot of exciting new functionality on the blockchain, but decentralized applications can be more complex to design and implement correctly. As shown in an earlier section, Ethereum smart contracts are vulnerable to hacks and attacks due to bugs and exploits present in the underlying programming languages. Since many applications of smart contracts revolve around financial transactions, any weakness in the language has the potential to lead to large amounts of money lost. To prevent this from happening, Cardano has developed a blockchain language and framework that comes equipped with formal analysis and verification tools built-in. Cardano’s smart contract’s integrity is formally verified automatically before they are deployed. Format verification is a field of computer science that allows the logic of a program to be “proven correct” similar to a mathematical proof. This prevents developers from introducing bugs with unforeseen consequences and drastically increases the security and trust in the network.
4. Governance is key to a cryptocurrency’s longevity and Cardano knows it [BLOG COMING SOON]
In a previous section, we learned about DAOs and how they depart from traditional organizations by getting rid of centralized leadership in favor of a democratic voting system. These new decentralized organizations therefore function in a way that is both akin to a private company and a government at the same time. Cardano understands that without a well-defined governance framework, such organizations will struggle to enforce community decisions, rapidly adapt to market changes, and overall maintain a sustainable operation. Examples of failures in governance are the “hard fork” splits experienced by Bitcoin in 2017 and Ethereum in 2016. Cardano is a pioneer in the future of community-driven innovation and decision-making by developing the most secure and decentralized governance model in the world - a model that gives community members a voice in shaping the applications and services on the decentralized internet.
5. Cardano is pushing the entire blockchain industry forward through scalable interoperability [BLOG COMING SOON]
There is a tendency in the crypto industry to adopt a zero-sum game mentality. However, technologies do not evolve and grow in a vacuum. On the contrary, the blockchain space is expected to mature into a diverse ecosystem of coexisting and interacting players. With that vision in mind, Cardano has developed its blockchain with interoperability at its core. A system infrastructure that doesn’t just integrate with other blockchain protocols, but also with existing legacy systems. As the internet matures into blockchain-based infrastructure backed by coexisting networks, Cardano will be well poised to meet the explosion in user-demand for these new types of applications and interactions.
“In the blockchain, code is law, and its constitution is written by the people."
Come join us in this crypto journey as we dive deeper into this exciting new technology that is the blockchain. We will learn to navigate the misconceptions and misinformation surrounding the space and in return come out of this experience with a clearer understanding of the real-world applications and benefits. What we are witnessing is the next logical evolution of finance, the internet, and capitalism itself. A new global system centered around public communities and individuals with core values such as fairness, inclusivity, and transparency encoded directly into the protocol. In the blockchain, code is law, and its constitution is written by the people.