What is Cardano?
Cardano is a decentralized, blockchain based system, powered by the ADA coin, the cryptocurrency which runs on the Cardano platform. Much like Ethereum, it is a smart contract-based system and can be used to run Decentralized Apps (called DApps). But Cardano is a layered system which are,
- It has a separate layer which runs ADA exchange, and
- A separate one which runs the Smart Contracts.
Cardano was developed by Charles Hoskinson, one of the co-founders of Ethereum, and its development is funded by Input-Output Hong Kong. Ethereum can be called a second generation cryptocurrency (with Bitcoin being the first), the Cardano cryptocurrency can be considered third-generation technology. The aim of this project is to create a sustainable ecosystem which separates transaction of ADA coin and usage of smart contracts into different layers, and on improves the shortcomings of Bitcoin and Ethereum.
What exactly is the Cardano coin (ADA)?
- ADA is the digital currency which fuels the Cardano platform.
- Its primary motive is to provide quick and safe currency exchange and allow users to operate various Smart Contracts and applications seamlessly.
- IOHK, along with a Japanese company Emurgo, began developing Cardano in 2015, and its first layer, Byron was released in 2017, which is the layer for ADA. It is pre-capped at 45 million.
- Cardano is an attractive choice for many companies and corporations, especially those involving heavy uses of contracts. According to Cointelegraph, the Ethiopian Government and Cardano/ADA signed a Memorandum of Understanding, which will allow the government to employ the Cardano program in its Agritech sector.
How Does Cardano Work?
First, it is important to understand how the Cardano blockchain functions, which can be split into two different layers.
- Settlement Layer: The settlement layer has been built and is now fully operational. This allows users to send and receive ADA coins, wallet to wallet. This is similar to how users can transfer Ethereum (ETH) to each other.
- Computation Layer: The computation layer is still being developed. Once it is launched, it will allow users to create and enter into smart contracts.
This is where Cardano is different from earlier blockchains, which normally operate on a single layer. By using two separate layers, there are some potential benefits for Cardano users.
Firstly, the computational layer is more adaptable than the likes of Ethereum, as small changes can be made for different end-users. For example, because different nations have their own regulations, Cardano can change how data is stored and accessed depending on their laws.
This also means that, although users of ADA coin can remain private, Cardano can always ensure that they are compliant with domestic regulations. The computation layer is also useful for making soft forks without disruption, which is something that older blockchains have failed to achieve.
How Are ADA Coin Transactions Verified?
Cardano platform is decentralized, which means that no single authority has control over the network. This means that like Bitcoin and Ethereum, the network is operated by miners. However, Cardano uses a different model, which it calls “Ouroboros”. Bitcoin uses a consensus model called “Proof-of-Work”. To help authenticate a transaction, miners use their computing power to solve a really difficult puzzle. It’s like a mathematical equation that is so difficult, no human being could solve it! Whichever miner solves the puzzle first, they get the reward, which is paid in Bitcoin! The problem with Proof-of-Work is that as the puzzle becomes more and more complex, miners need to use more and more electricity.
The Cardano network confirms transactions using a consensus mechanism called Proof-of-Stake:
- User who want to help validate transactions are called validators.
- Validators must freeze some of their ADA coins, which is called the “Stake”.
- Once a validator helps verify a transaction, they receive additional ADA cryptocurrency as a reward.
- The higher the stake, the more chance a validator has of receiving the reward!
- The amount of coins they receive is based on how much “stake” they have.
Although there are other Proof-of-Stake blockchains available, the Cardano team says that none offer a truly random way of selecting a validator. This is why they built their Ouroboros protocol on top of the standard Proof-of-Stake model, as it ensures everybody gets a fair chance of earning the reward. This is sometimes called “The Honest Majority”, which means that if people have a big stake in the blockchain (for example, having lots of ADA coins), then they have a reason to make sure that the network remains secure, stable and most importantly – honest.
How is Cardano Different?
- While still in its developing stages, Cardano is termed as the third generation cryptocoin, with Bitcoin and Ethereum being the first and second respectively.
- While it is similar to Ethereum in concept, it comprises several layers, which are used to separate its various functions.
- Bitcoin-like peer-to-peer transactions are comprised in one layer, whereas Smart Contract execution is in another. The Smart Contract system of Cardano could very well be faster and smoother, as it will employ the use of a new language, Plutus.
Daedalus is the Cardano Settlement Layer wallet application that holds the ADA currency. It is intended to be further developed to function as a universal crypto-assets wallet with features such as automated trading, exchanges integration and crypto-to-fiat transactions. Mantis, the Scala-based Ethereum Classic client, has also been integrated with Deadalus wallet to connect to the Ethereum Classic network.
Pros & Cons of ADA Cryptocurrency
- Great development team. The founder has already been a huge part of successful projects, such as BitShares and Ethereum.
- It will be the first blockchain to use multiple layers (settlement and computational layer).
- No limit to scaling. When more people use blockchain, more transactions can be processed.
- The ADA cryptocurrency offers cheap and quick transactions
- Cardano’s consensus mechanism is more environmentally friendly than older blockchains, as well as being fairer.
- Many of the claims that ADA coin makes are theoretical, as the blockchain is still being developed.
- Other blockchains, such as Ripple, Stellar Lumens, and NEO are already able to process more than 1,000 transactions per second.
- The maximum scalability at the moment is only 257 transactions per second.
- Ongoing problems with their official wallet
Cardano (ADA) Market.
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