What is Cardano (ADA)

Cardano (ADA) is a pioneering decentralized proof-of-stake (PoS) blockchain platform, born out of the vision of Charles Hoskinson, one of the minds behind Ethereum, in 2015 and officially launched in 2017. It was architected to overcome the scalability and infrastructural challenges faced by its predecessors like Bitcoin and Ethereum, placing it as a more scalable alternative to the latter. Cardano's technological prowess is underscored by its successful implementation of a power-efficient PoS consensus mechanism, setting it apart from energy-consuming proof-of-work (PoW) platforms. The functionality within the Cardano ecosystem is amplified by its smart contract protocol, echoing the advancements initially brought to the limelight by Ethereum. ADA, Cardano's native token, is not only a tribute to Ada Lovelace, the 19th-century mathematical genius and the world's inaugural computer programmer, but it also empowers users to engage actively within the network's operations. 2022 witnessed Cardano achieving significant scalability milestones with the introduction of the Vasil hard fork. Further augmenting this trajectory is the anticipation surrounding Hydra, a layer 2 scaling solution promising to bolster the platform's adaptability. This initiative paves the way for developers to integrate intricate protocols seamlessly into Cardano.

How does Cardano(ADA) work?

Cardano is a third-generation blockchain platform that brings a research-driven approach to the cryptocurrency space. It is designed to offer a more secure and scalable infrastructure for the development and execution of smart contracts and decentralized applications (dApps).

Layered Architecture:

Cardano Settlement Layer (CSL):

• Function: This layer handles token transactions, serving as the venue for transfers of Cardano's native token, ADA, between accounts.
• Advantage: By separating the transfer of ADA from other operations (like smart contracts), the CSL ensures efficient, secure transaction processing that's not bogged down by other network activities.
• Security: The CSL employs high-grade cryptographic techniques to ensure the security of every transaction.

Cardano Computation Layer (CCL):

• Function: This layer focuses on the execution of smart contracts. Its design allows for future rules and protocols for smart contracts to be changed without affecting the token transaction layer.
• Flexibility: Thanks to its independence, the CCL can be easily updated or modified to meet future demands or address new security challenges.
• Variety: This structure allows Cardano to implement different computation logics and rules atop it, catering to varying use cases and needs.

Ouroboros Consensus Algorithm:

How it works:

• Ouroboros is a Proof of Stake (PoS) consensus mechanism, differentiating it from the Proof of Work (PoW) method employed by many other cryptocurrencies.
• Within a given "slot", a designated "slot leader" is responsible for validating transactions and creating a new block.
• ADA holders can "stake" their ADA tokens as collateral, increasing their chances of being selected as slot leaders.

Environmental Impact:

• Compared to Proof of Work (PoW), the Proof of Stake (PoS) mechanism significantly reduces energy consumption, making it more environmentally friendly.

Security:

• Ouroboros has undergone rigorous academic scrutiny and is proven to be a secure consensus mechanism. It takes into account various potential attack scenarios and has built-in precautions against them.

Smart Contracts and dApps:

Plutus Platform:

• Cardano introduces smart contract functionality through its Plutus platform. Plutus is a specialized smart contract development environment designed specifically for Cardano.
• It employs a modified Haskell language, allowing developers to craft high-assurance applications.

Marlowe:

• Offers a simpler way for individuals without programming backgrounds to create smart contracts. It's a domain-specific language that lets people construct smart contracts in a more straightforward manner.

Applications and Solutions:

• The introduction of smart contracts gives developers the capability to build a variety of decentralized applications on Cardano, from simple token transactions to sophisticated Decentralized Finance (DeFi) solutions.

Cardano development themes

Cardano’s development journey has been split into five main themes focusing on such core functionalities as:

• Byron — foundation establishment
• Shelley — decentralization
• Goguen — smart contracts
• Basho — scalability
• Voltaire — governance

Each theme is centered around a set of functionalities that are being delivered across multiple code releases. While these development streams are delivered sequentially, the work for each happens in parallel – with research, prototyping, and development often in progress all at once across the different stages. ByronByron set the foundation for Cardano development allowing users to buy and sell ada on a proof-of-stake blockchain network. Initially, the Cardano ledger was established as a federated network, where block production and transaction validation were maintained by Input Output Global (the company that develops Cardano technology) and Emurgo (the company that drives Cardano commercial adoption) stake pools. Byron saw the delivery of Daedalus and Yoroi wallets, and also provided users with a Block Explorer ‒ a tool specifically designed for browsing the blockchain.ShelleyThe Shelley development theme introduced a decentralized ledger creating a completely new economic system, which drives the network’s growth and gradual optimization. Shelley evolved from Byron’s federated network maintenance, with more and more blocks being produced by the distributed stake pool operator community. This theme focuses on a number of critical steps that ensure enhanced user experience in terms of stake pool operation, delegation preferences, and incentives. As a proof-of-stake network, Cardano Shelley introduced the Incentivized Testnet (ITN) which proved that the blockchain can be sustainable in the long term by relying exclusively on community-managed pools.GoguenGoguen development focuses on the establishment of a global, financial and multi-functional system for decentralized application (DApp) building, smart contract support, and custom token issuance. Goguen is a key building block to establish a versatile platform to build solutions around such application domains as supply chain, track and trace, finance, medical records, identity voting, property registration, P2P payments, and many others.BashoBasho will focus on Cardano’s optimization in terms of improving the scalability and interoperability of the network. Whereas other development stages focus on decentralization and new functionality, Basho is about improving the underlying performance of the Cardano network to better support growth and adoption for applications with high transaction volume.VoltaireDecentralized governance and decision making lie at the heart of Voltaire granting the Cardano community an ability to vote on network development updates, technical improvements, and project funding. For the Cardano network to become truly decentralized, it requires not only the distributed infrastructure introduced during Shelley but also the capacity to be maintained and improved over time in a decentralized way.

Tokenomics

Token Utilities

ADA, the native token of the Cardano platform, possesses a multifaceted utility within its ecosystem:

1. Staking: Cardano uses a Proof-of-Stake (PoS) consensus mechanism, and ADA holders can stake their tokens in the network. By staking ADA, holders can earn rewards for supporting the network's operations, such as transaction validation and block production.
2. Governance: ADA holders can participate in Cardano's on-chain governance, known as Project Catalyst. They can propose, fund, and vote on projects and changes to the Cardano protocol.
3. Smart Contracts & DApps: As the Cardano network evolves, ADA is used for executing smart contracts and interacting with decentralized applications (DApps). This includes providing for execution fees and serving as a token within smart contract operations.
4. Transaction Fees: ADA is used to pay for transaction fees on the Cardano network. This ensures compensation for those who support and maintain the network, while also acting as an anti-spam measure.
5. Collateral: In the decentralized finance (DeFi) realm of Cardano and potential future applications, ADA could be used as collateral to secure loans or other financial products.
6. Asset Creation: ADA can be used to mint native tokens on the Cardano platform, allowing for the creation of new digital assets that can represent anything from loyalty points to other cryptocurrencies.

Token Distribution

Total Supply: The total supply of ADA is capped at 45 billion.

Initial Distribution:

Pre-sale: Before the launch of the Cardano mainnet, there was a presale of ADA in Japan, which resulted in the distribution of about 26 billion ADA to participants.

IOHK: Input Output Hong Kong, the company behind Cardano, was allocated a portion of the ADA for their continued development efforts.

Emurgo: Emurgo, another key entity in the Cardano ecosystem focused on driving commercial adoption, also received an allocation.

Cardano Foundation: The Cardano Foundation, which oversees the Cardano ecosystem and ensures its sustainability and growth, was allocated a portion of ADA.

Rewards and Staking: With the transition to the Shelley phase and the introduction of staking, new ADA tokens are minted as rewards for stakers and delegators. This is part of the network's incentive system to encourage users to secure the network.

Treasury:A portion of the transaction fees and a fraction of the rewards from the staking process go into Cardano's treasury. This treasury is used to fund projects and development initiatives that are voted on by ADA holders.

Why Is Cardano (ADA) Valuable?

Cardano is conceived as the third-generation blockchain as it combines the properties of the prior generations and evolves to meet all the arising needs of users. When comparing blockchain properties, many aspects should be considered. Thus, the best solution must ensure the highest security, scalability (transaction throughput, data scale, network bandwidth), and functionality (besides transaction processing, the blockchain should provide all means for business deal settlement). Moreover, it is important to ensure that blockchain technology is constantly developing in terms of sustainability and is interoperable with other blockchains and financial institutions.

To address these needs, Cardano focuses on such core concepts as:

• Scalability — ensures that the Cardano network is capable of processing an increasing number of transactions as user demand grows. Scalability also provides higher bandwidth capabilities to allow transactions to carry a significant amount of supportive data that can be easily managed within the network. For these needs, Cardano is implementing various techniques (like data compression for instance) and is working to introduce Hydra, which will enable multiple side chains functionality.
• Interoperability — ensures the most multi-functional environment for financial, business, or commercial operations by enabling users to interact not only with one type of currency, but with multiple currencies across various blockchains. Moreover, interoperability with centralized banking entities is as important to grant legitimacy and convenience of use. Cardano is being developed to support cross-chain transfers, multiple token types, and commonly used smart contracts languages.
• Sustainability — designing a proof-of-stake blockchain means it is vital to ensure that the system is self-sustainable. To drive growth and maturity in a truly decentralized manner, Cardano is built to allow the community to maintain its continuous development by participating, proposing, and implementing system improvements. To ensure sustainability, the treasury system is controlled by the community and is refilled constantly from potential sources such as newly-minted coins being held back as funding, a percentage of stake pool rewards, and transaction fees.

Highlights

9/2017 - Cardano mainnet launched, implementing Ouroboros proof of stake consensus.

9/2018 - Cardano 1.2 released, supporting multi-assets and metadata transactions. Enabled token creation and trading.

7/2020 - Cardano Shelley launched, transitioning from centralized to decentralized. Became fully decentralized public blockchain.

3/2021 - Cardano Mary enabled native assets and smart contracts. Allowed decentralized apps.

9/2021 - Cardano Alonzo enabled Plutus smart contracts. Allowed more complex dApps.

6/2022 - Cardano Vasil launched, enhancing scalability and smart contracts.

In summary, Cardano's milestones include mainnet launch, support for assets and smart contracts, achieving decentralization, and expanding functionality through upgrades. Gradually evolved into feature-rich public blockchain platform.