Cardano (CCC:ADA-USD) is built upon the idea of decentralization. This is a core tenet of blockchain. Decentralization is central to the idea of blockchain technology, and central to the argument for why people should care about blockchain, and thus Cardano.
Cardano has just managed to decentralize one of three important elements of its ecosystem. Let’s look at why that’s important, and talk about the remaining elements to be decentralized.
Decentralization at Cardano
One of the underlying arguments in favor of blockchain technology is that decentralization is achievable. Indeed, decentralization leads to power by the people, and ostensibly for the people.
The same argument in favor of decentralization applies to Bitcoin (CCC:BTC-USD). Yet, there is a big difference between the degree of centralization between Cardano and Bitcoin in their block production.
Cardano relies on stake pool operators to control block production on its network. The important news here is that Cardano’s 2200 stake pool operators are fully decentralized. In and of itself, this news is fairly difficult to work with. Because blockchain technology and terminology remains so nascent, this kind of news is difficult to comprehend. Fortunately, we can make a pretty good comparison with Bitcoin.
85% of Bitcoin block production is done by the network’s 10 most influential pools. Unfortunately this leads to a situation in which smaller stakes often have no choice but to lend their computing power to the large pools. The large pools have a greater chance to solve an algorithm with their greater computing power. And pools which solve a given algorithm are rewarded, so smaller contributors to a Bitcoin pool have an incentive to do as those pools dictate.
So there is a fairly logical argument here that Bitcoin’s goal of decentralization may be anything but.
Cardano’s 2200 stake pool operators who control 100% of block production are far less likely to rebel or collude than Bitcoin’s 10 pools that cover 85% of its block production. Such a situation is referred to as a 51% attack.
One reason Cardano has gained such an ardent base of supporters is the roadmap that it has laid out. The roadmap lays out “phases” of Cardano’s development and central goals for each phase.
Cardano’s roadmap is currently in phase 5, called Voltaire, the French philosopher. The current phase of Cardano’s development focuses on decentralization of its governance. Cardano is building a voting and treasury system. Participants can purchase stake — ADA coins — and that stake and voting rights can be used for influence.
The treasury system will fund the future development of the Cardano network once fully implemented. In order to fund the treasury, a percentage of all transaction fees will be pooled and appropriated as voted upon. This form of governance will theoretically improve upon what is present across multiple current systems due to its decentralized nature.
Cardano expects that IOHK will no longer be in control once its voting and treasury systems are in place. At that time, control should shift entirely to the ecosystem participants themselves.
Cardano’s network becomes fully decentralized once the voting and treasury systems are fully implemented. What’s interesting is that Cardano has spelled out this process and its importance to its network. It appears much more thought out and openly expressed than many other blockchain projects.
These kinds of ideas and discussions about governance are usually the domain of developers alone. However, I think this is very welcome by people who are on the fence about cryptos, defi, and blockchain technology. What Cardano is doing is important for mainstream acceptance of the space.
I am a fan of Cardano. I honestly believe that more of the 10,000-foot view is what’s needed in blockchain and defi. At least from the marketing and PR side. I also think Cardano is one of the few projects that is actively trying to define what its ecosystem really is. It makes sense to establish a position now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.