What Is Cardano and How Does It Work?

Key Takeaways

  • Cardano was introduced to improve sustainability and ensure low power consumption.
  • Cardano is powered by Ouroboros, a revolutionary Proof-Of-Stake consensus mechanism, with the codes written in the Haskel programming language.
  • ADA, Cardano’s native cryptocurrency, was named after a British mathematician, Ada Lovelace. She is renowned for being the world’s first computer programmer.
  • Like Satoshi is to Bitcoin, Lovelace is the subunit of ADA. 1 Lovelace is equal to 0.000001 ADA.

What Is Cardano?

Cardano blockchain is a third-generation blockchain, with its developers aiming to solve Ethereum’s scalability and energy inefficiency issues by building a scalable, flexible, and environmentally-friendly blockchain through peer-reviewed research. Cardano is powered by Ouroboros, a revolutionary Proof-Of-Stake consensus mechanism, and the codes were written in the Haskel programming language. Apart from its targeting of low-cost cross-border payments, Cardano is also another player in the smart contract field enabling developers to build dApps. Cardano’s native cryptocurrency is called ADA.

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What Makes Cardano Special?

Cardano was originally a research that eventually turned into a full-blown blockchain project. Cardano uses the Ouroboros Proof-Of-Stake mechanism, a distinct consensus mechanism that matches the safety of PoW blockchains with a fraction of the PoW’s energy cost.

Source: news.coincu.com

Where Cardano Came From?

Cardano’s history stems from Ethereum. Its founder, Charles Hoskinson, was one of the founders of Ethereum, and he left Ethereum after a sharp dispute with celebrity Ethereum co-founder Vitalik Buterin. The former wanted Ethereum to approach its scaling through venture capitalism, but Vitalik preferred the open-source, decentralized approach. After leaving Ethereum, Charles met with Jeremy Wood, another Ethereum co-founder, to create an alternative project. First, they built a blockchain engineering company called Input-Output Hong Kong (IOHK), and from there, Cardano was born.

Cardano initial release date was in 2017, and it has since grown to be one of the largest blockchains by market capitalization. The name “Cardano” was from an Italian polymath, Gerolamo Cardano, and the name ADA was chosen in remembrance of Ada Byron Lovelace, a renowned English mathematician.

What are Cardano Native Tokens

In 2021, four years after Cardano first launched, its smart contract compatibility features were launched. The first stage of this improvement was the launch of native tokens. This feature allowed developers to handle custom tokens without creating a new smart contract for them. Even though native tokens hold certain resemblance to ADA, they cannot be used in paying transaction fees. Some of the most popular tokens on Cardano are DANA and ADAX.

A Brief History of Cardano

Created in 2017 as a Blockchain 3.0 project, Cardano was built on the foundation and successes of Bitcoin and Ethereum, two already-existing blockchains.

Cardano's origins trace back to Charles Hoskinson who was ready to achieve its goal of scalability and energy-efficiency by reinventing PoS consensus to Ouroboros consensus. The Ouroboros consensus is supposed to be 4 million times more energy-efficient than Bitcoin’s PoW. It was developed academically and helps Proof-of-Stake consensus have similar security to their Proof-of-Work counterparts.

Who Created Cardano

Charles Hoskinson is the chief founder of Cardano. His visions led to a dispute with Ethereum co-founder Vitalik Buterin, and after parting ways, Charles founded Cardano with another Ethereum co-founder, Jeremy Wood. Both Jeremy and Charles are still active members of IOHK, the development board behind Cardano.

The Major Stakeholders of ADA

As explained earlier, the brains behind Cardano were Charles and Jeremy, but Cardano was structured such that neither of them owns or directly operates the blockchain. There are three Cardano teams that govern the day-to-day activities of Cardano.

  1. IOHK- the primary function of IOHK is research. Apart from being the active company behind the creation of Cardano, it has been the main company that effects new features and changes.
  2. Cardano Foundation- the non-profit arm of Cardano. It is believed Charles Hoskinson later bought into Vitalik Buterin’s idea because the Cardano foundation is involved with the marketing and security of the blockchain, something Vitalik envisaged for Ethereum before the dispute.
  3. Embargo- as Charles suggested, Cardano has some external funding to aid its development. Embargo is the venture capital company behind Cardano’s projects.

Roadmap

Cardano’s development was phased into five eras. Each era has one tangible thing the protocol determined to work on.

Byron

The beginning of Cardano’s development is the Byron stage, again called in honor of ADA Lovelace, as her third name is Bryon. This stage started prior to Cardano’s launch and ended immediately after the blockchain went live. The aim here was to launch the protocol and its cryptocurrency, ADA. Protocol-indigenous wallets like Yoroi and Daedalus were also introduced in this stage.

Yoroi Wallet vs Daedalus Wallet
Source: cointelegraph.com

Shelley

The next era in Cardano’s development was Shelley. It saw a transition from federal ruling to community ruling.

Security and total decentralization make up the top two goals of this era, and reward systems were introduced to attract new entrants into the blockchain.

Goguen

The Goguen era is marked by the introduction of smart contracts - and, by extension, dApps. A platform for creating smart contracts called Plutus was also created, with NFTs introduced in this era too.

Source: adapulse.io

Basho

The goal of Basho is scaling the Cardano network. It will include the use of side chains to develop the network’s scalability, and these will also be improvised as testnets to allow improvements to be made on Cardano without compromising its security.

Voltaire

This is the last era of Cardano’s roadmap. It focuses on creating a voting and treasury system for the blockchain. The network’s fundraising goals will be amplified at this time and at this point, the blockchain will not need IOHK’s oversight.

How Does Cardano Work?

Consensus Algorithm

Cardano uses a unique PoS consensus called the Ouroboros consensus. This Cardano consensus was built by the research effort of a team led by Aggelos Kiayias in 2017, and it was immediately adopted by Cardano. Ouroboros helps Cardano reduce its energy usage while keeping it decentralized and scalable.

Staking

ADA tokens can be staked on the network. Staking involves the use of ADA coins to verify transactions and earn fees. ADA holders can stake by joining a staking pool. If a user abruptly withdraws staked ADA, no new reward would be given for it. You will be compensated proportionally depending on the pool’s outcome.

Smart Contracts

Cardano’s introduction of the Alonzo update in 2021 saw smart contracts come into full swing. Now, developers can create smart contracts, dApps, and even NFTs. This has vastly expanded Cardano’s use cases from being a payment alternative system to becoming a dApps hub.

Future of Cardano

Cardano’s future has been mapped out in its roadmap. It is still in its third phase as the Basho era has not gone live. It is expected that the blockchain will complete all eras in 2023 and metamorph into a fully decentralized blockchain.

What is Cardano Used For?

There are several ways to use Cardano.

Investing

Like Bitcoin and many other cryptocurrencies, Cardano can potentially be a great investment if one believes in its vision and an ability to accomplish its goals. Merely holding and staking ADA earns extra profits without too much additional efforts.

Development

The other way to use Cardano is through development. Blockchain developers can build DApps, NFTs, and several other DeFi features on Cardano. The blockchain is also getting some attention in real-life usage. For example, Ethiopia is working on issuing digital identities to all students nationwide, and Cardano will be at the heart of it.

Use Cardano dApps

Another way to interact with Cardano would be using the dApps already built on this blockchain. Currently, the largest dApp on Cardano is called Minswap - multipool DEX allowing its users to earn, farm, and provide liquidity to its pools.

Advantages of Cardano

Environmentally friendly

Cardano’s use of a Proof-Of-Stake consensus reduces its energy consumption. Its founder is fond of saying Cardano is better than Bitcoin cryptocurrency due to how it saves energy.

Faster transactions

When compared to the two blockchains that preceded it in relevance, Bitcoin and Ethereum, Cardano is faster. Although there are some newer Ethereum-killers that are faster than Cardano, its 450 transactions per second is an impressive feat.

Peer-reviewed network

Cardano’s development has come purely from peer-reviewed academic research. It helps one sleep well knowing that bright academic minds reviewed and endorsed the network being used for the storage of the priceless data.

Disadvantages of Cardano

Smart contract hiccups

Upon its introduction of the smart contracts, many users and developers complained about the outragously slow interaction with its smart contracts, making them essentially unusable. These problems are currently being tackled by the Cardano team.

Smaller community

While many strive to become Ethereum killers, the truth is that in order to achieve that, a critical mass of users would need to embrace the platform. Given the severe comptition in the sector and potential issues with smart contracts, this is not to be taken for granted.

Is Cardano a Good Investment?

Cardano could turn out to be a good long-term investment, but its future is threatened by Ethereum’s recent transition to the PoS network. Nonetheless, Cardano can be used for DeFi, NFTs, blockchain games, and who knows what else? Perhaps we will see a Cardano-powered metaverse in the future. Apart from these, users can stake and earn extra Ada.

The major threat to Cardano’s success is its time-consuming development. The pace at which the blockchain space is evolving means Cardano can be left obsolete in a few years. Its slow and steady approach is commendable, and Cardano investors can only hope nothing dramatic happens in the crypto space regarding security or scalability needs.

Bottom Line

The emergence of cryptocurrencies in recent years has been nothing short of phenomenal, with Cardano being one of the most popular crypto projects. If you need a break from buying Bitcoin or Ethereum, Cardano could offer a viable alternative.

FAQ

What is Cardano Coin?

Cardano’s coin is ADA, named after an English mathematician, Ada Lovelace.

What is an ADA token?

ADA is not a token; rather, it is Cardano’s native coin. However, tokens can be issued by anyone using Cardano blockchain.

What does Cardano do?

Cardano is an underlying blockchain supporting several dApps with ADA as its native cryptocurrency.  

When was Cardano launched?

In 2017 – around the same time Bitcoin cash and Tron were launched.



*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.

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