Is Cardano (ADA) Halal to Invest In?

Cardano Quick Facts

Founder: Charles Hoskinson

Date Founded: September 2017

Current Developers: IOHK (Input Output Hong Kong), Cardano Foundation, EMURGO

Max Supply: 45 Billion ADA

Pre-mined Supply (coins that were created before the currency was publicly launched): 7.2 Billion 

Practical Islamic Finance Rating: Comfortable

Intended Purpose

Cardano is a smart contract platform designed with an academic approach in mind1. Instead of using a more typical method of iterative development, Cardano tests the theories behind its application through peer-reviewed research before implementing them. 

This is the “measure twice, cut once” approach to blockchain development.

Cardano is designed to be fully operated and developed in a decentralized manner with its governance system named Voltaire. 

This would operate similar to a Decentralized Autonomous Organization or DAO which allows its users to vote for proposals on the network that are funded by a network treasury.

Current Utility

So far, there are few Defi applications on the Cardano network compared to more established networks like Ethereum.

This is due to multiple factors like Cardano using the Haskell coding language which is much less commonly known than Ethereum’s solidity. Smart contracts have only been live on Cardano’s ecosystem since September 20212

Cardano is still mainly developed by IOHK even with the beginnings of Voltair in place. The company plans to back off in the future once the system has been fully implemented1.

Practical Islamic Finance concludes:

Cardano’s intended purpose as a decentralized platform with smart contract capabilities is not inherently haram.

Is Cardano Linked to Interest-Bearing Debt?

The increased utility of Cardano allows for the possibility of applications that partake in interest-bearing activities but these are built on top of the network rather than an inherent part of it. 

Practical Islamic Finance concludes:

Despite the presence of interest-bearing activities that occur on Cardano’s blockchain, these are not inherent to the functionality of the blockchain itself. 

What is Cardano’s ESG Rating?

Governance refers to the incentive structures governing a cryptocurrency.

Decentralization

Generally speaking, decentralization makes it difficult for a corrupting force to affect all points of influence simultaneously.

To determine Cardano’s level of decentralization, we look at three different metrics: nodes, distribution of staking, and distribution of funds.

Nodes

A node is a computer connected to the network that holds the blockchain data for others to be able to use and download. This typically requires that all the blocks ever produced be downloaded but Cardano has developed a system that allows typical participation nodes to only require recent data.

Historical block data is stored with archival nodes and can be retrieved by other nodes if required.

Cardano has around 7,500 nodes as of January 20223.

Distribution of Staking

Cardano’s staking system named “Ouroboros” is designed to allow users with at least one ADA, to easily delegate their funds into stake pools without the need to lock their stake up4. Each pool has a limit to how many ADA it has delegated before the rewards are decreased. This is otherwise known as the saturation limit.

As of right now, there are over 3200 stake pools producing blocks on the Cardano network. Some pool operators open up a second pool if the saturation limit of 64 million is reached which can give them increased control over the network.

Considering that there are 3200 total stake pools, the likelihood of someone being able to control a significant amount of block creation on Cardano is extremely unlikely. 

Distribution of Funds

Currently, the largest holder of Cardano is an unnamed wallet with 731.27 million ADA which is about 1.63% of the total supply5. This does not include ADA held by the decentralized governance protocol.

Environmental

Cardano uses a proof-of-stake system that only uses the required computations in order to operate. This has a much smaller impact on the environment per transaction compared to something like bitcoin.

On September 25th, 2021, Cardano announced an initiative called Veritree which allows participants to donate ADA to plant a total of one million trees making the blockchain carbon-negative6

At the time of writing this article, all of the one million trees have been funded7 but there is no official information on whether or not they have been planted yet.

Social

Cardano enables users to access a fully functioning smart contract network with minimal fees and high throughput while remaining secure and consistent.  

Practical Islamic Finance concludes:

Overall we find Cardano’s benefits and potential for good to be substantial and outweigh the comparatively negligible costs associated with running its network.

Comfort Rating

From Cardano’s intended purpose, lack of any structural reliance on riba, and ESG impact, Practical Islamic rates this cryptocurrency as:

Comfortable to invest in from a Halal perspective.

Sources

  1. Cardano.org
  1. Cardano Coinmarketcap 
  1. Cardano Relay Nodes
  1. Ouroboros
  1. Cardano Rich List
  1. Cardano Carbon Negative 
  1. Veritree

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