ADA is the utility token of the Cardano blockchain and it is used as a medium of exchange. The Cardano blockchain was created as a twin of ETHereum by Charles Hoskinson, a co-founder of Ethereum, integrating distributed ledger technology and smart contract infrastructure.
Cardano (ADA) has become one of the fastest-growing blockchain assets in the cryptocurrency industry, attracting investors’ attention. Today, we’ll take a closer look at what is Cardano crypto and its underlying technology to find out what makes it so attractive to investors.
What Is Cardano?
Created as an alternative to ethereum, Cardano is the first peer-reviewed decentralized blockchain protocol to utilize a scientific approach.
Cardano’s developers have aimed to create a blockchain platform that can process more transactions at a lower cost. At the same time, they’ve endeavored to protect users’ data by combining distributed ledger technology and smart contract infrastructure. The Cardano blockchain allows people to build smart contracts, create decentralized applications and protocols, and instantly send and receive funds with minimal fees.
What is Cardano Crypto?
The Cardano utility token, ADA, is used as a transfer of value like many other crypto tokens. Yet it differs from other cryptocurrencies in its functionalities. Stake pool operators use it in the staking system to maintain the security of the protocol. Users who stake their ADA tokens on the blockchain utilize them to verify transactions.
Apart from that, active users are also rewarded with ADA coins for participation in safety provisions. For instance, ADA holders use their coins to vote on changes or improvements to the protocol, thus taking part in its development. In contrast, the developers use it to power their smart contracts, which run on the Cardano blockchain.
The History Of Cardano
Charles Hoskinson is a mathematician who co-founded ETHereum and Cardano. The ICO of Cardano’s token ADA in December 2016 helped the team raise over $62 million. Subsequently, the project was launched on September 29, 2017. The full rollout of the Cardano blockchain will be executed in five separate stages, named after great poets, a computer scientist, and a famous French author.
- Byron (foundation) tested the initial functionality.
- In Q2 2018, Shelley, the mainnet was launched and the system’s decentralization and PoS implementation began.
- In late 2021, Goguen was rolled out to integrate the smart contracts platform.
- Basho, the stage that is being developed, will implement blockchain optimization via scaling solutions.
- Finally, Voltaire will add treasury and governance systems.
Cardano vs. Bitcoin vs. ETHereum
Though Cardano combines features of both ETHereum and Bitcoin, it has some other tweaks and features inherent to third-generation blockchain that help it overcome its limitations. One of Cardano’s unique approaches is based on scientific philosophy and peer-reviewed scientific evidence. That means that all changes or new features must be developed, reviewed, and agreed upon by academics before implementation.
It’s also worth noting that Cardano was created while ETHereum was still in its early stage of development. All of Ethereum’s limitations, which we’ll discuss below, refer to its 1.0 version – and are now irrelevant since the project will be switched to proof of stake (PoS) and implement sharding technology.
Security
As a smart contract platform, Cardano provides safety and scalability through its unique two-layered architecture. The Cardano Settlement Layer (CSL) handles all transactions using Cardano cryptocurrency, with minimal transaction fees.
Simultaneously, the Cardano Computation Layer (CCL) is a set of protocols that help run smart contracts. It enables developers to create decentralized apps, ensures security, and makes small changes for end-users.
Proof of Stake Consensus Algorithm
Bitcoin and ETHereum networks follow the proof of work (PoW) protocol. It requires a massive amount of electricity in order to verify transactions. On the other hand, Cardano relies on the proof of stake (PoS) process, which is far less energy-consuming and helps to reduce transaction fees.
Scalability
Bitcoin, ETHereum, and other previous generations’ blockchains can manage only a limited quantity of transactions per second (TPS). Cardano saw this problem in scalability and solved it by implementing the Ouroboros protocol, built on the proof of stake model, to ensure high transaction speed and an equitable chance of earning a reward. It offers such advanced features as separation of layers, mathematical security in choosing blockchain validators, a secure voting mechanism for token holders, and an infinitely scalable consensus mechanism.
The Ouroboros Protocol
With a PoS algorithm, nodes on a network create new blocks by staking their cryptocurrency as collateral to validate transactions. Ouroboros relies on a different algorithm. The blockchain is split into epochs, each lasting for about 20 seconds, and is made up of fixed periods called slots. Each slot gets its slot leader elected by stakeholders and is responsible for adding one block to the protocol.
The slot leaders must create at least 50% of the transaction blocks within a given epoch. Each block is approved by input endorsers, whose election is based on stakes. An epoch can be partitioned infinitely, making it possible to run as many transactions as needed. All users who participate in mining an epoch receive rewards for their services.
Anybody who owns a 2% stake in the Cardano blockchain can choose to mine a block. However, nodes with more significant stakes have greater chances of being elected slot leaders. The multi-party computation (MPC) used achieves a form of randomness to make the slot leaders’ election as unbiased as possible. With this approach, it’s as if each elector is tossing a coin and sharing a fair result with everyone else.
What Are the Uses of Cardano (ADA)?
Centralized structures and archaic management procedures have produced many issues: poor governance, high amounts of manual workflow, limited transparency, procedural inefficiency, high costs, fraud, and data breaches. Cardano, based on blockchain technology, aims to solve these problems.
As an open-source platform for smart contracts, Cardano accommodates a wide range of use cases, solving problems across multiple industries. These include retail, education, government, finance, agriculture, and healthcare.
Retail
IOHK (the company behind Cardano) offers Atala SCAN. This tamperproof system establishes product provenance and an auditable system to protect brands and customers from counterfeit goods in the retail sector.
Education
The education sector can benefit from Atala PRISM, an ID and credentials solution, which secures academic certifications within a tamper-proof ecosystem.
Government
Atala PRISM can be used in the government sector for credential issuance and verification systems, in order to avoid dependence on issuing authorities.
Finance and Digital Identity
Atala PRISM also provides the possibility of digital identity for unbanked citizens in developing countries of Africa and Asia. In 2019, the Cardano team began cooperating with 54 countries to build blockchain governance tools.
Agriculture
In the agricultural sector, the Cardano blockchain is used for product certification and traceability via the Atala Trace or EMURGO solutions.
Healthcare
The healthcare sector can use Atala SCAN to authenticate and verify the origin and supply chain of pharmaceutical products, guaranteeing patients’ safety worldwide.
Generally, Cardano ADA can function as a payment mETHod, be spent or sold, or serve as a voting tool for ADA holders when it comes to changes and developments within the Cardano ecosystem. It helps to maintain security by verifying transactions that are staked to it on the blockchain, in the process staking pool operators, who receive more ADA coins as rewards.
DeFi
With the launch of smart contracts in Cardano, ADA can now be used in a wide variety of decentralized applications, also known as DApps. The most common use case for ADA in DeFi is being used as the base asset for providing liquidity in DEXes, trading it with NFTs, and even supplying it as collateral to get a trustless loan on it.
Advantages of Cardano
More environmentally-friendly
We've all heard the stories of how much electricity Bitcoin consumes due to its proof of work algorithm. Cardano's proof of stake algorithm makes it one of the most environmentally friendly blockchain systems. In fact, Forbes did an interview with Charles Hoskinson in 2021 and he claimed that Cardano is 1.6 million times more energy-efficient than Bitcoin.
Fast and cheap transactions
Cardano can process more than 250 transactions per second (TPS) and this number is expected to go up as they develop further and upgrade the chain to scale better. Cardano is much faster at processing transactions when compared with 4.6 TPS for bitcoin and between 15 and 45 TPS for ETHereum pre-sharding.
Cardano transactions are also cheap, costing less than $1 is much more palatable compared to ETHereum's over $10 transaction fee. This makes Cardano more scalable, until Ethereum finishes their sharding upgrade to enhance their scalability as well.
Peer-reviewed networks
The Cardano team works closely with academics to generate peer-reviewed research to guide blockchain development. “Its nature as an open-source and peer-reviewed blockchain helps ensure its survival and evolution beyond that of its parent organization,” Gebbing said.
Disadvantages of Cardano
Still in development
Cardano’s drawbacks include the fact that its blockchain is still under development. Many important features such as scalability are still being developed, although progression is steady. ETHereum is also developing scalability improvements through sharding, and that is a key threat of Ethereum against Cardano.
Lack of developer interest
Based on Electric capital's developer report, Cardano was one of the slower growing developer ecosystems with a growth of just 90% compared to other ecosystems, such as Solana and Near which both grew over 4x in developers even though they hold a smaller market cap than Cardano. This lack of developer interest could be due to the complex programming language of Haskell, and can be seen in the low TVL that they have acquired since launching DApps.
Double-spend
Another issue is the potential for double-spending, or 51% attack, as there’s still the danger that input endorsers may approve the same set of transactions from two different slot leaders.
Closing Thoughts
And that concludes this article around what is Cardano (ADA). With one of the most significant market caps and a huge daily trading volume, Cardano is very popular among cryptocurrency enthusiasts. Its five-year history shows stable growth in ADA’s value, despite periodic price drops. A large number of partners also support Cardano’s long-term growth potential.
