Edit 2022: It seems like better systems have come along, and a crypto winter has set in, and Taleb argues that BTC will eventually go to zero and I'm inclined to agree, platforms will keep improving, it may be a long time before any of them are good enough to stick as a standard, applications will migrate, most platform tokens will eventually be worthless, if there's ever a unit of exchange in crypto we do not yet know how it will hold its value.So I'd no longer advocate buying much of anything until we're really pretty sure that no further improvements to the technology can be made, and then still be extremely wary of volatility, don't expect platform tokens to hold value far beyond the actual usefulness of the platform.
Epistemic Status: Buying, but, the following does not constitute investment advice. There are some big open questions and some intuitions I can't start to explain (see the bottom).
Purpose: I am writing this post because I want the sorts of people who take the alignment problem seriously to have more money, but you will still need to do some research of your own. What I have here is more of a series of argument outlines than a complete analysis. My purpose here isn't to accelerate adoption of Cardano, really. I don't think Cardano needs my help.
ADA is the currency of Cardano. Cardano is (soon will be) a smart contract platform comparable to Ethereum.
I think the main load-bearing part of the argument here is that it looks like Cardano will end up have a year or two with the lead to itself, and whoever takes that lead, now, I don't think they would lose it again for a very very long time, because after Proof of Stake, Scaling, and Updatability, there don't seem to be any major holes left to fill, that's it, the biggest limitations of smart contracts will have been solved, developers will largely not be tempted away.
But I'm not completely sure. We need more clarity on this.
Present here in abundance are the qualities upon which credit grounds its meaning, responsibility, reliability. For the following reasons, many people will rightly want to believe in Cardano:
ADA's market cap right now is 53B. ETH's is 445B. I expect Cardano to grow close to Ethereum, and personally I expect it to keep going:
As for Bitcoin, I think a lot of BTC's ongoing demand right now is coming from corporations looking for a high liquidity asset that'll hedge against the inflation of the dollar? It probably wont take very long for these organizations to start noticing that there are other more environmentally responsible coins run by more responsible-looking organizations). Cardano may win that crowd on brand aesthetic.
On that note, and this is kind of a big deal, that just happened with Tesla. They just announced that they recognize that Bitcoin's got a carbon problem and declared that they wont accept payment in it and are investigating less wasteful coins (this seemed to cause every crypto to crash except cardano and probably some other green coins). I'm fairly confident that ADA will be the one they decide to go with, if they do switch (although they're saying they wont sell their BTC. I should also add that Elon has not taken up Charles's offer to visit his ranch and meet his mini donkeys, in fact he has not engaged with Charles at all, not even when Charles made a (admittedly kind of condescending) for Elon about how to improve Doge if Elon was serious about doing that (we suspect he is not)), as it currently has the largest issuance and trading volume of any green coin. I suspect they'll hold onto some of their BTC as an incentive for BTC to reform, instead of just spiraling further into its insanity with weird arguments about how Bitcoin is essentially a subsidy for intermittent power sources, which tend to be green, and is therefore actually good (I can't dismiss these arguments, though. I'll think about them a bit more), but I wouldn't bet very much on on that suspicion, as that is quite a lot of money for a high growth company to leave sitting around.
The reason this is a big deal is that Tesla/Musk is a kingmaker in tech, obviously. They are exactly the people who could bring about a flippening, and they know it, and they kind of have the motive (environmental mission). If you are invested in bitcoin, it seems like they might be offering you a peaceful way out. Implement the transition away from proof of work or risk losing even more faith.
Cardano is an updatable protocol. When a clear opportunities to improve are identified, votes will be cast and if it passes the patch will deploy automatically. This is not the case with Bitcoin. It is practically a core value of the bitcoin community that it should always be prohibitively difficult to add improvements to Bitcoin, which leaves me doubtful that they'll be able to rise even to this very clear and present challenge, nor the technical challenges of the future surrounding speed, cost and miner compensation as the block reward dries up. The conservatism of the operating community, in my view, gives Bitcoin a limited lifespan, while Cardano has a real shot at becoming a very long-maintained standard operating system for decentralized finance and transparent computing.
Ethereum is a working system that has been improving steadily with real-world feedback and a lot of invested labor for years, whereas Cardano is effectively vaporware. Outside view says that Cardano is not going to suddenly implement smart contracts and be a perfect diamond-like jewel. I believe that they may have "something" "soon", but I don't believe that they are going to catch up to Ethereum in any sense in the foreseeable future.
I think most of the value of Cardano and similar is a hedge on the event that smart contracts are a great idea but Ethereum experiences some catastrophic problem, like a major governance schism, or some giant disaster during the Ethereum 2.0 merge.
It's quite hard to make money investing if you can never develop enough confidence in your reasoning to sometimes disagree with the outside view. The outside view is already priced in.
I agree about Cardano being a good refuge for anyone fleeing foundational security issues.
Eth is getting prohibitively expensive to run anything on (like 50 dollars per transaction or whatever), a lot of people will be looking for an escape. Cardano is more efficient, less congested (for now), and has a scaling solution in the pipe (Hydra). Hydra was validated by some pretty convincing tests in the paper
As far as good governance, naming the scaling solution of your crypto currency after the biggest dark market seems a strange choice if you want to appeal to institutional investors.
Ethereum also has a scalling solution with Ethereum2 in the pipeline and Polkadot which is the other contendor has already implemented a good scalling solution.
I don't really know how long Cardano will take to roll out. Smart contract capabilities aren't live yet. I believe them when they say "soon" (The Ethiopia deal had to be predicated on it),
This seem strange. On the one hand you say that the what's good about Cardano is roadmaps. On the other hand when it comes to one of the most important features, they just say soon.
It's unclear to me why you would need smart contracts for identity and thus the The Ethiopia deal had to be predicated on it.
Eth also has scaling solutions in the pipe, but Hoskinson considers them too experimental, and not very likely to work in time, and I'm inclined to believe him, as he is intimately involved in the technical research process, and he does not seem vain about imitating what works.
I don't think "Our approach is better" is generally a very trustworthy statement. It would make more sense to look at what people who are independent have to say.
Good questions. (Aside from the one about Hydra. I don't think many potential investors are going to google hydra and then confuse a dark market for a scaling solution. I don't think many of them are going to google hydra in the first place and I think the ones who do will know the class of object they're looking for. An aside, they also named their development suite "Plutus", which another crypto project has tried to claim, but I've never heard of that project before and might never hear of it again and don't remember what it was.)
I wouldn't trust most people who say "Our approach is better", but Charles keeps generating plausible signals of actually having deep, impartial knowledge of every approach so I am inclined to trust this one. I'm not really sure if it's reasonable to expect to find a competent advocate of a crypto stack who is not deeply invested in its success, in fact, a lack of investment from an advocate should probably read as weak evidence of insincerity.
Aside from the one about Hydra. I don't think many potential investors are going to google hydra and then confuse a dark market for a scaling solution.
The issue isn't simply about confusion but about well-thought out naming choices. I don't see any good reason to use the name.
Hydra has 600% year over year growth and there's a good chance that it will be talked about a lot more in 2-3 years.
I'm not really sure if it's reasonable to expect to find a competent advocate of a crypto stack who is not deeply invested in its success, in fact, a lack of investment from an advocate should probably read as weak evidence of insincerity.
Some people and broadly invested and have spread their investment over multiple different projects. I would consider those to be more impartial then the founder of a project.
The reason to call it "Hydra" is that the scaling solution works by "growing" "heads". It is very hydra-like in its behavior. It might have been named before the marketplace was a (visible) thing? (They may have been developing it for a while)
I can see currencies, and I can even see identity to some degree... but what are some really practical applications of smart contracts? I always get stuck on the question of how they're useful beyond about the "multisig escrow" level. Is there some obvious "killer app" that existing institutions don't solve well, and/or that would really be accessible and meaningfully useful to people who don't have access to those institutions?
I've heard some handwaving about tracking titles in off-chain assets like land or whatever, but none that actually got down and addressed the off-chain practicalities or the many complications... and tracking titles in any way that does not bite off the complications doesn't really seem to require programmable smart contracts at all. I know there's gambling and CryptoKitties, but those don't seem like very important uses. I'm skeptical about the real utility of prediction markets, and none of them seem to have done anything very earth-shaking so far.
On "social recovery", it seems obvious to me that while people who don't participate will get screwed by losing their keys, some people who do participate will get screwed by picking the wrong "trustworthy" recovery agents. I don't think the problem of managing very powerful high-value keys has been solved at all for most users, and I'm not so sure it can be solved.
As far as killer apps go I think there are multiple interesting roads.
Science funding via NFT's in intruiging: https://opensea.io/assets/0x495f947276749ce646f68ac8c248420045cb7b5e/41443491289334730858714141368268395642829177615924976808738423867555824271361 Making scientific papers into intellectual work that can be owned like artwork is intruiging. Especially given that it's possible that owning a highly cited paper makes you money.
Kleros allows for a bunch of great applications. At the moment many people complain that Youtube bans a lot of people via bots without any human review. Youtube could have a system where if a bot locks down one of your videos you can easily get arbitration via Kleros for getting the post unlocked provided you put some money into escrow.
Having the ability to write rules that get neutrally arbitrated means that a startup has to spend less money on hiring people to enforce rules and can simply abstract that away in a similar way a startup currently abstracts away owning servers by using AWS.
Upwork.com/Freelancer.com currently have 20% fees. I would imagine that creating a similar market with 5% fees that does all the rules enforcement via Kleros would be a successful product.
You need a bank account to access Upwork but you don't need it to access such a market. That means that it's possible to bring markets to communities that currently have neither a functioning bank system nor a functioning legal system.
It's unclear to me why Kleros currently has such a low valuation given that the general mechanism is a highly useful building block for many other applications.
Currently, prediction markets have much higher fees then financial markets for most transactions. With better designed prediction markets then the one's we are currently having (and much lower transaction cost then currently exist on Ethereum) I expect them to provide a lot of economic value.
I’ve always thought that the killer app of smart contracts is creating institutions that are transparent, static and unstoppable. So for example uncensored media publishing, defi, identity, banking. It’s a way to enshrine in code a set of principles of how something will work that then cannot be eroded by corruption or interference.
Why would you need smart contracts for publishing? (rather than just file-sharing or a p2p web.) I can/have thought of mechanisms in that area, but I'm curious as to what you had in mind.
I agree with what you're saying, but that's still an abstract potential rather than a killer app.
You don't need smart contracts for publishing but you do need some way to publish a list of documents or the hashes of the list of documents. A blockchain is an easy way to publish IPFS addresses of articles.
If you want something like verifying that articles are correct you could it's very hard to do that without smart contracts and interfacing with a service like Kleros.
Agreed. We might refer to them as 'leaderless orgs' or 'staffless networks'.
Social recovery is presumably going to be optional, I can't really see a way they could make it non-optional. But I agree that it's probably impossible to design a system that would work for the sorts of people who would be betrayed in the worst possible way by a quorum of their closest friends and family.
Good approximate solutions to recurring problems are generally quite useful to have.
Cardano has been very Too weak Too Slow. They have a giant valuation but they still haven't launched smart contracts! The coin launched in 2017, so they had plenty of time to work. Despite this they have the fourth-highest valuation! (excluding stablecoins). This situation seems crazy to me on fundamentals. Of course, they probably will pump once smart contracts launch. But despite having most of my net worth in crypto I am not buying Cardano.
My stance on how long it's taken for them to deliver smart contracts depends on when they said they would deliver smart contracts. Are they long past a previously stated deadline? Or did they expect the preliminary formal work to take this long? If they expected it to take this long (or like, 2.5 years), and still decided to do the formal work, that would be a credible signal that they really believe it's that important and I would be moved by it. Otherwise, cause for concern.
This is interesting. There's a lot here, I agree with some but not all of it, and I'm not presently going to comment on most of it (mostly for time reasons.) I am a Bitcoin user and developer, and have looked briefly at Cardano in the past. One thing I'd specifically like to comment on:
"but we already know proof of stake works, this isn't necessary"
We really don't, though. We know for sure that the original proof of stake algorithm was badly broken, in multiple ways. There are now a number of different successors that go by the name "proof of stake". I have no specific reason to believe that Cardano's is not broken in some way. They appear to use a PoS system called "Ouroboros" that they developed themselves, starting in 2017, according to https://iohk.io/en/research/library/authors/aggelos-kiayias/ . It looks like the original 2017 paper claims that the system is "provably secure", but judging by the list of papers it's also undergone a number of iterations since then. (That doesn't necessarily imply anything bad, but neither does having "provably secure" in a paper title really prove anything good. I haven't read the paper.) I've been meaning to specifically investigate the ETH 2.0 version of PoS, to see what I think about it, since Vitalik has written about its design at some length; I may have to add this one to the reading list.
There are now a number of different successors that go by the name "proof of stake". I have no specific reason to believe that Cardano's is not broken in some way.
On the other hand we do know that Bitcoin is broken in that 70% of the hashing power is controlled by China. If China choses to attack it, Bitcoin would need a fork.
That's similar to how Cardano would need a fork if someone successfully attacks it.
Helping Ethiopia and other governments build better services for their citizens might be a good business, but I'm very skeptical that it needs any cryptocurrency tech.
Though, there seem to be some core things they actually can't change, and IOG argues quite well that network entrenchment effects everyone imagines to be here don't exist, people who actually write smart contracts (as opposed to currency boosters), empirically, seem to be quite willing to try other platforms, and Cardano will develop compatability with ethereum contract code, which could just clear the way entirely.
What's the argument?
A lot of current blockchain projects are building blocks that can be used by other projects. If you take a uniswap pool, other smart contracts on Ethereum can trade on that pool while smart contracts outside of Ethereum can't trade on it. Even if Cardano will implement Solidity and the uniswap code can be run over at Cardano, the resulting uniswap pool won't have the same liquidity and thus higher transaction fees.
While thinking myself about what's necessary for a good prediction market to exist, access to Kleros or an equivalent seems to be important. It might be possible to have interchain functions in a few years, but the network with the most applications allows a lot more to happen as long as the interchain functions are not seamless.
So, I might be missing something, but why would people putting contracts on a block chain need to use a chain based token? One half of the contract (the Tesla, house, 1000 widgets delivered, or whatever) exists in meatspace, why can't the other half be "I promise to send you $50,000 USD"?
It can be argued that in many contracts, they actually wouldn't want use the native coin, because the unpredictable changes (or increases, even if it is always an increase) makes them unsuitable for most uses. For instance, say you'd made a bet with someone about something that's only going to resolve a year later. You want to know how much you're betting, but if you bet in a native coin, you really don't know how much a given quantity of that is going to be worth. The problem also comes up for contracts that use fines or collateral. That covers most contracts. So there are stable coins, that peg to the price of metal, or mirror the USD. I also came across a coin that multiplies or winnows in your wallet depending on how much its value changed over the course of a day so that it's always worth roughly one USD. I'm still not sure how to feel about that one.
But, ADA is mandatory for paying transaction fees, staking (which currently gets a return of 5% per annum), and voting in the governance processes. Generally, I'd guess that a lot of people will decide to trade in, or hold, ADA, just because converting would be mildly inconvenient.
Making the contract of selling would sell a Tesla for $50,000 USD works well when both parties trust each other. If I don't trust a stranger to send me $50,000 the transaction likely isn't going to happen.
If you live in a country with a functioning government you can make a contract that allows you to go to court in the event the other party doesn't hold up their end of the transaction.
Legal cases are however expensive and take a while to get resolved. Besides, not everybody lives in a country where they trust the government to enforce contracts fairly.
Smart contracts allow the creation of systems where contracts can be resolved without relying on the government. For that it's necessary for the smart contract to know something about the real world and the technology to tell smart contracts something about the real world is generally called "oracle".
Depending on the usecase it's easier or harder to provide a good oracle. For prediction markets Omen is one example. It uses a combination of two other blockchain projects Reality.eth and Kleros to resolve the prediction market is a trust-worthy way.
That combination generally gets you a good result when the result is publically verifiable.
When it comes to providing insurance, this allows new products. https://www.ledgerinsights.com/etherisc-blockchain-parametric-crop-insurance-kenya-chainlink/ for example explains how it's possible to provide Crop insurance for Kenyian and Sri Lankian farmers in a cheaper, faster and more trustworthy way then existing insurance providers.
Ok, ok, ok, ok, and... thread dropped. I'm still not seeing that "last mile" connection where the contract knows anything about what happened in meatspace except "verified agent 8675309 asserts side 2 of the contract has been fulfilled" times however many verifiers you're willing to pay for.
And regarding crop insurance,
I'm not sure either. Might only be needed for the operating fees.
ADA is definitely a contender, but my concern is that they may be too slow. I'd rather own a few coins, and rebalance as things develop.
(I own some ADA, and added more on the recent dip, but I have more ETH than ADA.)
A brief summary of "what is Cardano" would be helpful (I'd never heard of it before this post).
How does the promised transition of Ethereum to proof of stake affect the comparative ranking with Cardano? (I have some crypto, but am noob regarding the technical matters.)
If it happens before cardano's smart contracts come online, my prediction is that cardano will only come back if it wins the scaling race (hydra vs eth sharding).
The thing is, it looks like eth pos wont come for a while. That, I think, is the crux. If we can develop more certainty about that claim, we'll know how to bet.
This assumes that Cardano and Ethereum are the only contenders. At the moment Polkadot already has both developed smart contracts and a lot more scaleability. Polkadot manages to do 3000 TPS which is 200X of Ethereum or 10X of Cardano.
In addition parachains for more scalling are in the process of being rolled out on Kursuma (Pokadot's second test with 3 billion$ market cap) for even more scalling.
Important features such as a bridge to Ethereum are already worked on for Polkadot and might come online this year, so there's some way to access Ethereum services when you need them for your application.
And don't forget that ADA is peer-reviewed!
I always found it hilarious that one of the main selling points for ADA was that it is peer-reviewed as if that meant something. The amount of absolutely atrocious peer-review science that is published every year is amazing, so I never really got why they insist so much on that.
This might be just prejudiced, but Charles looks to me like a very good and honest guy, but a bit delusional. And I cannot really stand the (probably good intended) paternalism that he distils when they talk about Cardano being adopted in Africa (teaching Haskel is the way to go, really??)
Don't forget though, that they can talk beautiful things about how Cardano works, but right now is just promises, they don't even have SC capabilities yet (!) I expect they come across many problems once they start doing real things, and probably by that time, Ethereum will probably be too far to catch up.
Having said that, Cardano seems like a promising project, but it is difficult to predict how the landscape in the crypto space will be in a few years. It might very well be that Cardano still exists but it has just a very residual influence since Ethereum has the advantage of being the first mover. Or it could be that some of the big companies push forward any Ethereum competitor to balance things out. It is hard to predict. But to me, investing some money in ADA seems like a risk worth taking.
If you publish an algorithm in a peer reviewed journal then an academic can publish a paper demonstrating how that algorithm is flawed. Interfacing with the academic community is a good step for getting complex algorithms to work well.
Yes, but Bitcoin for instance is neither peer-review, nor published in a standard journal. There is however a massive community very interested in discovering bugs or flaws and the algorithms, and that's all you need. I don't see why doing this in a formal academic setting would be significantly better. Don't get me wrong. I am not saying is a bad thing. I am just saying that it is funny they want to sell that as one of the main points of their project.
Bitcoin is flawed in that the Chinese government has the power to freeze Bitcoin addresses if it wants and it seems to me that the massive Bitcoin community doesn't understand that fact. It seems that when the Chinese government takes step to reduce it's power over Bitcoin the Bitcoin price falls which is very strange.
Besides that, Bitcoin is a fairly simple protocol and not very innovative as far as adopting new innovations. If you don't do innovation it's less of an issue to be certain that the innovations don't have vulnerabilities.
In contrast to Bitcoin Ethereum/Cardano/Polkadot want to be at the leading edge of what's possible with crypto-technology.
I am not familiar with the Chinese government having the power to freeze Bitcoin addresses. Can you expand a bit on what you mean?
70% of all mining power is controlled by miners on Chinese soil. Companies in China have to do what the Chinese government orders them to do. If the Chinese government tells miners: 'You can't create blocks that include transactions that move bitcoin out of a certain address or blocks that build on blocks that do so, you are also not allowed to export any mining equipment out of China', the address is effectively frozen as the Chinese miners together create the longest chain of blocks and the longest chain of blocks happens to be the official one.
Miners outside of China can then either create blocks that get soon invalidated as they are not part of the largest Bitcoin blockchain or they also follow the guidelines of the Chinese government.
The only difference to be ability of US government to tell banks to freeze US assets is that the Chinese government can only freeze accounts but not dispossess them.
You will likely get a bunch of Bitcoin forks afterwards. Chinese miners are going to mine what's most profitable for them to mine under the circumstances. Then there's likely going to be a lot of chaos, a lot of people sell Bitcoin and it's not clear what value Bitcoin will have after everything plays out.
Interesting take. That would be effectively destroying (temporarily) the Bitcoin network and a massive blow to the credibility of cryptocurrencies. This applies though to any PoS algorithm in which the token owners are most of them in China, right? How is PoS different from PoW in this regard?
his applies though to any PoS algorithm in which the token owners are most of them in China, right? How is PoS different from PoW in this regard?
ChristianKI mentions a few things but I think the important one is what happens after a fork. If a majority of miners in PoW behave abusively the game is over, there's no fix except building even more mining. If a majority of stakers in PoS behave abusively, you fork once and burn their coins and then the problem is solved forever. If the abuse is clear, then that's a relatively easy problem (and e.g. the ethereum community seems well enough organized to fix the problem even if it's kind of subtle).
thank you both for the explanation, that was very didactic
The reason why 70% of all mining power is concentrated in China is downstream of economic policy that provides very cheap electricity costs. The incentives lead to China being the place for mining proof of work.
This applies though to any PoS algorithm in which the token owners are most of them in China, right?
Only if those token owners tell the Chinese government about the fact that they are token holders. Buying crypto-currency is generally illegal in China.
The economic incentives with PoS is to either not tell your government about the fact that you own the currency or hold them in a jurisdiction with the least amount of legal issues that come from holding the crypto-currency such as a tax haven.
If you are a Chinese billionaire (or similar person with access to a lot of capital) and want to get into earning from PoS you can create a company in a tax haven and let them hold the stake for you in a legal structure that's optimized for not being able to be confiscated by the Chinese state and ideally outside of their sight.
That way if the tides turn within China you can easily leave China and still have your wealth.
Datacenters are location bound and under the control of their host country in a way that digital crypto ownership isn't.
Furthermore, even if the Chinese government would be able to secure control over the proof of stake currency all you need to do to solve the problem is a hard fork that burns all the tokens that the Chinese government holds. Doing the DAO fork in Ethereum was controversial but Vitalik could still do it. If Vitalik says that Ethereum has to do a hard fork to get rid of the Chinese government interference it's easy to get the important players to join in. This means that the Chinese government would burn hundreds of billion of capital under Chinese control for freezing accounts for a few days or 1-2 weeks which seems like a stupid move. Crypto is all about game theory ;)
There's no way easy way to get rid of the data-centers that effectively mine in PoW. You can start by switching your PoW algorithm to invalidate their ASICs in a hard fork but that doesn't change the fact that the Chinese data centers still have cheap electricity. Finding consensus on a change of the Bitcoin proof of work algorithm is also very hard.
massive blow to the credibility of cryptocurrencies
It would likely lead to currency besides bitcoin also be sold off and people focus more on the actual value provided by crypto. Proof of stake currencies that actually provide economic value via smart contract based applications and whose value isn't entirely based on speculation will have less of an issue and regain value.
I don't see why doing this in a formal academic setting would be significantly better.
I don't know how to help you.
And I cannot really stand the (probably good intended) paternalism
Finance is basically the least paternalistic way of helping people, pretty much everything they're doing leaves all of the decisions about how it will be used to Ethiopia, Ethiopian developers, and the end-users.