Why CARDAO chose Cardano?
The blockchain for reserve currency
Before explaining why we chose Cardano, Let’s talk a little bit about reserve currencies. After that, we will explain why CARDAO had no choice but to choose Cardano as a blockchain network for reserve currency.
What is Reserve Currency?
A reserve currency is a currency that is held in significant quantities by finance institutions as part of exchange reserves. The reserve currency can be used in inter-protocols transactions, investments and all aspects of the economy. The key roles of the reserve currency are as follows:
- A large amount of currency to use for international transactions.
- Reducing exchange rate risk since there’s no need to exchange for another currency.
- Facilitate to perform large global transactions with confidence by central banks.
Note that the above 3 roles aren’t mutually exclusive and collectively exhaustive.
See how reserve currencies have changed over 120 years as shown in Fig. 1. The US dollar is the most influential reserve currency , based on the vague confidence that it will not go bankrupt, backed by the world’s best military power. However, Euro, Japanese yen, and Chinese yuan are also used as reserve currencies. It is easy to misunderstand that there should be only one reserve currency.
Look at the recent decline in the dominance of the US dollar. The United States has lost credibility as it continues to print dollars to recover from the Lehman Brothers crisis and the Covid-19 outbreak . If you’re interested in crypto, this is the narrative you’ve gotten tired of hearing about. In this situation, expectations began to arise that cryptocurrencies operated only by code could become one of the reserve currencies. So, what role should crypto play in order to become a reserve currency in the crypto world? We have redefined the role of the reserve currency in traditional finance to fit the world of crypto as follows:
- A large amount of currency to use for inter-protocol transactions.
- Reducing exchange rate risk since there’s no need to exchange for another crypto.
- Facilitate to perform large global transactions with confidence by smart contract.
Blockchain for reserve currency
Meanwhile, amid the rapid change and growth that has occurred since the advent of blockchain, there is a possibility that Crypto can serve as a reserve currency. Since reserve currency is the last trusted asset, it must guarantee reliable value, trouble-free trading, and scalability. OlympusDAO issued tokens targeting reserve currencies on the Ethereum chain and showed interesting processes, but Ethereum requires a high fee for each transaction (Fig. 2). If expensive fees are a problem, you can choose Solana, etc., but main chains that have not been thoroughly verified academically have a high probability of bugs. Solana has experienced three transaction stops since the second half of last year, raising questions about the stability of the chain .
If a distributed DB that guarantees all transaction details requires high fees and is not scalable, it is meaningless to build a good system on it. This is why we chose Cardano.
Can Cardano Be an Ethereum Killer?
Right now, many Dapps on Ethereum are open and the ecosystem is the largest, but we chose Cardano with a long-term goal. Cardano is a blockchain network based on scientific philosophy and a research-driven approach. Achieving the roadmap has been slow, but they have certainly made their vision a reality. As a result, Cardano is becoming a public chain that shows the most perfect performance in terms of scalability, tx fee, and security. Let’s see what kind of thoughts led us to choose Cardano.
The first blockchain using Proof of Work (PoW) is Bitcoin, and Bitcoin’s distributed DB has not collapsed and has been safely maintained since the creation of the genesis block in 2009. The factors that keep the Bitcoin network safe for a long time are competition and rewards. Miners can compete and get rewards if they win, which is the driving force that makes the network stronger . The reason this can be realized is because of the fairness (or randomness) of the hash value. However, the PoW method causes energy waste as the network grows.
An alternative to the energy waste problem that occurs in the PoW method is Proof of Stake (PoS). In the PoS system, the right to create blocks is probabilistically given to miners according to the amount of stake held . The person who finds the hash value first is rewarded in PoW. In PoS, the more a miner holds a large stake, the greater the probability of obtaining the right to create a block.
Elements of PoS correspond to elements of PoW (Table 1).
It is not a coincidence that such a response has occurred. This is because PoS was born by pursuing a version of PoW without the element of enormous energy consumption.
Although the PoS method can reduce energy consumption, it has a problem. In PoW, since the hash value that miners need to find is determined by a function that cannot be traced back, the fairness of the hash prevents cheating. However, in PoS, there is a possibility for random values to be manipulated by the last block producer. This is called a Stake-Grinding Attack .
Delegated Proof of Stake (DPoS) may be adopted to prevent the aforementioned grinding attack, but this is a direction that has given up decentralization. Cardano designed a PoS system that can prevent Grinding Attacks through the Ouroboros method.
As mentioned earlier, the biggest problem in PoS is the manipulability of random variable generation. Cardano assumes that 51% of random variable generation participants have good intentions. The assumption is not weird. Any system would collapse without this assumption. Therefore, this premise is not problematic.
In Ouroboros, all network participants are involved in random variable generation . Therefore, the risk that the last block generator can manipulate the random variable is eliminated. A very good paper on the Ouroboros algorithm was presented at Crypto, one of the most prominent cryptography conferences. Briefly speaking, this is a PoS that overcomes the shortcomings of PoS. The Ouroboros thesis has a lot of content, so if there is an opportunity, I will post an article dealing with Ouroboros in detail later.
Hydra is Cardano’s Layer2 (L2) Solution. Compared to Ethereum, Cardano has already good performance on scalability, tx fee, and security. However, Cardano’s vision does not stop there and goes much further. It targets the possibility of a variety of everyday applications not previously possible, including micropayments, voting, insurance contracts, and any app that requires low fees or instant confirmation.
IOHK announced that it’s possible to achieve confirmation times of less than one second in a L2 Hydra system (on the cardano’s mainnet, minimum latency is 20 seconds). That’s why we can expect the Cardano is really used in countries where bank accounts are not provided to the public. Hydra will outperform Ethereum’s L2 performance.
Development on Cardano
The most important consideration for Dapps related to finance is to prevent system collapse due to errors, and Cardano is the most robust public chain for this problem. In this respect, Cardano is a very reliable platform for both users and developers.
The founders of Cardano founded the Cardano Foundation, Input-Output Hong Kong (IOHK), and Emurgo. IOHK launched the ADA token in 2017 and designed the Ouroboros PoS consensus algorithm.
IOHK also leads the blockchain open source software project for Cardano. Cardano developers can develop and release Dapps after extensive testing based on this environment.
Unlike other L1 blockchains, Cardano has adopted Haskell as its development language. The features of Haskell are listed below.
- Haskell is a functional language.
- Haskell is strong against failures through strict type application and prevents errors in the code.
- Functional programming handles concurrency better, so it excels at complex tasks involving parallel tasks.
- Therefore, functional programming languages are often adopted in fintech technology.
- Haskell is well suited for implementing blockchains because it can manage immutability, type safety, and distributed computation well.
This is why Cardano is adopting Haskell. Development based on Haskell basically reduces the probability of errors occurring in Dapp. Based on this trust, many projects are being developed on Plutus.
Cardano is the L1 blockchain with the most growth potential. It is a conclusion based on data, not our subjective opinion. Cardano is the most actively developed public chain, and as a result, various indicators also show growth curves.
Cardano was the most developed L1 blockchain on github in 2021 (Fig. 8). Even though a lot of haters point the finger at Cardano, data doesn’t lie. Cardano has been the quietest blockchain before the smart contract was opened, but it’s not the most potential in 2022. It has been the most actively developed and lots of Dapps have announced that they will change the world.
Staking & Yield
Staking can bring interest or profit for users holding ADA. ADA holders can launch stake pools or delegate their ADA to a stake pool. This ecosystem makes the network of the Cardano protocol more robust, and stake pools are rewarded for it.
As the utility of the Cardano network increases and the ecosystem expands, fee revenue to the stake pool has increased. Accordingly, the virtuous cycle in which the stake pool also increases has been repeated (Fig. 9 & Fig. 10).
Active Addresses & Transactions
The daily active address and transaction of Cardano has been increasing continuously (Fig. 11). This is the result of the cryptocurrency boom and the Alonzo upgrade which made it possible to realize smart contracts on Cardano.
Closing The Post
Thank you for your interest in CARDAO. There will be a lot of questions about our vision, token sale, opening date, etc.
Cardano has been slowly designing and creating a scalable public chain with a vision. CARDAO will also strive step by step to deliver results that match the vision. Although you are not in a state where you can participate in the CARDAO ecosystem right now, we plan to share our thoughts and development process in the future. Please join the CARDAO community and enjoy the process of making the Cardano ecosystem prosperous.
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