As of March 18, 2021, Cardano’s ADA is ranked at 3rd position on coinmarketcap, being the third-largest blockchain network in terms of market capitalization. ITSA has fully classified the ADA token according to the International Token Classification (ITC) framework and assigned a unique identifier. Cardano was founded in 2017 and is a third-generation proof-of-stake (PoS) blockchain platform, created by expert teams of researchers and engineers from the ground up using peer-review and a rigorous formal development model.
Authors: Hissan Usmani, Maximilian Bruckner
Cardano is a third-generation proof-of-stake blockchain founded by Charles Hoskinson, a co-founder of Ethereum. Because of this, it is natural to assume that Cardano and Ethereum are similar in various aspects. They could even be seen as competitors. However, there are some key differences between Cardano and Ethereum, most notably the extensive research, peer-review, and testing conducted by Cardano before each upgrade. Cardano’s proof-of-stake system “Ouroboros” is the first academically researched and peer-reviewed PoS with a mathematically proven level of security.
Since this article is only an introduction to Cardano, f you would like to gain deeper knowledge we recommend you to read their “Why Cardano” essay.
With Cardano claiming to be a third-generation blockchain platform, let us quickly review what is meant by the three generations of blockchains.
The first generation is Bitcoin. Bitcoin is used as a store of value and introduced distributed ledger technology to the world, but has scalability issues and its applications are limited. The second generation is protocols such as Ethereum. Ethereum introduced smart contracts and the Ethereum Virtual Machine(EVM). Through the EVM, Ethereum opened the gates for decentralized applications running on a blockchain. Scalability and transaction speed improved, but it is still far from perfect and rising gas fees are a large concern here. Projects such as Cardano are generally seen as a third-generation blockchain, which uses PoS to solve (some) scalability issues, and vastly improve interoperability.
Cardano’s Ouroboros PoS is a game-changer. One of the toughest and most enduring problems faced by other chains is transaction speed. Bitcoin can handle three to seven transactions per second, while Visa can easily handle 65,000+ transactions per second. Cardano proposes a solution: Orborous does not let every node mine new blocks. Instead, the protocol proceeds in rounds (slots) of block creation, which are batched together in an epoch. Cardano then uses secure multi-party computation to elect a random sequence of block producers for the slots within that epoch, with the probability of selection being proportional to tokens staked by the node.
Cardano aims to be the “internet of blockchains” which includes the feature of interoperability with other blockchains. This is an important feature: Imagine you had a Gmail account, and could only send your emails to other Gmail accounts (instead of to any email address). Another issue Cardano proposes a solution to is the Know Your Customer (KYC) process, which is important for regulation and compliance. Cardano allows its users to attach additional information (metadata) to their transactions. This could be used for KYC and identity verification.
The ADA token is the native token of the Cardano network. Its main purposes are:
In Figure 1, you can see the full classification of the ADA token as it is available in Tokenbase. The token is fully classified according to the six current dimensions of the ITC, which we now explain in more detail.
Economic Purpose (EEP): ADA is listed as a settlement and governance token (EEP22TU03) due to its design as a means of transaction settlement combined with governance functionality.
Industry Type (EIN): The issuer of ADA is active in the field of cloud computing, distributed systems, and decentralized applications (EIN05DA03).
Technological Setup (TTS): ADA is the native token of the Cardano network, which has its own native blockchain. ADA is classified as a Blockchain-Native Token (TTS41BC)
Legal Claim (LLC): ADA does not entitle its holder to any legal claim or rights against the issuing organization, so it is listed as a No-Claim Token (LLC31)
Issuer Type (LIT): Cardano’s blockchain platform is built by an expert team of engineers and researchers from IOHK, a technology company founded by Charles Hoskinson (co-founder of Ethereum) so its Issuer Type is a Private Sector Legal Entity (LIT61PV).
Regulatory Framework (EU) (REU): The dimension “Regulatory Status EU” provides information on the potential classification of a token according to the European Commission’s proposal for a Regulation on Markets in Crypto Assets (MiCA, Regulation Proposal COM/2020/593 final). ADA qualifies as a Utility Token according to the definition provided in Article 3 (5) of Regulation Proposal COM/2020/593 final.
The International Token Standardization Association (ITSA) e.V. is a not-for-profit association of German law that aims at promoting the development and implementation of comprehensive market standards for the identification, classification, and analysis of DLT- and blockchain-based cryptographic tokens. As an independent industry membership body, ITSA unites over 100 international associated founding members from various interest groups. In order to increase transparency and safety on global token markets, ITSA currently develops and implements the International Token Identification Number (ITIN) as a market standard for the identification of cryptographic tokens, the International Token Classification (ITC) as a standard framework for the classification of cryptographic tokens according to their inherent characteristics. ITSA then adds the identified and classified token to the world’s largest register for tokens in our Tokenbase.
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Hissan Usmani is currently writing his master thesis with ITSA and TU München on the topic “Bridging the Gap Between Financial Institutions and Blockchain Startups: The Overview, Challenges, and Recommendations based on expert interviews from the banking, startup, consulting and organization ecosystem”. He has a strong international background with significant time spent in Pakistan, the United States, and currently Germany. He is working in corporate finance at CM-Equity AG and pursuing his master’s degree in management at the Technische Universität München (TUM). You can contact him via email@example.com and connect on LinkedIn if you would like to further discuss ITSA e.V. or have any other open questions.
Maximilian Bruckner is Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He has a strong international background with significant time spent in Spain, South Africa, and Canada. Currently pursuing studies at the Frankfurt School of Finance and Management, you can contact him via firstname.lastname@example.org and connect on LinkedIn if you would like to further discuss ITSA e.V. or have any other open questions.