What Is Cardano (ADA)?
Public blockchains beget new blockchain projects that take different approaches. This happened with Bitcoin, when the Russian-Canadian programmer Vitalik Buterin envisioned a more programmable blockchain and went on to co-found Ethereum. The same happened again to Ethereum itself. It was Charles Hoskinson, one of Ethereum’s founders, that split away and created his own blockchain network called Cardano.
Cardano is a proof-of-stake blockchain platform: the first to be founded on peer-reviewed research and developed through evidence-based methods. Like Ethereum, It is considered to be a smart contract platform, which is why the two are ultimately seen as competitors. Hoskinson’s new brainchild is sometimes also called the “Japanese Ethereum”. Cardano has earned this name because when it did its initial coin offering (ICO) back in 2017, the project raised more than $60 million, mainly from Japanese investors.
Just as with many other public blockchains foundations, the Cardano foundation is based in Zug, Switzerland. Its mission is to ensure the advancement of the Cardano protocol as well as the growth of Cardano’s community. By shaping legislation and commercial standards, the foundation is not only trying to make Cardano a success, but to accelerate adoption of the entire public blockchain space.
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A highly ambitious project
Besides the Cardano Foundation, there are two more prominent organizations that are developing the platform. Input-Output Hong Kong (IOHK) and Emurgo. Both specialize in the development of blockchain solutions and provide teams that are working on Cardano. IOHK is building the blockchain and the tools for its application, while Emurgo is a for-profit enterprise focused on the promotion of commercial applications based on Cardano. Because of this setup, proponents of Cardano claim that “their” blockchain is actually the first blockchain platform that is being developed according to peer-reviewed research. There is also no whitepaper but rather a very academic approach. Currently, these organizations building Cardano still make up an important part of the project. Going forward, their influence will diminish more and more.
The Cardano blockchain will roll out in five stages called eras. So far, Cardano has successfully gone through the first and the second era. Regarding the third era, the testnet for smart contracts is being launched targeting a mainnet launch during the summer of 2021. Updates can be followed here. Although Cardano’s smart contract environment is not fully live yet, there are still plenty of ways developers and engineers can already write and deploy smart contract components.
Once the final era is deployed, all self-governance pieces are expected to be in place and Cardano will have reached its goal of full decentralization. At this point, management will be transferred over to its community and there will be a voting and treasury system introduced that is bound to guarantee a long-term sustainable development of the Cardano blockchain.
What are Cardano’s core features?
Cardano is labeled a decentralized open-source platform for smart contract applications. Like many other projects, its blockchain protocol is structured into two layers. A settlement layer handling all the transactions with the Cardano asset (its cryptocurrency) and a computational layer that hosts smart contracts. At the same time, Cardano’s network knows three different types of nodes: mCore nodes participate and handle Cardano’s blockchain governance; relay nodes are the ones that send data between mCore nodes and the public internet. And there are also edge nodes, which create and process the transactions. With this layered structure and specialized network nodes carrying out different tasks, the project aims to ensure high scalability while maintaining security.
Cardano’s main goal is to offer new ground-breaking features, but on a scalable public blockchain that is very secure. According to proponents, Cardano should one day be one of the most secure decentralized proof-of-stake blockchains. What is said to be special about Cardano’s blockchain, is its consensus protocol, which has been developed in-house. It goes by the name of Ouroboros and is deemed by its developers “the first probably secure proof-of-stake protocol”. The main reason for this, people behind Cardano argue, is the fact that Cardano is being developed by top-notch researchers and on a peer-reviewed basis. Unlike other cryptocurrency projects, where practice preceded formal theory, developers behind Cardano aim to construct its blockchain by letting formal theory precede practice, and prove each security claim to be mathematically correct before implementing it. At the same time, Cardano applies a layered infrastructure (as described above) from the get-go. Because not all of Cardano’s eras have been implemented and the protocol is still in its early stages, it is quite hard to put this claim to the test. But notably, Cardano’s approach has been criticized by none other than Vitalik Buterin.
The way Ouroboros works is that time is divided up into epochs and slots. The epochs represent overarching time frames, while the slots are 20-second increments within each epoch. Within a slot, slot readers get randomly chosen and they are responsible for choosing blocks. The more tokens a person holds, the better the opportunity they get chosen as a slot leader. Ultimately, slot readers can be likened to validators. A slot leader generates new blocks on the Cardano blockchain and verifies the transaction. Anyone holding Cardano’s token can become a stakeholder and can also become a slot leader. It’s those mCore nodes already mentioned that can get picked as slot readers. From a bird’s eye perspective, this is the way consensus is achieved in Cardano.
With Cardano’s consensus protocol Ouroboros there is not only one, but two types of blocks added to the blockchain. There are genesis blocks, and these include a list of all eligible slot readers of one epoch. A genesis block also consists of a bunch of main blocks. These are the second type of blocks and they contain all transaction information as well as potential proposals for software updates. With every epoch coming to an end, it is upon the current slot readers to elect the future slot readers of the next epoch. Every time they perform such an election, slot readers stick to a mechanism similar to a coin tossing act. As indicated by Cardano developers this helps increase the randomness by which new slot readers are chosen.
And once the implementation of Ouroboros is finalized, it is expected to enable near-instant finality. What is interesting is the fact that, although Cardano is a proof of stake blockchain, block validation resembles that of proof of work blockchains. The Ouroboros consensus algorithm uses probabilistic finality, making reorganization hypothetically possible due to the blocks being added canonically as opposed to validators finalizing the blocks as they are produced. This is similar to how the Bitcoin blockchain is being built block by block.
Cardano Use Cases
While Cardano is aiming to develop decentralized finance use cases on top of its blockchain, it is also keen on becoming the go-to blockchain to enhance traceability in supply chain management and product authentication. After all, applications for peer-to-peer use shall be developed just as much as enterprise use cases. Popular DeFi applications that are being built are Occam.Fi, a launchpad and decentralized exchange structured as a decentralized autonomous organization (DAO), Bondly, a marketplace for non-fungible tokens (NFTs) and Liqwid, a liquidity protocol for lending and borrowing.
Cardano’s cryptocurrency is called ADA. These coins can be staked to earn rewards. Staking can either be done through staking pools or by running one’s own staking node. The staking rewards itself are created through inflating ADA’s supply. At its launch, the initial supply was 31.1 billion ADA tokens. Cardano’s token supply will max out at a supply of 45 billion ADA. Until then, the network will experience an annual inflation rate of approximately 7%.
As mentioned previously, Cardano’s smart contract environment is launching summer 2021. Considering that Cardano is a double-layered system, smart contracts on the chain are thought to be much more secure – once information has been stored on the blockchain ecosystem, is it practically impossible to alter.
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