Whiteboard Video Part 1: The Evolution of Cryptocurrency

To understand Cardano, first you have to understand where Cardano came from. So let’s talk about the first generation of cryptocurrencies.

1st Generation

So the first generation is Bitcoin.
The problem that Bitcoin was trying to solve was, “could we create decentralized money?”

• Could we create a token that lives on a decentralized blockchain maintained by people all around the world?
• Could that token be both scarce and tradable?
• Could it be such that when “Alica” and “Bob” want to send value to each other, there could be a mechanism to do it that does not require a trusted third party [like a bank or other centralized financial service]?

Now this was a really cool and interesting idea. It had very old roots starting from the 1980s and beyond, but Bitcoin was the first to bring this all together. It was a tremendously successful experiment! After just a few years Bitcoin not only accrued thousands of users but also started being worth real money. Tokens went from less than a penny to $1.00, to eventually $100.

Right around that time period, we saw a huge influx of people saying “Boy this is really interesting.” However the issue is that the transaction between Alice and Bob has more than just the act of moving money associated with it. There's a story behind that transaction; there's terms and conditions. For example, what if Alice says “Bob I'll give you the money IF you mow my lawn.” This is a contract - a story. The first generation of blockchain technology wasn't really well suited for this. Every time someone wanted to make a change to how it works, they’d have to build a different cryptocurrency, or install a cumbersome overlay protocol like Mastercoin or Color Coin.

2nd Generation

So back in 2014, Vitalik Buterin, Charles Hoskinson, and many others came together and launched the first 2nd generation blockchain: Ethereum.

Ethereum is kind of like when Javascript came to the web browser: We went from static, simple pages that were not terribly functional, to pages that were fully programmable. That change enabled people to build Facebook, Google, Gmail… the experiences we've come to know and love.

Likewise, Ethereum brought a programming language to a blockchain. This programming language allowed Smart Contracts to be written - that is, customizable transactions. So when Alice sends value to Bob, all those terms and conditions could then be embedded within the transaction. It can be customized to her particular needs.

This paradigm, like Bitcoin, also took off. Now Ethereum is among the largest cryptocurrencies and has a huge developer community. However now, as before, we're starting to enter into a new realm.

3rd Generation

We're going into the third generation. Several key issues are driving this evolution:

• Ethereum can't scale to millions or billions of users.
• Ethereum doesn't have a good developer experience.
• Ethereum and all cryptocurrencies have a really bad governance experience. Every time there's a major disagreement, instead of finding a way to resolve it, we end up with splits in the ecosystem, like Ethereum and Ethereum Classic, or Bitcoin and Bitcoin Cash.
• There are big sustainability problems. Namely, after the ICO [Initial Coin Offering] money runs out, or if the venture capital runs out - who will pay to actually build out an ecosystem?

These are big open questions!

So the 3rd generation is all about three topics: Scalability, Interoperability, and Sustainability. The Cardano project is a philosophy and vision of how to solve each of these categories. The idea is to inherit the best features and lessons learned from Generation 1 and 2, but also add a lot of new concepts and technologies.

Furthermore, this project is built with some really good principles. Namely, the science that guides the solutions to these problems goes through peer review. We go to conferences, we write proper scientific papers, we engage universities. With all the engineering, we have the goal to eventually implement it as “high assurance code”. This means the same types of techniques one would see with a jet engine - where the failure of the system results in human death - we can apply those techniques to our protocols, engineering and development. So we can have a very high belief in the quality of the code; this means avoiding events like the DAO parity hack, and other kinds of malicious events.