Smart contracts are one of the most important parts of the cryptocurrency ecosystem. The second most popular cryptocurrency, Ethereum, is a smart contract platform. Now there is another contender entering into the field, could Cardano be the future of smart contracts?
Some of the biggest cryptocurrencies on the market are focused on smart contracts. The first major cryptocurrency to act as a smart contract platform was Ethereum. Their ERC20 token spawned a series of ICOs and is largely responsible for the explosion of new cryptocurrencies. Hot on Ethereum’s heels was NEO, often dubbed the Chinese Ethereum. Now there is a new contender entering the arena, does Cardano have what it takes to overtake its predecessors?
Smart Contracts Offer More Than Traditional Cryptocurrencies
Many new cryptocurrencies are built using smart contracts from other platforms. This is part of the reason behind the success of NEO and Ethereum. These smart contract powered tokens can’t exist without running on somebody else’s platform. This means that there is great deal of money on offer for cryptocurrencies that can establish themselves as a reliable smart contract platform.
So what are smart contracts? At its core a smart contract is not all that different from a regular legal agreement. The main difference is that rather than being executed by 3rd parties like lawyers, the contract is only subject to the law of the code. Each contract is programmed to only activate once a specific set of criteria has been met.
A simple use case for smart contracts is in conducting the sale of goods. One user wants to sell their laptop, so they digitize the asset and place it onto the blockchain in the form of a smart contract. The contract will then wait for a specified amount, say 3 ether, to be transferred into the agreed wallet. Once this happens the smart contract will be able to execute. These smart contracts act sort of like an escrow account and allow two parties who may not entirely trust each other to do business.
This example is a very basic use for a smart contract and people have already done far more impressive things. Ethereum smart contracts are cost effective to create but must be coded in the solidity language. NEO smart contracts tend to be expensive to create but can be coded in just about any language. Cardano is hoping to build a better product than both of its competitors by building a science and data led smart contract platform.
What is Cardano?
Cardono’s stated goal is to develop a “smart contract platform which seeks to deliver more advanced features than any protocol previously developed”. This is the stated aim of pretty much every new cryptocurrency out there and does little to directly separate Cardano from the crowd. What makes Cardano different is that the team has a stated aim to create a blockchain platform with a scientific philosophy and a research driven approach. The token representing the Cardano network is called ADA.
This is a lot more significant than it sounds. Many projects suffer from a severe lack of experience and this has not only led to thousands of smart contracts being coded with glaring errors but also situations like IOTA, where teams unused to sharing information have created projects that have dangerous security flaws. A team that is used to the academic process of peer review will likely be far more comfortable with releasing their code and methodology to a wider audience.
Like NEO Cardano has decided to focus on a proof of stake consensus method. While there are some security concerns with this method it shows that the Cardano team are forward looking. December 2017 laid bare many of the limitations of Proof of work as Bitcoin and Ethereum experienced severe bottlenecks. It also emerged that Bitcoin mining has used as much electricity as all of Ireland. Even Ethereum has mooted that it is considered moving over to a proof of stake consensus system over time.
Proof of stake consensus systems essentially mean that users can use some of their tokens to secure the integrity of the blockchain. Cardano have access to some of the most experienced cryptographers in the world and have used that to create the Ourbourus algorithm designed by IOHK Chief Scientist, Professor Aggelos Kiayias. Cardano claim that this is the only proof of stake consensus method mathematically proven to be completely secure.
In order to use Cardano’s coin, ADA, users will have to download the Daedelus wallet. This wallet already has a number of features including:
- Encrypted private keys and spending passwords, offering protection against security threats such as malware.
- Wallets can be exported to paper certificates, giving the maximum security option of placing funds in cold storage.
- ADA redemption is built directly into Daedalus and supports encrypted and unencrypted redemption certificates.
- Configurable transaction assurance level monitoring, allowing users to be sure when transactions become irreversible.
Further down the line the Daedelus wallet will include support for Ethereum Classic and Bitcoin, a mobile wallet for Android and IOS and finally implement the staking process which will allow ADA holders to participate in block generation and receive rewards for their efforts.
The long term aim of Cardano is to produce a cryptocurrency that not only supports smart contracts and decentralized apps (Dapps) but also can be used as an effective day to day payment method. As things stand Cardano is still in its “bootstrap phrase” which they have dubbed “Byron”. Currently Cardano is fairly centralized so the main aim of Byron is to make Cardano SL completely decentralized. This will be done primarily by improving the networking area and making Ouroboros more robust. They will also be adding multi-signature addresses and light clients, as well as quantum resistant signatures.
The next step after Byron is the Shelley update. This will ensure that key elements are in place to allow Cardano to develop into a fully decentralized and autonomous system. Shelley is planned to be completed over the course of Q2 and Q3 of 2018. Once Shelly is complete then the team will implement Goguen which will see the integration of smart contracts, Basho which is centered around performance improvements, and finally Voltaire, which will see the implementation of a treasury and governance system.
Is Cardano A Good Investment?
Cardano is only really a good investment for users who are looking for a project that they can support for the long term. While it is likely to see price rises in the interim based on the general volatility of the cryptocurrency market there are other more complete coins that will likely see better returns in the short term.
It could take upwards of three years before an investment in Cardano takes off but there is a very strong case for buying ADA as a long term investment. The reasons for this are twofold. Firstly the team behind Cardano is filled with academics and professionals who are very interested in ensuring that their work is not only secured but peer-reviewed. The team is also interested in making a product that works for their community and not simply another coin designed as a cash grab.
The second reason is that their long-term roadmap is actually quite ambitious and unlike most cryptocurrencies they have a team that is capable of fulfilling their needs. ADA is still very much a penny crypto and it’s value is going to see pretty big increases on the back of each new release, especially as smart contracts and governance systems are implemented.
Currently Cardano is still a “Penny crypto” which means that there is plenty of room for growth and early investors have the opportunity to experience phenomenal growth over the next few years. Investors considering Cordano should consider it a long term investment and should expect to have to wait at least 2-3 years before they begin seeing real payoff in terms of growth. A periphery advantage of holding ADA is that they plan to introduce proof-of-stake investment which allow investors to receive “dividends” over time, making Cardano even more attractive.
Cardano is a young project but it still has plenty of prospects for growth and could well be the eventual successor to Ethereum and NEO.