What is Cardano?

Cardano is a decentralized blockchain platform that uses the proof-of-stake (PoS) consensus mechanism. It was originally designed to be a more efficient alternative to Ethereum — which until late 2022, was using the much more intensive proof-of-work (PoW) consensus mechanism — and it offers similar functionality in that it can be used to host smart contracts.

Cardano positions itself as a project that hopes to deliver “positive global change” by putting power in the hands of its users, unlike traditional financial systems. Since its official launch in 2017, Cardano has made its way into a variety of different sectors, including education, finance, health care, retail, agriculture, and even government.

In this AAG Academy guide, we’ll explain how Cardano works, what it’s used for, and who invented it. We’ll also cover Cardano’s native cryptocurrency, look at where the project may be headed in the future, and answer some of the most common questions about it.

How does Cardano work?

Cardano works a lot like modern Ethereum. It is a decentralized and open source blockchain that is primarily used to host smart contracts and decentralized applications (DApps) that are freely available to users all over the world. It uses the PoS consensus mechanism for verifying transactions and has a native cryptocurrency that can be used for staking.

When it launched in 2017, that PoS system was Cardano’s biggest selling point because it made the network significantly more efficient than its rivals, particularly Ethereum — by far the biggest one — which was still using the intensive and energy-hungry PoW system. In 2022, however, Ethereum executed “The Merge” and transitioned to a PoS system of its own.

By the time that change occurred, Cardano had already established itself as a major blockchain and a compelling Ethereum alternative. As of February 2023, the blockchain boasts hundreds of thousands of active users, more than 1,000 DApps, and has a total market value of more than $13 billion, which makes it the seventh-most valuable cryptocurrency project on the planet.

In Cardano’s PoS system, which is named Ouroboros, users stake their tokens to become a validator. Validators can either operate their own stake pool, or contribute to another one. As a reward for putting their cryptocurrency to work, validators receive new tokens. This is a secure and energy-efficient way to validate transactions that does not require specialized hardware.

Within the Ouroboros system, blocks of transactions that need to be verified are issued to a validator node. Nodes are selected based on the amount of tokens they have staked; those that stake more are more likely to be selected. Once the block of transactions is confirmed and consensus is achieved, it is added to the rest of the blockchain.

One of the most important aspects of Cardano is that it is split up into two layers. The Cardano Settlement Layer (CSL) contains the ledger of accounts and balances and is used to validate transactions using the Ouroboros system. The Cardano Computing Layer (CCL) is what handles computation for all the DApps and smart contracts executed on the blockchain.

This approach allows Cardano to be incredibly fast and more scalable than many of its biggest competitors. Its latest developments, particularly the introduction of Hydra, allow Cardano to process up to 1 million transactions per second. In comparison, Ethereum can process just 14 transactions per second, which is problematic when the network is under heavy load.

What is Cardano used for?

As we have touched on throughout this guide, Cardano is primarily used to host and execute a wide range of DApps and smart contracts, including many decentralized finance (DeFi) applications, much like Ethereum. It aims to do this in the most sustainable way possible, without compromising on security, transparency, or fairness.

Who invented Cardano?

Cardano was originally developed by Charles Hoskinson, an Ethereum co-founder, in 2015. At the time, Hoskinson positioned the project as a faster, more efficient alternative to Ethereum. Cardano was dubbed a “third-generation” blockchain with more advanced features, while Ethereum was then considered a “second-generation” blockchain.

Cardano made its official public debut in 2017. By January 2018, its token price had reached almost $1, but by the middle of the year, it dropped back down below $0.30 where it remained until 2021. Cardano’s price then steadily climbed until it reached an all-time high of just under $3 in September 2021. As of February 2023, its token price is around $0.40.

What is the ADA cryptocurrency?

The ADA cryptocurrency is Cardano’s native token, named after Augusta Ada King, Countess of Lovelace, who is commonly regarded as the world’s first computer programmer. ADA can be used to participate in Cardano’s staking process, as we mentioned above, as well as to vote on proposed changes and upgrades to the blockchain network.

In addition, ADA is used to pay Cardano transaction fees, and is an exchange of value. It can be acquired from a wide range of centralized and decentralized exchanges, including Binance, Coinbase, Kraken, MoonPay, and Uniswap.

Cardano and the future

Despite advancing more slowly than other blockchains due to a more cautious development process, and a more than 70% decline in value in 2022, Cardano has big plans for the future. Its roadmap lays out its mission to become a completely decentralized, self-sustaining blockchain with a new voting and treasury system that will give the community even more power.

Network participants will eventually have the ability to submit their own improvement proposals that can be voted on by stakeholders, while a fraction of all transactions will be pooled to fund development activities following the voting process. In addition, Cardano plans to deliver even greater scalability, and new side chains that will extend the network’s capabilities.

References

• Cardano definition
• What is cardano
• What is cardano (ADA)