What Is Cardano (ADA)?

What Is Cardano (ADA)?

Cardano is a third-generation, decentralized proof-of-stake (PoS) blockchain platform designed to be a more efficient alternative to proof-of-work (PoW) networks. Scalability, interoperability, and sustainability on PoW networks like Ethereum are limited by the infrastructure burden of growing costs, energy use, and slow transaction times.

Charles Hoskinson, the co-founder of the proof-of-work (PoW) blockchain Ethereum, understood the implications of these challenges to blockchain networks, and began developing Cardano and its primary cryptocurrency, ada, in 2015, launching the platform and the ada token in 2017.

The Cardano platform runs on the Ouroboros consensus protocol. Ouroboros, created by Cardano in its foundation phase, is the first PoS protocol that not only was proved to be secure, but also was the first to be informed by scholarly academic research. Each development phase, or era, in the Cardano roadmap is anchored by the research-based framework, incorporating peer-reviewed insights with evidence-based methods to make progress toward and achieve the milestones related to the future directions of the use applications of both the blockchain network and the ada token.

As of June 20, 2021, 71.59% of Cardano's cryptocurrency ASA, is staked in 2,626 active pools with a value of approximately $31.4 billion.

About Cardano

Charles Hoskinson, the co-founder of Ethereum, began the development of Cardano in 2015 and launched the platform in 2017. Cardano has positioned itself as an alternative to Ethereum. Both platforms are used for similar applications, such as smart contracts, and have goals of building a connected and decentralized system. Cardano considers itself as an updated version of Ethereum and has anointed itself a third-generation platform over Ethereum’s second-generation credentials. The blockchain platform also has a goal of providing banking services to the world’s unbanked.

Cardano’s main applications are in identity management and traceability. The former application can be used to streamline and simplify processes that require the collection of data from multiple sources. The latter application can be used to track and audit a product’s manufacturing processes from provenance to finished goods and, potentially, eliminate the market for counterfeit goods.

"Ada" is Cardano's digital currency and is named after Ada Lovelace, a 19th-century countess and English mathematician who is recognized as the first computer programmer.6

Oversight of the advancement of the Cardano protocol ecosystem is decentralized and responsibilities are shared by Cardano's partners: The Cardano Foundation, IOHK, and EMURGO. The Cardano Foundation, a not-for-profit organization, is the legal custodian responsible for the primary oversight and supervision of the Cardano brand. The foundation advances the visibility of the protocol on the global stage, cultivates use-case opportunities and connects with policymakers, regulators, and academia

IOHK is the software engineering and technology company responsible for building Cardano, with a research arm dedicated to promoting blockchain education. IOHK works closely with academic partners to not only further its education mission, but also improve the long-term scalability of the Cardano protocol by using the most recent peer-reviewed scientific research to inform platform updates before implementation. EMURGO is the global technology partner responsible for driving the commercial adoption of the Cardano protocol, integrating businesses across a wide range of sectors into their blockchain system.

Cardano Development Phases

Cardano is being built in five phases toward achieving its goal developing the network into a decentralized application (DApp) development platform with a multi-asset ledger and verifiable smart contracts.. Each of the five phases is named after an influential historical figure, and are colloquially referred to as an era. The five phases, or eras, are:

  • Foundation (Byron era)
  • Decentralization (Shelley era)
  • Smart Contracts (Goguen era)
  • Scaling (Basho era)
  • Governance (Voltaire era)

Examples Using Cardano

The organizations behind Cardano have released three products: Atala PRISM, Atala SCAN, and Atala Trace. The first product is marketed as an identity management tool that can be used to provide access to services. For example, it can be used to verify credentials to open a bank account or eligibility for government aid. The other two products are being used to trace a product’s journey through a supply chain.

Cardano is also developing a smart contract platform that will serve as a stable and secure platform for the development of enterprise-level decentralized apps. In the near future, the team at Cardano plans to use a democratic on-chain governance system called Project Catalyst to manage the development and execution of projects. They will also revamp their treasury management system to fund future costs using Project Catalyst.

Cardano Requirements

The heart of any blockchain platform is the algorithm it uses to create blocks and validate transactions. Cardano uses Ouroboros, an algorithm that uses proof-of-stake (PoS) protocol to mine blocks. The protocol is designed to reduce energy expenditure during the block production process to a minimum. It does this by eliminating the need for hash power, or massive computing resources, that are central to the functioning of the proof-of-work (PoW) algorithm used by Bitcoin.

In Cardano’s PoS system, staking determines a node’s capability to create blocks. A node’s stake is equal to the amount of ada, Cardano’s cryptocurrency, held by it over the long term.

How Ouroboros Works

On a broad level, Ouroboros works as follows. It divides physical time into epochs that are made up of slots, which are fixed periods of time. Slots are similar to working shifts at a factory. Currently, an epoch lasts five days, and a slot lasts one second, but these numbers are configurable and can be changed after an update proposal. Epochs work in a circular fashion: when one ends, another starts.

Each slot has a slot leader chosen by a “lottery” system. In this system, the higher the stake, the better the chances of winning the lottery. Slot leaders are responsible for the following tasks:

  • Validating transactions
  • Creating transaction blocks
  • Adding newly-created blocks to the Cardano blockchain

Ouroboros requires a small number of ada holders to be online and maintain good network connectivity. To further cut down on energy consumption, the algorithm contains the concept of stake pools. Ada holders can organize themselves into stake pools and elect a few to represent the pool during protocol execution, making it easy to participate and ensuring block creation even if some of them are offline.

Mining Considerations

A stake pool is a reliable server node that is committed to run the protocol 24/7, on behalf of the contributing ada holders. Stake pools hold the combined stake of various stakeholders in a single entity and are responsible for processing transactions and producing new blocks.

In a Proof-of-Work (PoW) system, the economic incentives for miners to participate in the network and create blocks are rewards of the cryptocurrency and transaction fees. Ouroboros collects rewards from an epoch and distributes them among stake pools and stakeholders. Each is rewarded based on the proportion of their stake contributed during the epoch, meaning a higher stake will receive more rewards.

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