Cardano ADA is dead

The "crypto currency" Cardano is sweating again for a deadline and continues to run on three servers

Shelley the turtle. Coincidentally, good illustration for the Shelley upgrade from Cardano. Image by Richard Gillin via flickr.com. License: Creative Commons

Cardano postpones the Shelley update again. The cryptocurrency therefore continues to run on the servers of two companies and a foundation - but that doesn't matter, since nobody uses it anyway. This does not prevent the founder Charles Hoskinson from continuing to throw around the greatest and greatest promises.

In the realm of cryptocurrencies, one occasionally comes across projects that are always extremely revolutionary, but never quite completed. This is normal for startups. The difference, however, is that startups burn the money of professional investors in this way, while crypto projects feed on the money of private investors. One of these projects is Cardano (ADA). Since this coin keeps making smaller and bigger messages, let's take a look at its history and present today.

Cardano emerged from an ICO that took place between 2015 and 2017 and is still not completely finished because it has still not made the leap to decentralization. There are always deadlines as to when the time comes, but these are constantly shifting. While most investors in Cardano have made massive losses, he made founder Charles Hoskinson one of the richest and most prominent people in the crypto universe.

But let's start at the beginning.

The solution to the proof of stake problem

Cardano is based on the scientific work of Charles Hoskinson and others. The American, who is just over 30 years old, co-founded Ethereum, but then quarreled with Vitalik Buterin and the others over the question of how future developments should be coordinated. A little later, with his company IOHK, he supported Ethereum Classic, which split off from Ethereum as a result of the DAO hack, but soon concentrated on his own project: Cardano.

The Twitter profile of Cardano founder Charles Hoskinson

Cardano is a proof-of-stake cryptocurrency that uses the Ourobous protocol. This protocol was formulated in a paper in mid-2016. According to the Cardano website, it is "the first proof of stake protocol that has been mathematically proven to be safe."

Proof of Stake is an alternative consensus procedure. While with Bitcoin the miners burn electricity to secure the blockchain, with Proof-of-Stake the "stakers" simply deposit their coins. Instead of the hashrate, the number of deposited coins decides the chance of finding a block. This process is obviously less resource-hungry and probably also less harmful to the climate.

Even if there have been cryptocurrencies that use proof-of-stake for a long time, such as Peercoin, Whitecoin, Blackcoin or Gridcoin, the method was never considered completely secure. There are several problems, such as the nothing-at-stake problem or the lack of real entropy. It would be too much to explain these problems in detail here. They are about preventing false incentives and forks under which the security of the blockchain crumbles. Vitalik Buterin explained in a tweetstorm some time ago how the Ethereum developers are trying to solve these problems in search of their perfect proof-of-stake system without centralized checkpoints like the "classic" PoS coins like Peercoin which can also be used manually if necessary after an attack.

With Ourobous, the developers now claim to have written a mathematically secure proof-of-stake protocol. The paper went through several peer reviews and seems to live up to the promises made.

Pure losses for future investors

So far so good. But then something happened that is relatively typical for the crypto world. Charles Hoskinson took this ideal protocol and hired a few developers to create "the most precisely constructed cryptocurrency" (according to the website).

This cryptocurrency, called Cardano, should not only use the perfect protocol, but also be the first to be written in the Haskell programming language, a language with a strong academic background. In addition, Cardano separates the blockchain into two layers, one for the settlement of the values, the other for the execution of smart contracts, which promises to solve all scaling problems and also to perfectly combine privacy and identification. You could say that Cardano is an “ivory blockchain”: a blockchain that is perfect on paper, but in practice often fails to win the market.

Hoskinson funded Cardano through an ICO that took place between 2015 and 2017. In this, vouchers for the ADA tokens were sold on the Cardano blockchain, probably at a price of around $ 0.0024. Hoskinson's company IOHK took in more than 100,000 Bitcoin, which was of course worth significantly less at the time than it is today. He transferred a good 8,000 Bitcoin to the newly established Cardano Foundation. When Cardano went live at the end of 2017, the team generated another 20 percent of the ADA tokens distributed as vouchers, which were distributed to Hoskinson's company, the Cardano Foundation and the Emurgo company.

In November 2017, the tokens could be bought for 2 cents, which meant a good profit for the participants in the ICO. In a very short time, however, prices exploded. From two to ten cents at the beginning of December, then from 10 to 40 cents by the end of December, to 66 cents on January 1st, and from there on January 8th to more than one euro. Boom. Those who invested at the right time could increase their investment fifty-fold within two months. But then things went downhill. Back to 60 cents. Less than 30 cents. In September 2018 the rate was already below 10 cents, since 2019 it has almost always been below 5 cents. Today a Cardano token (ADA) is worth 2.7 cents, which means a loss in value of more than 97 percent from the top.

Or, to put it another way: Everyone who has invested in Cardano since December 2017, no matter what time, has made losses. There are really few cryptocurrencies that have done that badly.

At the same time, Charles Hoskinson poses on Twitter and other social media with his many travels and amusements. Sometimes he's at a party in a bunker, then he smokes cigars with friends, is in Lisbon, New York, South Korea, on the ski slopes and on the beach, and so on. The lousy performance of the ADA tokens and Charles Hoskinson's self-portrayal as a crypto beta celebrity seem so absurd to some observers that they “conduct a study of the correlation between Mr. Charles Hoskinson's travel, food, entertainment and the Cardano ADA price”. wrote.

But let's not reduce currency to price or to the person of Charles Hoskinson. What has happened at Cardano since then?

The three-server ghost chain

First, let's look at how much Cardano is being used. A look at the block explorer shows a ghost chain. Most of the blocks have exactly zero transactions. After a good two years at Cardano there is no economic activity worth mentioning.

According to the Cardano website, it is a "decentralized public blockchain" - a description that is very doubtful whether the circumstances are. This can be seen at the latest in a blog published by Charles Hoskinson on December 28, 2017. In it, he explains - in addition to a rambling celebration of Cardano's great progress - where the cryptocurrency currently stands and where it is going: “We formed Byron (the September release of Cardano) as a minimal workable product to test the concepts on which Cardano is building. ”The experiment was a“ tremendous success ”. Most exciting, however, is “that Cardano will begin in 2018 to open up to the world. Delegation and staking will be rolled out during the first and second quarters. ”And that is exactly the point.

At the Byron stage, Cardano is not a true proof-of-stake cryptocurrency. One might even doubt whether the term cryptocurrency is appropriate. Because “delegation is,” explains Hoskinson in a later post, “tied to the core nodes under the control of IOHK, Emurgo and the Cardano Foundation, and block rewards are switched off.” In other words, only the three parties behind Cardano are able to form blocks.

Cardano is a centralized blockchain with privately negotiated consensus that is not used by anyone. That is the current state.

When is Shelley coming?

But this condition is only temporary. It was clear from the start that he would soon change. Hoskinson had already announced that Cardano would become decentralized in the first two quarters of 2018. The update that is supposed to initiate this is called Shelley.

The first quarter of 2018 passed. Hoskinson announced a research program to make Cardano quantum safe and spoke to the London School of Economics about how Cardano would improve the world in Africa through a decentralized, secure blockchain. There is endless potential, an “African Operation Manager” from Cardano assures on the blog. Finally, on April 9, Hoskinson announced the Shelley update. The developers are fantastic, they are on the right track. But he did not give a specific date. In the fall, Hoskinson finally announced that Shelley would appear in the first quarter of 2019.

But the first quarter of 2019 also passed. Instead of the live version, Cardano presented the "formal specification" of Shelley in April 2019. It took until September until Shelley was finally activated - in a testnet. Confident of victory, Hoskinson said that Cardano's scientific methodology will overtake most, if not all, of the cryptocurrencies on the market. From the first quarter of 2020, Shelley would hit the live network.

Now the first quarter of 2020 is drawing to a close - and Shelley is still not activated after two years of delay. Cardano continues to run on the three servers of IOHK, Emurgo and the Foundation. After all, there is a “test network with incentives” in which participants can stake real ADAs - of course without participating in the consensus process for Cardano. Hoskinson said there was a high chance Shelley would be ready in the next two months, but he doesn't want to give any more deadlines this time. In return, he promises that Cardano will become “the most decentralized cryptocurrency” and that the 2020s will be the age of Cardano, which will become the dominant force of cryptocurrencies.

In a video, he was also angry about criticism from investors and the community. Cardano is a scientific project, and that takes time. In addition to all the other challenges that Shelley brings with it, the developers would also have to optimize the Haskell programming language in order to revise libraries and solve compatibility problems.

Not at all unusual ...

There are some striking structural similarities between Cardano and IOTA: Both projects promise everything, but have so far achieved very little. Both projects are still enormously centralized and have been messing up all the deadlines that they set for decentralization for years.

There are also some details, such as the fact that both are also working on secondary construction sites such as security against quantum computers or have decided on an exotic infrastructure for unclear reasons - the Haskell language at Cardano, the ternary design at IOTA - and now, surprisingly, with the consequences of this decision have to fight. After all, both projects have been a source of disappointment and losses for investors for more than two years.

In a sense, IOTA and Cardano mark the top of an unattractive trend: They announce a revolutionary design, publish a “minimally workable prototype”, collect ICO funds, promise to catch up on everything else, miss one deadline after the other, but steer away with new ones Projects, auxiliary construction sites and partnerships. At IOTA and Cardano, this is particularly blatant, because the two projects have celebrated themselves beyond all measure as the reinvention of cryptocurrencies from the start, but have conveniently so far refrained from implementing the absolute core property of cryptocurrencies - decentralization.

But the phenomenon, in a milder form, is not that rare. With ICOs, the promise without a product is almost a prerequisite, and even Ethereum is building on the fact that the developers will succeed in reinventing the blockchain with Ethereum 2.0. But at least Ethereum has a working and decentralized network, even if it does not do what Ethereum actually promises to do.

For investors, as well as for companies that want to use blockchains, only one thing can follow from this: Take a very close look at what you are getting yourself into.