Cardano is the 5th largest crypto by market cap. I’ve been studying what are called “Alt-Coins” to understand how these crypto projects work. Crypto can be looked at like products. These products provide different capabilities and utility to different users. In the recent adoption of BTC as legal tender in El Salvador, BTC provides a secure, decentralized, instant, permanent means of transfer of value between 2 parties. Those properties are provided by the energy used to “mine” the cryptography of the ledger”. If I work in the US and make $1000 to send to my family back in El Salvador, and the price of BTC is say $30K, I deposit my $1000 into my BTC wallet, buy 1/30 of a BTC which on my exchange costs $2.99, hit send to say my wife’s wallet and she receives 1/30 of a BTC back in El Salvador. She can then sell the BTC and turn it into the dollar pegged Salvadorian Colon, or she now can just spend the BTC to buy gas and groceries. OH the volatility! BTC is volatile but not so volatile that you can’t react to a text message at 4pm on a Friday that the remittance is coming and to be ready to convert BTC to Colon or to some stable coin like the USDC which is pegged to the dollar also. Your $1000 is dollar denominated, the Colon is dollar pegged and you can send remittance whenever you like, so you can choose to send during a period of low volatility. 23% of the Salvadorian GDP is remittance and this affects about 360K households, so the cost and efficiency of transfer is not trivial. Western Union charges $47 and is not virtually instant. In addition El Salvador has volcanic power to burn, which is actually going to waste as I write this and that energy can be used to create the security of the network at a profit to the country and it’s citizens. BTC is a good product for El Salvador’s market needs. It stores value and allows secure commerce at rock bottom prices without any 3rd party entity involvement. Because BTC is declared legal does not mean other crypto’s convertible to BTC are not available to El Salvadorians, like stable coins, Ethereum Cardano etc.
Stable coins are a means to store value apart from volatility. If you turn $1000 of BTC into USDC it’s value will remain stable at $1000. Some stable coins offer interest up to 12.68%. The higher the interest the greater the risk. Interest is offered to increase the liquidity of a project. It works the same as the Feds Repo system. Banks offer short term loans to each other in order to collateralize commerce. The loans are typically settled each night. When they are not settled we have Bear Sterns and Lehman Brothers. We have the liquidity crisis of Sept 2019, we have daily injection of billions of dollars of liquidity by the FED to keep interest rates in a range. If those loans become illiquid the interest rises to level in the range of 12%, so the American economy is no less risky and volatile than Crypto. it’s just the FED literally papers over the issue with dollar bills every night. The point is stable coins act as a bank for the unbanked and un-bankable. They are designed to allow people to do banking chores without tellers. The thing that first got me into crypto was a story about a multi millionaire who was vacationing in the Greek Islands in 2015. Greek banks froze up and Greece became illiquid. Withdrawals were limited to $50/day and you had to wait in line all day to get your $50. Checks could not be cashed. Credit cards were not recognized. The guy couldn’t get a plane ticket home and was stuck, but he had BTC and with BTC he could buy Ouzo, Gyros and a plane ticket home. BTC is fully backed in terms of it’s store of value and trust. It relies on the mining and not some bank’s word the liquidity exists. 2 weeks later I started buying BTC and 3 weeks later I started mining crypto. Mining crypto turned out to be more hassle than I was willing to endure. At that time a transition is mining was occurring between using old computers and making high power video boards into multi thread processors by using software to multiply computing power, what is called #hashrate. It was fun to get a miner going, even though briefly. BTC mining became an arms race of specialized machines created specifically for their task, the way a rail dragster is designed specifically for it’s task. You don’t drive a rail dragster to the 7-11 to pick up some milk, and you could no longer use an old laptop to mine BTC. The BTC mining protocol is called proof of work.
Another protocol exists called proof of stake. Proof of stake provides liquidity by having “coin owners” offer their coins to provide liquidity and trust to the network. Effectively they “stake” the network. In the PoW model energy and #hashrate is what “stakes” the network. Ethereum started as a proof of work network but is converting to a proof of stake network. People are paid to stake a network. I decided to give Ethereum staking a try. I store my Ethereum on Coinbase which is a publicly traded company multibillion company so I figured their incentive to steal my Ethereum was low. Their “fee” for allowing me to be part of the stake pool is pretty high so they make money off my staking, a further incentive to play by the rules. Pretty much it works out for every 4 Ethereum that is paid for my stake, they get 1 and I get 3. I could become a private staker with as little as 32 ETH to stake and make all 4 coins, but with Coinbase I’ll get a 1099 MISC to file with my taxes and all of my accounting will be up and up. I have zero interest in an audit. Over time as the staking project progresses I’ll be passively adding Ethereum to my account. Staking Ethereum does require you lock up your ETH making it unavailable to trade, but I’m buying and holding anyway. I staked about half of my ETH to see how this works as a source of income and my return is about 6%.
I’ve also been investing in a token called Cardano. I think Cardano has the possibility to become very big. It was written as a proof of stake protocol from day 1 and it’s staking mechanism is different than ETH. Cardano uses staking pools, where groups come together, put up their Cardano, get paid and then get to have their own “rules” about pie distribution. Effectively this makes each staking pool a small business, and all of these small businesses are in competition. This forces the cost down through competition while maintaining a high degree of security since the “coins” never leave your custody, so no one can steal them. The pool acts as an entity like a fist is made of 5 fingers. Efficiency is created by economy of scale and competition. Staking rewards are in the 5-6% range as well. Unlike the ETH model the stake can be un-staked at any time. Un-staking simply means your pool looses your share of the capital and you loose the income.
Cardano is targeting the third world. BTC and ETH are pretty much first world inventions. Imagine African villages that create a stake pool. This effectively gives each stake holder a bank account that pays 5% interest. It also gives each stake holder an identity. Right now it’s virtually impossible in Africa to prove who you are when it comes to commerce. If you go to a bank for a loan interest rates are 85%. If you are on the blockchain your worth is guaranteed by the chain and you can engage in commerce. In the country of Georgia educational credentials will be included on the Cardano block chain. Right now you can go to the Middle East and buy MBA credentials for $250, but those credentials are not guaranteed. Georgian credentials ARE guaranteed and as such therefore your identity is guaranteed. Several African countries are adopting Cardano. Ethiopia, Tanzania, Mongolia and others. As Cardano is adopted, the means of trusted cheap inter country commerce is adopted. If I make sandals in Ethiopia and you sell sandals in Tanzania we can do business peer to peer. Cardano uses a programming language called Haskell and therefore smart contracts can be created. When commodities are traded they are created essentially with smart contracts. When you buy corn, what you purchase is standard 5000 bushel contract of the grain of a specific quality and the price is determined by how closely your product matches the standard contract. In the case of sandals, payment can be predicated on a smart contract which includes quality and logistics. Meet the terms of the contract payment is guaranteed. This will transform Africa, and eastern block nations.
There is much more about Cardano to understand, but consider Musk has satellites all over the sky with his low earth orbit project Starlink. In the late 70’s I was involved in a low earth orbit satellite project for amateur radio. A satellite was piggy backed on a space launch and could be contacted by very rudimentary equipment. I made a beam antenna out of a broom stick and 12 ga copper wire and was able to contact other operators beaming the satellite. This same system can be used with the Starlink satellites except Starlink will top out at 42,000 satellites. This means every few minutes a new satellite appears on the horizon giving essentially continuous internet connectivity. Effectively instead of you going to a new cell on the network as you drive, a new cell pops into view as you stay stationary. This gives Africa internet without wires or towers. Ever wonder what happened to that iPhone 6 you traded in? It’s living in Ethiopia in someone’s pocket. I live in the shadow of NASA and we launch at least 4 rockets a month with satellites. I checked and I could sign up for Starlink internet coverage to my home today. This is happening, and an international block chain based currency is just the ticket to explode commerce in the 3rd world. If you look at demographics it’s emerging markets that have all the kids and therefore will experience all the growth. Kids are not afraid of technology or crypto and will use those tools to sculpt their world. Once in Hong Kong I went to a 10 story building which was a “computer market”. It was floor after floor of booths and surrounding the booths were kids and toothless old grandpas. They were buying mice and motherboards and power supplies. There wasn’t a Dell or HP within 1000 miles. It was raw commerce being built from the ground up and it was an explosion. If Cardano can standardize in the 3rd world the same thing will happen. Cardano is yet to become fully operational. It is undergoing a rigorous testing regimen. Over 100 peer reviewed academic papers have been published on this project making it the most researched project in history. The expected time to go live is September which is why I’m writing about this. Gen 1 was BTC. Gen 2 Ethereum. I think Cardano has a high probability given its market cap to become the Gen 3 standard. If you missed 1 and 2 you might consider risking some funds on 3. Crypto growth is best characterized by Metcalf’s law which basically says a network’s worth is a function of its exponential complexity. This is what drives the asymmetric growth. The independent variable of complexity is # of wallet addresses. 1st there is BTC. Ethereum lags BTC in terms of address growth by 3 years. Cardano is slated to add 1 million new African address soon.
If you go back to my days as a BTC miner, what put me out of business? It was greed. Greed forced the end result of ever more powerful and specialized miners. I’ll let you consider that motivation and it’s risk.
3 Replies to “Cardano”
You’d previously mentioned a 50-50 to 75-25 Bitcoin-Ethereum split. How are you incorporating other coins like Cardano into that framework?
I have small stake in Cardano something like 4.5% of my crypto portfolio. Cardano is somewhat like Ethereum in that it’s a proof of stake protocol, where as BTC is proof of work. They really aren’t equivalent products. BTC acts as a store of property. Personally I don’t consider BTC a currency. It’s more like owning real estate. ETH and ADA are transactional entities and have some currency properties. Right now I have some ETH staked and it generates interest in ETH. So far my Ethereum stake has generated 0.13 ETH in 17 days, aka free money. As the cash price of ETH fluctuates, so does the value of my interest. My present ratio is 57.7% BTC : 37.7 ETH : 4.6% Cardano. I have significant cap gains tied up in each coin so rebalancing is a taxable event and you have to judge the value of living on the efficient frontier v the tax consequence. Crypto is still new and is developing creative destruction as it builds out its infrastructure. Each currency also has it’s own dynamic. BTC I think will tend to anchor large first world and first world wanna be entities and you can see the infrastructure being built around that. Ethereum is first world commerce. Cardano is third world commerce. My portfolio touches about 70%+ of the total market cap for the space. As satellite telecom builds out in the 3rd world, Cardano is designed to plug in and be the credentialing, contract and commerce layer for 3rd world business.
I see crypto as a 5 to 10 year project. It’s cheaper, more secure, peer to peer and not involving some bank or overseer to complete a transaction. Cardano recently was added to the Grayscale diversified fund as the 3rd largest holding. The fund has similar % to my portfolio