Is Cardano a Good Investment?
Please note that I am not a financial advisor. The following article is for the sole purpose of providing educational information on the topic discussed.
Introduction
Among so many interesting projects within the crypto world, Cardano (ADA), a third-generation blockchain, is one that promises to revolutionize the sector by offering great improvements in the crypto ecosystem in the near and long-term future.
And as Cardano is a project still in development, interested investors who like what they see in Cardano, yet have seen many past projects turn out to be failures or simply scams wonder, is Cardano a good investment?
From what I see, Cardano is a project worth researching and taking a serious look at for the investor who is looking for sustainable, long-term profits with a blockchain that shows the potential to be highly efficient, versatile, and scalable.
In this article, we’ll discuss everything you need to know about Cardano, how it works, and the features that can make it an interesting option for new investors.
What is Cardano ADA?
Cardano is an open-source platform based on blockchain technology that’s built in layers and is capable of executing smart contracts and financial applications to be used by companies, consumers, and governments in any country in the world.
The platform has its own cryptocurrency called ADA and currently, it can be used to send and receive digital money through fast, direct, and cryptographically protected transfers.
Being a software platform developed in layers, Cardano makes it very easy for different teams of coders and engineers to maintain and update the blockchain with soft forks.
Like Ethereum, Cardano has the ability to run decentralized applications (dApps) and smart contracts, but with the difference that Cardano has a scientific research-based approach to solve the important problems faced by today’s economy.
The origins of Cardano
With the creation of the IOHK company in 2015, the development of the Cardano project also began. IOHK was created by Jeremy Wood and Charles Hoskinson – the latter is one of Ethereum’s co-founders.
After two years of development, the Cardano project saw light on September 23, 2017, when the first block of its cryptocurrency ADA was successfully mined.
The name of the project derives from Girolamo Cardano, an Italian physician, and academic who performed the first systematic calculations of probabilities. The name of its native ADA token derives from Ada Lovelace, a renowned English mathematician, and writer, recognized as the first computer programmer in history.
How is Cardano different from Ethereum?
Both Ethereum and Cardano are platforms for the development and operation of decentralized applications (dApps) and smart contracts. However, the similarities between both projects end there, since both blockchains have important differences regarding their consensus mechanisms and architecture.
Consensus mechanisms
Both Bitcoin and Ethereum use Proof of Work (PoW) as a consensus algorithm; miners compete to solve cryptographic problems to create blocks and receive a reward. The problem is that this mechanism has several drawbacks, mainly related to high consumption of energy and hardware resources, making it unsustainable for the environment.
On the other hand, with the Proof of Stake (PoS) consensus, instead of using electricity to solve mathematical problems and create new blocks, the node that will form the new block is selected randomly, in proportion to the size of the stake it has, according to the records on the blockchain. The reward that the node receives will also depend on this participation.
This mechanism is much more efficient both in terms of energy and processing speed, which results in several benefits such as reduced costs and transaction fees.
Governance model
Cardano’s ultimate goal is to compete to be the leader in decentralized finance. As with Ethereum and Binance Smart Chain, Cardano will offer its blockchain so that other developers can create and host their projects and create their own tokens quickly and safely.
But unlike its competitors, Cardano will offer a new model of democratic governance that will also provide it with greater decentralization and independence in the future.
Although Cardano was created under the patronage of a centralized organization, IOHK, this won’t be a decisive factor in the future evolution of the project. For this, they’re creating specific mechanisms so that the Cardano community itself decides for its future through a voting system based on democracy and meritocracy.
This system will allow electing the best qualified people to make important decisions regarding the network by means of community voting.
Architecture
Unlike other blockchains, Cardano has two layers: a settlement layer and a computational layer. The first layer, Cardano Settlement Layer (CSL), allows users to send and receive ADA from one wallet to another. The second layer, Cardano Computation Layer (CCL), is still under development and will allow users to create and participate in smart contracts.
Unlike Ethereum – which only has one layer – the Cardano model is more versatile, as it can be modified according to users’ requirements. An example is that this layer could be adapted to the different financial regulations for different countries. This means that ADA users could use the same currency in different countries while complying with all laws.
The computational layer will also allow the development team to make changes using soft forks without causing interruptions to the settlement layer.
Monetary system
Cardano boasts a maximum cryptocurrency supply of 45 billion tokens. This supply will move within a deflationary emission system, which will be dynamically adjusted over time according to certain variables.
It’s a complex system, but it’ll be ideal for maintaining the stability of the value of ADA as emission limits are reached. The current reward per block generated remains close to 750 ADA, but this will change over time – similar to what’s happening with Bitcoin.
For its part, Ethereum doesn’t have a maximum supply limit, but the current circulating supply is around 100 million tokens.
What makes Cardano unique?
Cardano is the first blockchain-based platform that’s governed by a scientific philosophy coupled with large amounts of academic research and constant review.
This base of scientific development is one of the most remarkable aspects of Cardano, and it’s something that almost all of the existing cryptocurrencies have skipped, including Bitcoin and Ethereum.
We have already discussed the significant improvements that Cardano will bring to the crypto industry when it’s fully operational, but in addition to this, the Cardano project has a development roadmap that provides great insight into the impact it could have on the industry.
1st phase – Byron
The blockchain came into operation with the basic functionality of ADA transfers. The network has been federated and kept regulated by a central entity, IOHK, to guarantee the proper functioning of the ecosystem.
2nd phase – Shelley
Current phase. The decentralization process begins with nodes that are managed by the community itself. A reward system is introduced to encourage users to delegate their participation in staking groups that will benefit the entire community.
3rd phase – Goguen
Smart contracts are enabled on the blockchain. This represents a huge step forward in Cardano’s ability to allow decentralized applications (dApps) to be built on a solid foundation.
This phase also represents a small revolution in blockchain since, when completed, it’ll allow any type of user – with technical knowledge or not – to create and execute smart contracts using two key tools:
1.- Plutus
A smart contract development language and execution platform that will allow the inclusion of components inside and outside the chain, which will improve the coherence and usability of smart contracts.
2.- Marlowe
A high-level language for smart financial contracts that is based on Plutus. Marlowe will allow Cardano to be accessible to a much wider user base of financial and business experts as it will allow anyone without coding knowledge to create smart contracts with its simple drag and drop interface.
Another significant aspect of Goguen is the addition of a ledger with multi-currency support that will allow users to create new tokens with native support, both fungible and non-fungible (NFTs).
4th phase – Basho
Sub-chains are introduced to improve scalability and interoperability, trying to optimize the network as much as possible to better support the growth and adoption of high-volume transaction applications.
These side blockchains will interoperate with the main chain to expand the capacity of the network and free it from a part of its workload, as well as allowing the introduction of experimental features without affecting general safety.
All of this will provide a network infrastructure with the ability to scale sustainably and securely while maintaining high performance.
5th phase – Voltaire
The governance model and self-financing will keep Cardano decentralized and independent. Thanks to the introduction of a democracy-based voting system, Cardano’s community will use their voting rights to influence the future development of the network.
In addition to this, future network developments may be financed through a treasury system in which a fraction of all transaction fees will be pooled to provide the necessary funds.
The successful completion of this last phase will allow Cardano to be 100% decentralized, so it will no longer be under the administration of IOHK, but in the hands of the community itself.
Cardano in Africa
The Cardano network promises important changes and improvements in the blockchain industry, and although it’s a huge, complex project, still under development and whose implementation could present flaws, at IOHK they have already started working to demonstrate the potential and strength of their proposal.
The best example of this can be seen in the number of technological projects based on the Cardano blockchain that IOHK, together with other companies and organizations, are developing in Africa (Cardano Africa), starting with Tanzania and Ethiopia.
One of the most important projects that will see the light in a very short time, aims to bring sustainable connectivity to the internet through the use of solar energy – in these countries only 15% of the population has access to the internet.
This project will provide affordable network nodes based on Cardano’s blockchain infrastructure. These nodes will act at the same time as local relays for internet connectivity.
Upon completion of this first phase, the next project, Atala PRISM, will provide its subscribers in Ethiopia access to a digital identity solution that will allow them to use services such as education, digital banking, healthcare, and telecommunications.
It’s important to emphasize that this last project is developed within the framework of an agreement between IOHK and the Ministry of Education for Ethiopia to provide digital identity – and therefore expand study and work opportunities – for about 5 million students and teachers in Ethiopia.
In addition to this, there are also a growing number of companies that are partnering with IOHK to develop projects based on the Cardano blockchain in Africa. Among the most important we have:
- SingularityNET: Robotic and AI systems in the scientific field
- iceaddis: Incubator for local technology startups
- World Mobile: Mobile Internet connectivity throughout Africa
- Save the Children and COTI: The Cardano Foundation, together with these organizations, promotes the use of technology in the strata of society with the most need
- Catalyst: Program to provide funds for startups in Africa through staking pools
What is Cardano staking?
Staking is an activity that acts as a financial incentive for regular users on some blockchains. Many platforms allow staking with various objectives, either to generate earnings in the form of token rewards, interest, or some other additional benefits.
Cardano offers an additional option to ADA holders. ADA holders can delegate their participation in the network to staking groups to help grow the ecosystem while at the same time earn rewards.
In Cardano, the users who maintain their ADA coins on the network are interested parties; the size of this is defined according to the amount of ADA that each user owns and has locked in a node on the blockchain. This delegation to staking groups is what helps ADA holders earn rewards.
In Cardano, it’s the Ouroboros protocol that chooses who is responsible for creating the next block in the chain by observing the amount of participation delegated to each staking group.
Pros and cons of Cardano
Now that you have a more general knowledge about Cardano, it’s time to take a more concrete and balanced view of this ecosystem, so you’ll have a simpler understanding of whether or not it’s convenient for you to invest on the platform.
Advantages of Cardano:
The team behind the project
Cardano is being developed by a multidisciplinary team, among IT professionals and academics of all kinds. This gives the platform great credibility.
Flexibility
As it’s an open-source platform and is also being developed in layers, Cardano will have virtually unlimited flexibility to grow and adapt to future user needs.
Safety
Thanks to the PoS consensus and the decentralization factor, Cardano has scientifically proven security capabilities.
Growing support
Each month, more and more entities, both public and private, are supporting Cardano. This has resulted in a spectacular increase in the value of ADA in the market.
Disadvantages of Cardano:
Delays in the project
Cardano tries to keep up with the competition and technology but has seen multiple delays in the project. Meanwhile, the development team makes promises that we haven’t seen fully materialized.
Possibly too much versatility
Cardano has features that make it very malleable and versatile: an open voting system, the possibility of creating new native tokens, and its own ability to scale without limits. The problem is that usually, most users aren’t experts in technology, economics, or finance. This could lead to wrong decisions that could lower the value of Cardano.
Bad publicity
There have been many controversies surrounding Cardano, especially controversy regarding the origin of the initial financing of the project. All of this could decrease trust in the platform.
The future of Cardano
It’s difficult to predict the future of a project still in development, but let’s see it from a clear perspective.
While the development team has so far been good to the community, providing constant and attentive information, many people already see the delays as worrisome. In their defense, the team behind the project responds that they prefer to take their time to do their best.
This also means that Cardano has a “higher potential” for success compared to other similar projects. In this sense, Cardano is still in its second phase, but when it succeeds in implementing dApps and smart contracts, the growth in Cardano’s value could be spectacular and investors could see their patience and faith greatly rewarded.
Of course, there is also the possibility that all this becomes a total failure…
The bottom line:
If developers take it easy, then investors should do the same.
Is Cardano halal?
Is Cardano halal? Yes. Cardano (ADA) is considered halal. As we begin to see more scholars recognize cryptocurrencies as halal we also see that some scholars classify cryptocurrencies as either a currency or an asset. Cardano would be classified as an asset because it is seen as a utility token and serves a similar function to that of Ethereum and when classified as an asset, generally, the rules of riba al buyu do not apply.
Conclusion
Cardano and ADA are the first blockchain and cryptocurrency backed by a scientific approach.
It’s a very well-thought-out third-generation blockchain project that incorporates very important improvements to the industry and that promises a lot for investors.
The main problem with Cardano is the slowness of its development. But this can also be seen as an advantage if in the end the promises made are kept and the platform works perfectly.
Again, do your research before investing, and in the end, Allah knows best.
