Confidence is building around Cardano, a blockchain launched in 2017, after it overtook Binance’s BNB coin to come in third on the crypto ladder, behind Bitcoin and Ethereum. 

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What is Cardano?

Cardano is a proof-of-stake blockchain with a cryptocurrency called ADA - which takes its name from mathematician Ada Lovelace. It was founded by Ethereum co-founder Charles Hoskinson and aims to directly compete with the current decentralised crypto platform heavyweight, Ethereum. 

Cardano earns all its comparisons to Ethereum. It calls itself the first third-generation cryptocurrency aiming to tackle scaling and infrastructure problems that first cropped up in Bitcoin, a first-generation cryptocurrency that introduced the idea of digital coins, and Ethereum, a second-generation cryptocurrency that expanded use cases for coins to smart contracts. Specifically, Cardano aims to solve problems related to scalability, interoperability (how blockchains communicate with one another), and sustainability on cryptocurrency platforms. 

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What is a smart contract?

A smart contract refers to a computer program that lives on the blockchain. These programs automatically run when predetermined conditions are met. With the help of smart contracts, the blockchain network becomes a programmable platform that can host other applications - like how apps work on your phone's operating system. Smart contracts have become a game-changer in the cryptocurrency market and its subcategory Decentralised Finance (DeFi) market.

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What makes Cardano special?

Cardano has long been hailed as the potential "Ethereum-killer” as it seeks to offer many of Ethereum's most compelling capabilities, such as robust smart contracts. Here are some other benefits:

1. Solving scalability and high fees

Cardano was designed to support fast transactions with minimal transaction fees. It is believed that Cardano will be able to process up to 1 million transactions a second. For perspective, Visa handles about 1700 transactions per second.

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2. Reducing blockchain energy consumption

With everyone, including Tesla’s Elon Musk, worrying about the energy consumption required to secure blockchain networks, Cardano has been built to be an energy-efficient blockchain since day one.

While this is a vastly debated number, it is believed that Bitcoin uses around 90 terawatt-hours of energy per year (90 000 gigawatts), Ethereum 45 terawatt-hours of energy per year  (45 000 gigawatts), while Cardano only uses 6 gigawatt-hours of energy per year.

Therefore, Cardano uses just 0.007% and 0.013% of the energy usage of Bitcoin and Ethereum, respectively. 

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3. Limited supply

For all the hard money enthusiasts out there, Cardano has you covered. Unlike Ethereum, Cardano has a strict cap of 45 Billion coins on its total diluted supply.

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4. A scientific peer-reviewed cryptocurrency

ADA is the only coin with a “scientific philosophy and research-driven approach.” In practical terms, this means that its open-source blockchain undergoes a rigorous peer-review process by scientists and programmers in academia as it goes through any upgrades. 

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How does Cardano’s blockchain work?

Unlike Bitcoin’s Proof-of-work (PoW) model, which uses a lot of computing power and electricity to verify transactions, Cardano uses a proof-of-stake (PoS) consensus mechanism to process transactions and secure its blockchain.

A PoS is a mechanism that allows for the network of users to act in their own best interest, and through this action, they inherently end up securing the network. Rather than relying on computers racing to mine the block, the idea behind a PoS protocol is that participation is determined by ownership of the coin supply that you are staking on the network. Users who want the opportunity to be selected to add blocks to a PoS blockchain are required to stake a certain amount of the blockchain’s cryptocurrency in a special contract. The amount of coins staked determines their chances to be selected as the next block producer. Yet, if users behave maliciously, they may lose their stake as punishment. 

This is a similar concept to having equity in a company you work for. Suddenly, you have a vested interest in the company, and you really care about how the company performs from one quarter to the next. You have a stake in the company’s success, and now you’re a “stakeholder”.

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Cardano’s Performance

We’ve recently seen Cardano starting to show a rather large price appreciation, but what has this growth been driven by?

There are a couple of factors that are at play:

1. The overall cryptocurrency market has seen a strong recovery from the July lows.
2. The growing interest in the smart contract sector.
3. But, most importantly, it was the announcement that Cardano’s software update will bring the long-awaited release of Cardano’s smart contract capability.

Below we can see how Cardano has outperformed many other investment assets over the past 12 months.

A single R1 000 investment in Cardano would have translated into R16 196. This is substantial when compared to many alternative investments. In fact, this is a return on investment over 4x greater than if you had invested in Bitcoin over the same period (+ R3 681).