The platform that will host the world’s supercomputer has yet to be determined, but Cardano is certainly in the running. To me, it’s actually the project that has the best shot at winning out in the long run. Let me be clear, I don’t think Cardano competes with Bitcoin, at all. Bitcoin is money. Cardano is a globally distributed computer capable of running monetary applications. In other words, it is a financial operating system.
Here are some quick facts about Cardano that are required for understanding the rest of this letter.
Cardano is a smart contract enabled blockchain (like Ethereum)
Smart contracts are applications that automate the trade, transfer, sharing, and creation of value (money in various forms)
The core currency of Cardano is called ADA (after Ada Lovelace)
Cardano is the #5 cryptocurrency in the world by market cap, currently worth about $70 billion in total
Cardano competes with the likes of Ethereum and other smart contract platforms, not Bitcoin. The way I see it, Cardano will actually accelerate, and bolster Bitcoin’s position as money. Let’s find out how Cardano will help us achieve a free and liberated global financial economy.
An Unpopular Opinion
What I’ve stated above is actually sacrilege in the Bitcoin Maximalist community. One blockchain helping another is out of the question when your mentality can only support the notion that the “Bitcoin way is the only way”. My position on this is that Bitcoin will be the dominant money, and perhaps even the only money in the future. That doesn’t mean that we won’t have platforms like Cardano that run on ADA, and supports financial applications that use BTC. The way that current trends are unfolding, I actually see the scenario where various blockchains work together as the most likely to transpire.
This is evidenced by the use of Bitcoin on other platforms, something that I covered in detail in previous letters of mine — [ Pegged Bitcoin Part 1 | Pegged Bitcoin Part 2 ]
The Anatomy of Cardano
Cardano is a Proof of Stake (PoS) blockchain. This means the core token (ADA) not only carries value, but voting power as well. ADA is central to the governance of the Cardano network, as such, it is important that the token be widely distributed throughout the world.
A Brief History of Cardano
2015 - Development spearheaded by the organization IOHK
2017 - Cardano network formally launched with the ability to store, and transfer ADA
2020 - Cardano network released an upgrade allowing the network to reach “true decentralization”
Present Day - Cardano is in the process of deploying scalable smart contract functionality.
IOHK — The Company Behind Cardano
An organization call IOHK has been spearheading the development of Cardano for the past 6 years. The organization is lead by one of the co-founders of Ethereum, Charles Hoskinson. Since the launch of Ethereum, the plan was always to move to a PoS model, but upgrading Ethereum is like upgrading a plane while in flight. IOHK was intentionally the centralized entity behind Cardano for the first 5 years of its existence. In 2020 they relinquished their control over the network, and ceded it to the community1. That being said, they are still the core developing team behind Cardano. If IOHK were to collapse, Cardano would surely face delays in manifesting its full potential.
The Decentralization of Cardano
Decentralization is a difficult thing to quantify and measure. How decentralized something is, is the brunt of many debates in the cryptocurrency realm. Decentralization is not uni-dimensional, it is multifaceted. The following questions should be asked when evaluating decentralization.
Who builds and maintains the code?
Who runs the network?
Where are the networks nodes physically located?
What happens if the nodes get “too big”?
Who is allowed to be a node, and how difficult is it to become one?
What privileges do the node runners have? Who makes decisions?
IOHK has done a decent job of building Cardano from the ground up with these questions in mind. The impression I get from the Cardano community is an honest, patient, and genuine attempt to build a secure and scalable global financial operating system. There is really no point in building a global financial operating system, if it won’t last until 2050 and beyond. Additionally, it must be able to handle a global load of transactions (billions of transactions per day).
Birds Eye View of Cardano’s Decentralization
More than 2000 stake pools2
70% of total supply of Cardano is “staked” to the network3
Mechanism to protect against stake pools becoming too large (which would result in them having outsized influence over the network)4
Development Efforts are Paid for by network, and voted on by holders of ADA5
The Future of Cardano
The holders of ADA are actually the arbiters of the future of Cardano. This is, and always has been part of the plan. If you hold ADA, and are actively staking on the Daedalus wallet, then you may vote for future changes and development efforts. Rather than have IOHK decide what is best for the project, in the spirit of decentralization, these decisions have been offloaded to the community.
Blockchain Based Governance
This brings blockchain based governance into the discussion. In theory, democracy is decentralized. Every individual gets 1 vote, and influences the direction of the town, city, province/state, and country they belong to. Blockchains like Cardano that are considered to be decentralized must also figure out where to go next by outsourcing decision making to the individuals that make up the community. Cardano does this by making 1 ADA equal 1 vote. Right now, there is a Cardano voting session around once per month. Those who choose to vote are rewarded with Cardano. It doesn’t typically amount to much, but the point is that there are monetary incentives for contributing to the future of Cardano.
In more ways than one, these blockchain based networks are looking like digital countries of their own. The obvious critique with this facet of Cardano is that those with more ADA have more ability to affect the direction of the network.
Cardano is Going After the African Continent
In general, African nations are among the fastest growing economies in the world6. At the same time, nations face economic restrictions imposed by either their own governments or other countries. Blockchain networks are hailed to be able to ease these restrictions due to their property of being censorship resistant. People facing economic problems will find ways of solving these problems. For example, people within Nigeria have already turned to Bitcoin to solve their economic woes7, as Nigeria has more Bitcoin users per capita than most other nations.
With Cardano entering the continent of Africa in a big way, I hypothesize the following scenario.
Cardano will help make engaging with cryptocurrency affordable at ALL levels of income or economic status. Ethereum and Bitcoin are currently too expensive for most people to use.
Existing Bitcoin users will turn to Cardano to use their Bitcoin within DeFi systems. They will offer affordable Peer-to-Peer (P2P) loans.
Individuals seeking economic support will acquire loans, or sell their goods and services using platforms that are the most user friendly, and accessible.
This hypothesis hinges upon the narrative that Bitcoin continues to be perceived as money, and Cardano will become the most user friendly cryptocurrency platform. If these things are true, then the proliferation of Cardano will inevitably benefit Bitcoin.
Concluding on Cardano
We are smack dab in the middle of a financial revolution. Making sense of it all is not straightforward and many factors have yet to come to light. There are two things that I am tracking.
Which cryptocurrency will become “the money” (My vote is Bitcoin)
Which blockchain will become the financial operating system (Yet to be determined)
In my opinion, the jury is out on Bitcoin becoming money. For example, we did end up seeing a country make Bitcoin legal tender in 2021, just 12 years after Bitcoin began. The financial operating system question is quite a bit more uncertain at this time. It could be the Bitcoin lightning network, Ethereum, or Cardano. It might be one I haven’t mentioned. It might even be something that hasn’t been invented yet. One thing is for certain, when the world has a single, yet decentralized financial operating system at their disposal, it will be a massive win for the financial liberty of all.
Regards,
Keegan