What is Cardano? How does it Work? Is It Better Than Ethereum?

Introduction

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Let’s talk about what is Cardano or ADA.

Where is the price going?

And hopefully, by the time you’re reading this article, the cost of Cardano will have gone up in value; we can sell it right back to the people reading this article.

Before we started this website, we remember watching popular YouTubers talk about the next hot stock pick or the next best investment.

We remember telling ourselves, yeah, we’ve peaked.

We’ve hit peak performance.

So, we apologize if this article drops the value of Cardano.

Here at eachpennycounts.com, we translate Cardano or ADA into plain English, so even if you have no technical background, you will understand everything.

By the end of this course, you will know more about Cardano and how it works than 99% of the population. So let’s get started!

Without wasting any time, let dive into the topic, “What is Cardano? How does it Work? Is It Better Than Ethereum?“.

What is Cardano?

Now let’s talk about ADA, the ticker symbol for Cardano because just recently, it did something pretty epic.

It moved into the third position of the overall cryptocurrency market cap, replacing Tether, which was there for a while.

So, it’s a huge step forward. If you’re unfamiliar with Cardano, it’s a cryptocurrency like a bitcoin, but more like an Ethereum, except it’s better.

So, let’s talk about; What is Cardano? Where is the price going? And why everyone is talking about Cardano?

Why it’s so exciting?

Why is everyone talking about it?

Where is the price going?

But before we get you too excited, just understand that we are not an investment expert, and there are a lot of people that are way smarter than us in the crypto space. This is just one of many perspectives.

But to understand Cardano, we have to ask ourselves; why are there so many cryptocurrencies in the first place?

Like, why do we need dozens and dozens of these things?

A great way to understand that is, to know that each of them is trying to solve some problem about the world of technology in general.

To understand Cardano’s excitement, we have to go back to the year 2008.

It was the year when TVs were becoming larger, but thinner and also lighter. It was not 4k, and it was 480p. It was not even high definition.

Sony Vs Toshiba

So, two companies began their fight to change everything.

Thus began the great battle between the two technologies that were Blu-ray owned by Sony and of course, Toshiba’s HD DVD.

But Blu-ray had a maximum storage capacity of 50 Gigabytes, but it was a lot more expensive to make than HD DVD, which had 30 gigabytes of storage.

However, the HD DVD was a lot cheaper.

So, to the average consumer who was shopping at that time, it looked as though an HD DVD would win because no one cares how much storage this CD has.

We just want to watch my movie.

But surprisingly, Blu-ray was more expensive, was the one that won the battle.

Cardano Vs Ethereum

I bring that up because it looks as though history is repeating itself once again, and we see the battle between Cardano and Ethereum.

If Ethereum was so perfect, it wouldn’t have a competitor with a whole community of tens of thousands of people who think that Cardano is better technology.

To understand why Cardano is so loved, we have to look at the problems that cryptocurrencies have, more specifically Ethereum’s problems and how Cardano is going to solve them.

And then, I’ll give you my opinions toward the end of the article.

So strap in; it’s about to get very complicated and nuanced.

But we promise we’ll break everything down and make it easy to understand. Both cryptocurrencies Cardano and Ethereum, are trying to become the best platforms for designing smart contracts.

On top of all this, interestingly, the co-founder of Ethereum was Charles Hoskinson, who founded Cardano.

Both technologies have many similarities and goals.

They’re trying to become the best dowels or decentralized autonomous organization platforms, remembering just a fancy word for saying decentralized marketplaces that private corporations don’t own.

Think of Robinhood without the hood or the robin part.

There’s also Defi, and within that, there’s NFTs or the Cryptokitties, we’ve talked about, yield farming and so on.

There are many things; you can do many things with smart contracts but remember that they’re trying to do the same thing at the end of the day.

But here’s where everything changes.

Now, Ethereum was the first cryptocurrency to have smart contracts on it. Still, it has three major problems.

Ethereum is Costly

The first, without getting into the nuances of how Ethereum’s blockchain works, is that it’s costly to use.

So, let us try to explain this concept with the bus driver analogy.

With Ethereum, every time you use it, you have to pay a gas fee to the bus driver.

Every time the bus arrives, you pay gas fees.

Every time you open the door and enter – gas fees

Sit down – gas fees.

You sneeze – gas fees.

It becomes costly, especially as the bus stop becomes more and more congested and so that’s an overly simplified explanation of how it works.

Then you have to pay those gas fees with something called GWEI, a small unit of measurement within the Ethereum like the dollars had pennies. Same concept.

But, this becomes a much bigger problem when Ethereum grows higher in value because then the bus driver gets even greedier.

He’s like, where’s my money?

You can imagine then that when you’re trying to test the network, create an app or build a business on top of Ethereum, it becomes prohibitively expensive to do even the smallest of things.

Concept Foundation of Cardano

Cardano is trying to solve this issue by getting rid of the “bus driver” entirely.

They want to make those buses driverless and the way they do that is by changing what’s called the consensus model from “Proof of Work” to “Proof of Stake“.

More specifically, the way they’re going to do that is by addressing Ethereum’s second problem, which is called “Scaling”.

You can think of scaling as kind of like our weight of competing with credit card companies like Visa, MasterCard, Amex and all cryptos have this problem.

But, at any given time throughout this world, for example, there are two transactions per second happening on bitcoin.

On Ethereum, it’s something like 20 to 21 transactions per second, which is higher.

But, when you compare that with Visa, capable of handling more than 65000 transactions per second, you realize we are so far behind.

Credit card companies can do this because they secure their network via something called a “Private Database”.

So if this was the Matrix, they are neo.

They can step in and change the rules of the game.

However, they see fit to remember one of the rules or one of the goals of all cryptocurrencies is to live in a decentralized world.

Meaning, we have entities, companies, websites that any private corporations do not own.

They’re not governed by central governance models, with shareholders and members of the board.

We live in a world that has technology that works by itself.

But, the truth is decentralization comes at the expense of network security because if you open up your network to anyone and everyone to do whatever they want, you’re vulnerable to attack.

This is why private databases are much better at scaling and securing, because anybody from inside the company can step in and say, “I’m going to put a stop to all these shenanigans reverse transactions, and do whatever i want.”

The rules of decentralization do not limit them.

And that is one of the most fundamental problems that all cryptocurrencies have.

Problems Solved by Cardano

Cardano is trying to solve this problem by decentralizing that network not by “Proof of Work” but by “Proof of Stake”, which is just a fancy way of saying that the people who verify the transactions are the people who hold the Cardano token.

They participate in what’s called a democratized voting system, and that’s how they verify transactions.

Now when we say verify transactions, we don’t mean there’s somebody who’s like manually looking at what you buy and being like, “Should we let someone buy this avocado toast?” No!

This happens automagically behind the scenes based on monetary incentives.

And the reason that proof of stake works better than proof of work is that we get rid of the fees associated with doing all the bus driving.

Now, this next concept, though, is called game theory, and it is genius.

Now, this could be an article all by itself, but human beings are generally greedy, and Cardano uses this concept of greed to make its network strong and secure.

It’s such a cool concept!

So, instead of miners in all the other cryptocurrencies, Cardano is safe and secure to use because it uses this concept of greed.

So, for example, the people who verified these transactions are not miners but instead the stakeholders. Aka, the people with the actual Cardano token that verify the transactions on the blockchain.

Because if you had power over a financial system and you were to vote what goes where you would have every incentive under the sun to run your system fairly to increase its value because you have a vested interest in its success.

You have a stake in the technology.

Hence, the proof of stake is a very greedy and selfish decision to secure and make the network very powerful.

Cardona, by the way, was not the first to solve this or use this.

Lots of cryptocurrencies use this concept.

Still, Cardano uses explicitly it to decentralize and secure its network. Still, if you didn’t keep up with all of that, just remember that proof of stake is much more efficient; it’s quicker.

It’s cheaper to use, and proof of work is a less good technology. Ethereum is proof of work.

Cardano is Proof of Stake.

Giant asterisk because Ethereum 2.0 is proof of stake, but that’s not the scope of this article.

So, that’s two problems that Cardano is solving.

Then there’s the last and final problem which is interoperability.

Without getting too into the weeds of this, interoperability is the pursuit of creating some universal language that allows the crossover of blockchains.

So right now, for example, crypto is almost like a zero-sum game, right you’ve heard of it, “Buy Bitcoin”, “Buy Ethereum”, “Buy Dogecoin”.

It’s almost like the winner has to take it all. But what if you could create a technology that was fluid like water and that it can exist within and outside of its blockchain by working well with others.

The best real-world use case of this is Amazon’s AWS, which is just a technology that allows other companies outside of amazon to integrate it into itself, enabling them to scale easier and quicker and helps them without destroying the network the security of Amazon itself.

What if a cryptocurrency could do that?

That’s what Cardano’s trying to work on with things like side chains and other concepts that we are just not going to dive into today because it’s way too deep.

But that is why I like Cardano. Because it’s a team player, it’s not a maximalist, and it doesn’t have the winner take all mentality.

This is why people are calling it crypto 3.0.

Crypto Generations

But what is crypto 3.0?

There are Gen 1, Gen 2 and Gen 3 types of cryptocurrencies.

Now Gen 1 are things like bitcoin, Litecoin, dogecoin etc.

The cryptocurrency was the first one to invent the blockchain. Obviously Bitcoin.

But, the argument is that it’s slow, it’s expensive, it’s clunky, and it’s outdated.

But bitcoin is still number one!

And the reason for that is because it doesn’t have to be all these crazy things and smart money.

It can only do one thing and one thing well, which is to be a store of value but that’s all it needs to do to be successful and which is why it is.

And then there’s Gen 2.

This is Ethereum, smart programmable money.

It’s cheaper, it’s quicker than bitcoin, but it still uses the same dated decentralization proof of work model.

Then there’s Gen. 3.

Gen 3 is obviously something like Cardano, which migrates over to proof of stake, supposedly the next evolution line.

So now let’s talk about what everyone else is here, for which is price and whether or not I’ll buy any.

We like Cardano because it plays nicely with all the other cryptos for its interoperability, which I think is essential in surviving and evolving today and age.

Plus, it has a limited, finite supply of 45 billion tokens.

This means that it’s a deflationary currency like Bitcoin rather than Ethereum, which is inflationary because it doesn’t have a finite supply.

So, it’s almost like Bitcoin and Ethereum had a child, and it’s Cardano.

Ethereum may not do well in the future.

If it fails, we feel like people will flock to Cardano’s cheaper network, which will go through an upgrade, allowing it to make smart contracts and all the things that Ethereum can do right now, except cheaper.

Future Predictions for Cardano

Now in the future price-wise, we always use one trillion US Dollars as our benchmark because that’s 10% of gold’s market cap, which bitcoin already did this year.

We can see at least in the next three to five years two to three other cryptocurrencies can achieve that as well.

It could be Ethereum and/ or Cardano.

But by that math, the market cap of Cardano would multiply about 25x from today’s price bringing the token from a dollar and 30 cents of today’s prices to something like 33 dollars per token.

Conclusion

Remember that story I told you at the beginning of the article on Blu-ray versus HD DVD?

That’s to say that it’s not necessarily the best technology that wins the game, but instead the ecosystem of developers that could potentially tip the scales in your favour.

We told you that story because the conclusion to that epic saga was that Netflix came along and digitized everything.

Before starting this big game, they offered Blockbuster to buy them at a fraction of the price then than it presents worth.

Just when you think you know where we’re going, you can be potentially disrupted, and we can go in a whole different direction.

We fully expect this investment to go to zero dollars which is why this is not an investment.

It’s a speculative bet, that we made so that you wouldn’t have to to see where we’re going.

But, if you want to invest your money, you should always put your money into cash flow or cash-producing assets, rather than the speculative bets of cryptocurrencies which could go to zero or they could go to the moon be responsible and be careful.

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