Cardano differentiates itself from other layer 1 blockchains by emphasizing a methodical, research-based approach to the development of its blockchain and by incorporating academic principles in its architecture and design. As of 2022, over 100 peer-reviewed publications are published on their website outlining its technology.
Founded with a focus on sustainability, Cardano prides itself on being a carbon neutral blockchain. It achieves this thanks to its low emission Proof of Stake (PoS) consensus mechanism called Ouroboros. Further, the Cardano Foundation (one of the blockchain’s parent entities) claims to practice “sustainable investing” which focuses on positive real-world impact by applying the UN Principles of Responsible Investing and the UN Sustainable Development Goals.
In 2021, Cardano introduced smart contract functionality, allowing developers to publish custom logic to the blockchain. With this upgrade, it positioned itself as a viable alternative to other layer 1 blockchains in enabling the hosting of a wide range of tokens and decentralized applications (dapps).
Its native token, ADA, allows holders to participate in the protocol through staking, rewarding them for network participation and granting the ability to vote on network changes.
Who created Cardano?
Cardano was created in 2017 by Charles Hoskinson, one of the original founders of Ethereum.
During his time working on Ethereum, he ran into a dispute with Vitalik Buterin about the future of Ethereum, as Buterin wanted the company to stay non-profit while Hoskinson believed it should move in a more commercial direction.
Hoskinson left Ethereum with another colleague, Jeremy Wood, and founded IOHK, a company focused on building Cardano. To this day, IOHK is one of the main entities focused on Cardano's development, along with the Cardano Foundation (responsible for overseeing the development of Cardano) and Emurgo (Cardano’s commercial arm).
Cardano raised money through a multi-stage initial coin offering (ICO) of its ADA token that raised over $62 million. The protocol has never accepted VC investment, as Hoskinson believes this would be a betrayal of the tenets of decentralization.
How does Cardano work?
The Cardano system consists of two layers:
- The Cardano Settlement Layer (CSL) – Used to facilitate the transfer of ADA and to validate and record transactions on the blockchain.
- The Cardano Computation Layer (CCL) – Host of Cardano’s smart contract and other application-building functionality.
Splitting the network in this manner allows it to process up to a million transactions per second effectively and efficiently.
In addition to its smart contract capability, Cardano allows developers to create native assets on the platform for use in their decentralized applications (dapps). These can be treated in the same way as ADA.
In order to mint native assets, a developer must operate an active node on the network. Then, they decide the parameters of their asset, and publish it into the network through a series of code functions. Both fungible tokens and non-fungible tokens (NFTs) can be created in this manner.
Rather than building off the processes of other blockchain networks, Cardano relies on a research-based approach that enlists the help of top cryptographers from around the world to develop its network from scratch and assure its progression.
Through this process, the protocolit will havehas moved through five distinct eras by the end of its current roadmap:
- Byron – Mainnet release of the blockchain with the introduction of the Orobouros consensus mechanism.
- Shelley – Opened up the node operation to community members and moving it to a more decentralized network.
- Goguen – Added smart contract functionality to Cardano, allowing developers to build decentralized applications.
- Basho – Focuses on the scalability and interoperability of the blockchain by adding sidechains (separate chains linked to the main blockchain), among other things.
- Voltaire – Will introduce voting in order for network participants to determine the development of the blockchain. This final era will aim to make Cardano a self-sustaining blockchain without any company oversight.
As of November 2022, Basho and Voltaire are currently in their development stages and have no release date.
What is Cardano's consensus mechanism?
Cardano uses a proof of stake mechanism called Ouroboros to validate transactions. As there is no central authority in a blockchain system, consensus between nodes is used to form a single record of truth for the network’s history of transactions.
In Cardano, consensus is reached through the work of stake pools. Users can stake their ADA to the network, as well as delegate it to a certain pool. During each transaction, the network decides which stake pools it will pull from to gain consensus and rewards those pools with ADA for their efforts. These dividends are proportionally split between the token holders that make up the given pool.
Ouroboros’ decision-making process is based on a combination of randomness and rewarding larger stakes in the network. It splits time into epochs, nominating one node to act as the epoch leader at a rate of one every 20 seconds, on average. Then, this epoch leader chooses which stake pool will validate a given transaction. The more coins in a stake pool, the more likely it is to be chosen for a transaction and grow larger from the subsequent rewards.
What are the benefits of the ADA token?
ADA is mainly used to pay transaction fees and to stake to validate transactions. Validators who stake are provided new ADA as reward.
In its last planned iteration, Voltaire, Cardano will introduce governance abilities to its ADA token. Holders will then have the ability to vote on network updates and improvements, along with funding the upgrades.
ADA is capped at a max supply of 45 billion. As of mid-2022, there is a current circulating supply of around 32 million, with the remaining tokens gradually entering into circulation as staking rewards.
With Cardano’s research-based approach to the cryptocurrency industry, investors who believe in the network’s bottom-up development process could be interested in the ADA token. Additionally, Cardano’s energy efficiency certainly appeals to many in this era of sustainability, and its speed and scalability are valuable qualities for a successful network.
- Cardano is a proof of stake blockchain with a focus on research-based development, efficiency, and scalability.
- Users can stake their ADA tokens and gain network rewards through its Ouroboros consensus mechanism.
- Cardano is considered to be an environmentally-friendly blockchain thanks to its Proof of Stake mining and its partnership with Veritree (with a pledge to plant over a million trees).
How to buy ADA
You can buy the Cardano coin on Bitstamp. Sign up for a Bitstamp account and start trading ADA today!
Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.