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Thanks for the patience with last week’s unscheduled break – hoping to bring it back to you all with this newsletter packed full of content.
Chaos in the king’s court. Two weeks ago Cardano shot to $1.40 and the crypto world began losing its collective mind.
The Bitcoin and Ethereum purists, as well as other altcoin disciples, have come out of the woodwork to shout down Cardano calling it a zombie chain, scam, and useless. Despite all of this, Cardano has moved into the top 3 with $40B in market cap.
I’ve found the shots coming from crypto Twitter hilarious, but these people do bring up valid points. Is Cardano a pump-and-dump-zombie-chain-scam? Let’s find out…
In the section below I’ve outlined some of Cardano’s major criticisms. Some of these overlap with points I noticed as potential risks for the blockchain. It’s important to remember that while some of these are funny, they are valid concerns for the blockchain. If Cardano fails to deliver on any of these points, it could pose a risk to the project’s future.
“Haskell is an archaic language no one uses”
Charles Hoskinson (Cardano’s founder) made a key decision at the beginning of the project’s life: he chose to write the blockchain’s code in Haskell.
To understand why this is a big deal we first have to take a step back and look at some CompSci 101 (stick with me I won’t put you to sleep).
Programming languages are broken down into 2 major buckets: functional programming (FP) and object oriented programming (OOP).
FPs are built on functions while OOPs are built on objects. These two distinctions carry with them pros and cons:
Creates reliable code that will accomplish and return exactly what it is expected to output
Emphasizes performance and optimization by focusing on what to do vs. how it’s done – this allows you to change the code without totally rebuilding it
Super hard to read and follow unless you have a lot of FP experience
Niche – less documentation and information exists for FP
Objects and methods are very readable and easy to understand – the imperative style leads to a straightforward set of instructions
Widespread use – lots of documentation and information exists for OOP
OOP depends on developers sharing information which can lead to a mess of objects and methods being accessed in a disorganized way – this can lead to extreme technical debt (problems created by choosing easy solutions over harder more scalable ones)
Charles chose Haskell because it was an FP and he wanted Cardano to be bombproof and infinitely scalable. The cost of this decision is that basically nobody writes in Haskell – it’s responsible for <1% of active users on GitHub. Most of the apps you interact with on a daily basis are written in OOP languages by an army of developers and code bases.
So what’s the solution? Multiple languages.
Cardano’s core will be written and maintained in Haskell, while the broader network will support smart contracts (the powerhouse of decentralized applications or DApps) written in GLOW and Solidity. These two languages are already supported on Cardano’s developer network (devnet) which allows developers to write and test smart contracts.
By pairing common smart contract languages with Haskell, you get a blockchain that can attract developers and DApps, while maintaining top-tier security and scalability – two things Ethereum has struggled with in the past and present.
When is this happening? Now.
The Mary hardfork happened on 3/1/2021 and represents the first step in the Goguen release. Goguen is the smart contract phase of Cardano’s roadmap and is expected to be fully released in Q2/Q3.
“Nobody’s developing Cardano”
This one is funny because it’s objectively untrue. Cardano led the market in GitHub commits in 2019 and again in 2020.
Sure, Cardano lacks all of the decentralized applications found on Ethereum but the difference here is that Cardano does not support smart contracts – the building blocks of all of these applications. Post-Goguen, the door will be open for DeFi, CryptoKitties, NFTs, and everything else currently Ethereum currently supports.
“Cardano’s development is moving in slow motion”
Yes, development has been moving slowly – Cardano was founded in 2015 and entered the proof-of-stake era in July, 2020. Smart contracts are supposedly coming via Goguen by the middle of this year (2021). In comparison, Ethereum was also launched in 2015 and had support for smart contracts immediately.
The development of Cardano is being slow-rolled by Hoskinson intentionally. The blockchain is being designed and built as a 3rd generation blockchain specifically targeting Ethereum’s weaknesses. Charles is ensuring scalability by taking his time and using tools like Haskell.
The flip side of this is speed to market. If Ethereum solves its scaling issues and dominates the smart contract / DApp ecosystem, Cardano will really need to be a 10x improvement to win over users.
This is one of my genuine concerns about Cardano. Hoskinson is generally an esoteric person with deep ties to academia – an arena not known for moving quickly – and if he errs too much on the side of getting it perfect it has a real chance of torpedoing the whole project.
Cardano is still a binary bet. It’s pretty clear now Ethereum has become a functional decentralized computing network and Bitcoin has become decentralized money, but it is unclear what Cardano will become. There’s a chance Cardano eats the world and beats out Ethereum (plenty of analogs in the 2000s tech era for this), but there’s also a chance it crashes and burns in a pile (seriously a huge pile) of peer reviewed research.
The haters throwing shots do have some valid points but are a little mis-informed.
The real break point for the blockchain will be the addition of smart contracts via Goguen – if this doesn’t happen by the end of 2021 I’ll start to get concerned.
In the meantime, I’ll be collecting my staking rewards and keeping an eye on Charles’s twitter account.
Forward and upward.
The Portfolio Rundown
This edition was all about Cardano and the Portfolio Rundown is no exception. It has blown up since my last newsletter, though in that time is also pulled backed under $1 and now seems to be settling in the $1.10 range.
Near term, I don’t think we’re done watching movement in ADA. With BTC running into the $55k range I think we’re priming for another cycle of alt pumps. Notably missing from this bull cycle has been a true altseason where Bitcoin Dominance drops from current levels (~60%) to 2017 levels (~30%). I believe this is still coming and likely will occur after Bitcoin’s next run.
If you’re following my portfolio closely, you’ll notice some big movement this week in the holdings list. I’ve expanded holdings from 6 to 7 and am super excited about the addition…
Avid readers will know this year I wanted to expand into DeFi and start building a segment dedicated to ERC-20 tokens and their various functions. In January, I began building an $AAVE position and recently I added Bancor.
Why? Yield. My holdings are long term bets, which means in the near term I have the problem of what to do with them. So, why not put them to work? This view also aligns well with my general thesis that DeFi will change the world. What better way to learn about DeFi than to jump in and actually do it.
I took a portion of my $ETH position and moved it into $BNT. From there I staked these positions in liquidity pools on the Bancor network.
Next week’s newsletter will be on the details of how this works, but essentially by doing this I’m putting those previously stagnant assets to work.
My $ETH and $BNT are being used to facilitate trading on Bancor via liquidity. In turn I collect a portion of the fees generated from the trades. The original principal + fees are redeemable at any time (some exceptions here).
There’s some experimentation going on here, but my annualized yield should be ~30% for $ETH and ~90% for $BNT. Not bad. Also interesting to note, the fees are paid in-kind meaning I’m receiving $ETH and $BNT and get to participate in any further upside.
We just experienced a normal large pullback and Bitcoin is climbing back towards the $58k all-time high. Alts are beginning to follow as well. Bitcoin dominance remains high at 61%. The broader global macro picture (especially in the US) remains laser focused on printing with inflation likely lurking in the background (see the February CPI report here).
Bitcoin running again seems like the path of least resistance, likely getting somewhere near $100k before we pullback again. As Bitcoin puts on weight in market cap expect that to filter back in alts and drive a pump cycle. With BTC dominance at 61% it doesn’t take much movement to create $100s of billions in market cap that can be pushed into the relatively thin altcoin market and cause huge moves.
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Nothing in this email is intended to serve as financial advice. Do your own research.