What is Cardano? ADA beginner’s guide

Cardano has become one of the fastest-growing assets, emerging as one of the top ten cryptocurrencies by market capitalization since its inception in 2015. The Cardano network stands out among its peers due to its emphasis on its research-driven approach to design, aiming to use its resources in academia to drive the adoption of its blockchain. Its technology continues to evolve at a rapid speed and aims to surpass many large blockchains in building an inclusive blockchain ecosystem.

What is Cardano?

Cardano is a proof-of-stake blockchain, which enables its native cryptocurrency ADA users to operate its network and vote on the changes to its platform. The public and open-source blockchain allow users to build smart contracts and decentralized protocols.

Cardano has positioned itself as an alternative to Ethereum but distinguishes itself from other similar networks through a commitment to using peer-reviewed scientific research to update its platform. The project claims to be “the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach.”

Built from the ground up by a team led by Charles Hoskinson, Cardano brands itself as a third-generation platform, aiming to significantly improve the shortcomings of the first generation, Bitcoin, and the second generation, Ethereum.

Who created Cardano?

One of the co-founders of Ethereum, Charles Hoskinson started the development of Cardano in 2015 and eventually launched the platform in 2017. Following a difference of opinion with the Ethereum Foundation team over governance, Hoskinson started Cardano with his former colleague Jerry Wood.

Cardano is supported by the company Input Output Hong Kong (IOHK), also led by Hoskinson. With a team of developers dispersed around the globe IOHK aims to shorten the time between academic research and its application in the blockchain industry.

Hoskinson aims for Cardano to “provide a more balanced and sustainable ecosystem” for cryptocurrencies. ADA is the only digital currency with a “scientific philosophy and research-driven approach” and undergoes rigorous peer-review processes by scientists and programmers in academia.

Similar to Ethereum, Cardano can be used for comparable applications, including smart contracts, and has the goal to become a decentralized system. Cardano has also funded a non-profit organization, the Cardano Foundation, which supports research and development of the protocol, as well as community expansion.

Who is behind Cardano?

Aside from IOHK, the for-profit company that supports Cardano, the company also signed a five-year contract with blockchain firm Emurgo, which aims to promote better financial inclusion.

The Cardano Foundation aims to standardize, protect and promote blockchain technology through building partnerships with other companies. The non-profit also hopes to shape legislation around the cryptocurrency and blockchain industry.

Where can you buy ADA?

Cardano’s native cryptocurrency ADA was named after Ada Lovelace, a nineteenth-century mathematician recognized as the first computer programmer and daughter of poet Lord Byron. The network named its first major release Byron, which went live in September 2017.

Cardano is available on many of the major crypto exchanges in the world, including Binance, Coinbase, FTX, Kraken, Gemini, Binance US, Huobi, Kucoin and many more. Similar to other cryptocurrencies, ADA can be used as a store of value or to send and receive funds.

How does Cardano work and what are its use cases?

The Cardano blockchain focuses on enabling the operation of transactions for its native cryptocurrency ADA. Developers are also able to build decentralized applications on the blockchain.

The blockchain has two layers, including the Cardano Settlement Layer and the Cardano Computation Layer. The former is used for transferring ADA between accounts and to record transactions. The Cardano Computation Layer contains smart contracts that developers and users employ to build a program that moves funds.

Users can join the network as one of three different types of nodes – mCore nodes, relay nodes and edge nodes on the Cardano network. Nodes are computers consisting of a physical network device as part of a distributed system.

The consensus mechanism allowing Cardano to validate transactions – Ouroboros – enables genesis blocks and main blocks to be added to the blockchain. Genesis blocks include the list of all blocks associated with an epoch – an overarching time frame – and main blocks contain all transaction information, including software updates and votes.

Time is divided into epochs and slots under the Ouroboros consensus algorithm, where slots are 20-second increments within epochs. During each slot, a leader is randomly assigned and responsible for choosing the blocks that get added to the blockchain. Only one type of node – the mCore nodes – can be elected as slot leaders.

What are Cardano smart contracts?

Smart contracts are self-executing functions run by codes that allow users to set conditions on payments. Ethereum already has smart contracts as a function, and Cardano will be launching them later this year.

Cardano aims to compete with other blockchains that have smart contract functions. There are many stages to Cardano’s gradual smart contract rollout process, known as its Alonzo upgrade, that would allow ADA holders to join in the world of decentralized finance.

The Alonzo rollout takes roughly 90 days, with smart contract capability expected on the Cardano blockchain by the end of August.

As part of Cardano’s vision to support the unbanked, it aims to enable DeFi capabilities in Ethiopia. A hard fork is expected in August, with Alonzo being one of the most significant phases in the network’s Goguen era – the period before the last era, Voltaire.

What are Cardano staking rewards and how do they work?

Cardano is one of the most decentralized staking models in the world. ADA holders can earn rewards in addition to the market price gains. The more ADA a holder stakes, the more rewards the user earns.

Cardano users could earn up to 4.5% per year by staking ADA. The network relies heavily on staking pools, which ensure that Cardano’s validator network stays large and decentralized.

Individuals may choose to stake their tokens with an existing pool by delegating tokens from their Daedalus or Yoroi wallets or run their own pool to earn higher profits.

While users may benefit from staking their ADA, the staking mechanism also allows the Cardano network’s validators to create a new block and process transactions.

Cardano staking operates on a cyclical basis, where rewards are paid out each epoch – every five days.

How does Cardano voting work?

Cardano’s Voltaire marks the last step of the network’s roadmap, which will make the blockchain completely decentralized. Hoskinson wants to build a governance system where participation by people and users outside of the system is allowed.

Cardano’s voting system will allow every ADA holder to vote and have the opportunity to decide on fund resources. The funds will be allocated in a treasury system, which gives network participants the authority to decide on the future development of the network. The DC Fund and Project Catalyst are the backbones for the voting and treasury system.

Votes on the blockchain will occur every six to eight weeks, and ADA holders can vote whether or not to support a proposal. The funds can be returned to the treasury or they can be distributed to ballot proposals.

As part of Cardano’s goal to become increasingly decentralized, the voting system would promote participation in the ecosystem. According to Hoskinson, the Cardano community would be in total control of the parameters and design of the system.

Cardano’s Catalyst voting app was made available on the Google Play store in December 2020.

Cardano vs. Ethereum

ADA positions itself as the first third-generation cryptocurrency, aiming to solve scaling and infrastructure issues that have been witnessed with Bitcoin and Ethereum. While both Cardano and Ethereum will be making big leaps forward in the future, here are a few key differences.

Cardano offers a similar platform and features as Ethereum, but it emphasizes a research-driven approach to its design. Ethereum is an operating system for building custom assets and programs.

The consensus mechanism Cardano uses is based on proof-of-stake, called Ouroboros, that enables users to validate transactions and earn ADA. To enhance decentralization, the consensus protocol divides time into epochs and slots, and within each slot, a leader is picked to choose the blocks that get added to the blockchain. Cardano does not require users who operate staking pools to own any ADA – they are allowed to simply provide technical services to other users.

Currently, Ethereum is running on a proof-of-work consensus mechanism, similar to Bitcoin, for its transactions and block production. Ethereum is in the process of migrating toward ETH 2.0, which will convert its consensus mechanism into proof-of-stake. Ethereum will require operating nodes to stake at least 32 ETH in a contract to earn rewards for solving computations to produce new blocks on the network.

According to Cardano’s software rules, there is a finite number of ADA that can be minted, which is set at 45 billion. On the other hand, Ethereum does not have a limited amount of supply that can be created, and the supply is programmed to increase by 4.5% each year.

The Cardano network enables users to send and receive funds instantly for minimal fees. In contrast, Ethereum is powered by another cryptographic function called “gas,” which is a unit to measure the fees paid to miners for computing the transaction.