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Cardano Explained

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What is Cardano?

Cardano is a smart contract network similar to Ethereum, with a high focus on security built on a layered architecture. 

It’s a third-generation, decentralized proof-of-stake (PoS) blockchain network aimed to become a more efficient alternative to proof-of-work (PoW) networks in an attempt to escape high costs, energy use, and slow transaction processes.

Charles Hoskinson, who was the co-founder of the Ethereum blockchain,  clearly understood all the cons of the PoW mechanism, so he began developing Cardano and creating its native cryptocurrency, ADA. That’s how he launched the platform in 2015 and the ADA token in 2017.

The Cardano platform exists on the Ouroboros consensus protocol. That was created by Cardano in its foundation phase. It is the first PoS protocol that proved to be highly secure and also was the first to be informed by thorough academic research. 

The biggest plus of Ouroboros is its mathematical security in choosing blockchain validators. Ouroboros provides a provable way to randomly select a validator and make it possible for ADA holders who stake it on the Cardano blockchain to have an equal chance of mining a block and receiving a reward. This wipes out any need for quite high computational power. 

The point is that slot leaders create new blocks in the blockchain and verify the transactions. Anyone who holds an ADA coin can become a slot leader. 

Your node does the whole process automatically, so you don’t need to worry about manually verifying each transaction.

Hoskinson initiated building layers of a system to resolve problems that exist in other crypto ecosystems, and that’s why he opened three entities — the Cardano Foundation, Input Output (IOHK), and EMURGO.

Cardano’s main aim is looking for how to solve all current blockchain problems :

  • The mathematic approach can help to provide a truly secure blockchain that will have much fewer attacks 
  • Division of accounting and computational layers
  • Creation of a secure voting mechanism for token holders
  • A consensus mechanism that is infinitely scalable

Key Facts 

  • Cardano is a blockchain platform that introduces itself as a decentralized application (DApp) with a multi-asset ledger and verifiable smart contracts.
  • The platform was built in five main stages: foundation, decentralization, smart contracts, scaling, and governance.
  • Cardano network runs on the proof-of-stake Ouroboros consensus protocol, and developments are based on academic research.
  • The native Cardano's cryptocurrency is called "ADA".

 

How does it work?

The Ouroboros protocol runs this way: 

  1. The network accidentally selects a few nodes to provide an opportunity for mining new blocks. These nodes are named slot leaders.
  2. The blockchain splits into slots, each of which is known as an epoch.
  3. Slot leaders can mine their particular epoch or subpartition of an epoch. Any user helping to mine an epoch or an epoch’s part gets a reward for their assistance. 
  4. An epoch can be partitioned endlessly. The Cardano blockchain is, in theory, boundlessly scalable, which makes it possible to run as many transactions as necessary. 

 

ADA token

ADA is the name of a native Cardano platform’s token. It got the name of a famous English mathematician and first computer programmer, Ada Lovelace. 

The maximum ADA supply is limited to 45 billion tokens. That guarantees a deflationary attribute to ADA. However, the ecosystem is destined to showcase an inflationary trend until the ecosystem releases a major portion of the reserves for circulation, estimated to initiate from 2030.

ADA can be exchanged for fiat currencies such as the U. S. dollar or Euro, and stored on crypto wallets. Cardano has two native wallets like Daedalus and Yoroi, but third-party wallet services also support ADA storage and transfers. 

ADA is built to perform as a secure exchange of value that runs on Ouroboros, a group of proof-of-stake blockchain consensus protocols. Moreover, the Cardano blockchain can host other cryptocurrencies, nonfungible tokens, smart contracts, and DApps.

Architecture of Cardano

The Cardano ecosystem is built two-layered blockchain platform — a settlement layer (CSL) and a computation layer (CCL). That was made on purpose, of course, and the crucial point was to separate the value of a transaction from its computational data. 

 

The first layer is designed to manage the movement of the currency between the sender and the receiver. It is the routing layer for all the control layers and systems. 

The CSL uses two languages — Plutus and Marlowe — for moving the currency and enhancing support.

The second layer helps the Cardano ecosystem to replicate the Bitcoin (BTC) ecosystem’s smart contract platform, Rootstock (RSK blockchain). The major issue lies in its ability to help scale specialized protocols over the years. This involves adding hardware security modules (HSM) to the existing stack of protocols as technology advances. 

These layers of Cardano blockchain permit the ecosystem to support quicker and safer transactions while wiping out a user’s metadata that is irrelevant to the process.

Cardano’s 5 eras 

Cardano was built in five phases to reach its goal of developing the network into a decentralized application (DApp) development platform with a multi-asset ledger and provable smart contracts. Each era is named after a famous and influential historical figure. These five impressive eras are:

  • Byron era

It’s a foundation stage that represents the two years of development (2015–2017) when the first version of the Cardano blockchain was launched. The native ADA token was named after Ada Lovelace, an English mathematician, and the first computer programmer. 

Above all, IOHK and Emurgo launched two official ADA-supported wallets named Daedalus desktop wallet and a light wallet Yoroi.

The era itself is named after a famous XIX English poet Lord Byron, who was Ada Lovelace’s father.

  • Shelley era

The Shelley era is about the growth and development of the Cardano ecosystem. That’s the reason why more and more nodes will be operated by the Cardano community. The most important aim of this period is to decentralize the node network by involving more network participants. 

This phase also introduces a reward system and main staking rules that encourage users to participate in the Cardano ecosystem.

  • Goguen era

The era performs the introduction of smart contracts and decentralized applications (DApps) in the Cardano ecosystem. This phase goes simultaneously with the Shelley era and is concentrated on the creation of a purpose-built smart contract development language and Plutus, an execution platform.

Plutus will empower users to create and perform functional smart contracts on the Cardano network without serious technical knowledge. This era introduces Marlowe, a domain-specific language (DSL) for financial contracts built on Plutus.

The Goguen era will add support for a multi-currency ledger that allows users to mint new natively-supported fungible and nonfungible tokens. 

  • Basho era

The following era is dedicated to rather polishing the Cardano network performance in terms of usability, adaptivity, and optimization. Core developments include sidechain implementations with enormous potential to expand the network's capabilities. By offloading work from the main chain onto a sidechain, sidechains can be used as a sharding technique to boost the network's capacity. They can also be used to test new features without compromising the main blockchain's security. 

  • Voltaire era

The Voltaire era is currently the last phase of the Cardano roadmap devoted to building a governance system supported by the network participants. It will introduce voting and treasury systems, that allow users to share network improvement ideas and fund the suggested updates. An amount of all transaction fees will be sent to generate cash for approved renovations.

Once the Voltaire period is completed, it signalizes a truly decentralized Cardano network came. That will mean Cardano is completely decentralized and will no longer be managed by IOHK. On the contrary, the community will be in charge of Cardano's future, with everything they need to expand and update within the network.

 

Cardano’s prices

ADA’s price went up from $0.03 to $1.20 during the late 2017 and early 2018 bull market, so the project was almost $32 billion worth. After that huge leap, the price of Cardano began to continuously decline over the next several years.

But, of course, that rapid growth of Cardano’s price showed the crypto audience that it is a perspective currency that could be quite valuable once again.  

It’s worth mentioning that ADA has a fixed monetary policy, so there will only be 45 billion ADA minted. Once that number is reached, ADA won’t be created anymore. Cardano sold about 25,927,070,538 ADA during its initial sale, with the remaining approximately 19 billion ADA should be released within the blockchain as rewards for mining blocks. The remaining ADA is set to be distributed in staking rewards through generated blocks on the Cardano blockchain. 

As there is only a determined number of ADA, it can probably, increase demand for the coin. 

 

Use cases of Cardano

There are at least three vast projects behind Cardano — Atala PRISM, Atala SCAN, and Atala Trac. Atala PRISM is an identity management tool providing access to services. For example, it can be used to approve authentication to open a bank account. Two other projects are used to trace a product’s trek through a supply chain.

ADA’s increasing popularity made it possible for businesses to integrate dedicated ADA payment gateways, the option allows customers to make online purchases with ADA currency.

Cardano’s average fee is about 0.16 ADA per transaction. The sum is based on two main factors — a standard fee for each transaction and the size of the transaction. Thus the transaction fees can be increased based on the U.S. dollar value of the transaction. 

Users can earn ADA tokens by verifying payment transactions on the Cardano blockchain with a staking option. To do that, you need to provide your ADA holdings to a staking pool, which the node operators then repurpose to validate and confirm transactions. Unfortunately, ADA wallets cannot be paired with different staking pools. 

The ADA staking rewards are usually prearranged and differ from pool to pool. Every wallet can be paired with only one staking pool. It’s an absolute must you mustn’t neglect — the DYOR thing. 

 

Closing thoughts

One of the biggest advantages of The Cardano Foundation is its strong developer community led by Hoskinson and supported by investors all over the world. The community's aim is to build real-world financial tools that will help ADA to realize price increases based on use-case-driven adoption. 

The Cardano collateral chains provide the opportunity for developers to build applications based on the other frameworks that are not native to the Cardano ecosystem.

So far, ADA has handled to surpass most cryptocurrencies regarding price rates and market capitalization, and that won't be a big surprise if the Cardano will grow and become more influential with time passing.

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