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What is Cardano (ADA)?

March 17, 2022

Cardano is a crypto network founded by Charles Hoskinson, who previously served as a co-founder of Ethereum. The Cardano network allows people to send and receive funds using its own internal crypto, called Ada (named for Ada Lovelace, a 19th-century mathematician considered to be the first computer programmer).

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Cryptocurrencies have gone mainstream in recent years, led by the rapid rise of Bitcoin. But though the largest crypto is the one that grabs the most headlines, there are plenty of others with large market capitalizations and unique features.

Cardano was built on a “scientific philosophy” detailed in dozens of peer-reviewed research papers by its founders and engineers. The Cardano network allows people to send and receive funds using its own internal crypto, called Ada (named for Ada Lovelace, a 19th-century mathematician considered to be the first computer programmer). Like other crypto networks, Cardano relies on blockchain technology, but it aims to be more sustainable and scalable than other platforms like Bitcoin.

What is Cardano / Ada?

Cardano is a crypto network founded by Charles Hoskinson, who previously served as a co-founder of Ethereum. He split off in 2015 to create his own crypto network, writing of his plans “to change the way cryptocurrencies are designed and developed.” Cardano touts that unlike other networks, it’s founded on evidence-based methods of development and solicits peer feedback before implementing each new change to the network.

The Cardano Foundation site states that the group’s goal is to restore “trust to global systems—creating, through science, a more secure, transparent, and sustainable foundation for individuals to transact and exchange, systems to govern, and enterprises to grow.”

Beyond supporting decentralized apps and decentralized financial services, the Cardano platform was also created to support its crypto Ada. While Ada isn’t accepted as widely as Bitcoin, it can be used to make purchases through some merchants who take cryptocurrencies, including digital art and non-fungible token marketplaces.

How does Cardano’s blockchain work?

At the heart of that goal is Cardano’s infrastructure, called Ouroboros. Like other blockchain technology, it’s a decentralized system spread across thousands of computers around the world, and every transaction is recorded via a distributed ledger that anyone can view. The system leverages complex cryptography to record and validate transactions, and users are identified only by the ID numbers of their digital wallets.

Cardano’s Ouroboros uses a newer technology called proof-of-stake blockchain (PoS), and the founders say it’s the first “provably secure” version. In the simplest terms: Users earn rewards, paid in Ada, to stay on the network and help verify transactions. It’s designed to be “greener” and more scalable than the traditional proof-of-work (PoW) algorithm that Bitcoin and other cryptos use. That’s because PoW requires lots of electricity: New tokens are created, or “mined,” by using banks of high-powered computers to solve arbitrary, complicated math problems. 

PoS chains like Ouroboros, by contrast, don’t rely on the vast scale of mining to expand. Instead, users can opt to validate the transactions on the network in exchange for a reward that’s paid in newly minted Ada. It’s done through a mechanism called a stake pool, or a server node that can hold the combined Ada of many users.

The stake pool operator is responsible for setting up and running the pool—which requires owning or renting a server, as well as validating transactions—while other users can also pledge their own Ada to the pool to increase the rewards the entire pool will share. Those rewards are paid to the account of the operator, who divides up the winnings based on a predetermined agreement among the group members. 

So trust in the pool operator is crucial, not only for payout but for accuracy: Errors in validation mean the pool will be penalized, rather than rewarded.

Cardano’s founders and mission

Three independent organizations support the Cardano ecosystem. The first is the nonprofit Cardano Foundation, an independent standards body that owns the brand and oversees the network’s development and governance. EMURGO is the for-profit arm of Cardano, driving commercial adoption and partnerships. The final piece is IOHK, a technology and engineering company created by Cardano founder Hoskinson with crypto entrepreneur Jeremy Wood, which designs, builds, and maintains the platform based on peer-reviewed research.

Cardano’s mission boils down to two words: scalable and sustainable. Throughout Cardano’s whitepapers and official site, the community talks at length about facilitating the benefits of DeFi while reducing some of the disadvantages of traditional mining.

Like other crypto networks, Cardano allows users to bypass intermediaries like banks and transact directly through the trading of Ada. It can facilitate traditional financial services like lending and asset management. It also powers a marketplace of decentralized applications (dApps), giving developers a place to launch their apps without handing over hefty fees to the likes of Apple and Google, which take a large cut for purchases made in their app stores.

Cardano also permits smart contracts, a concept launched on the Ethereum network. Smart contracts are programs that self-execute when predetermined conditions are met. They can be used for DeFi, apps, games, and more, making processes and transactions quick and cheap because there’s no need to pay intermediaries to spend time on paperwork to make the deal happen. Smart contracts can also smooth processes in business contexts like supply chains, signaling the next action to begin automatically when the previous step’s conditions are met.

Looking ahead, Hoskinson and the Cardano Foundation have split the network’s roadmap into five “eras” named after great thinkers: Byron (the creation of the network), Shelley (decentralization), Goguen (smart contracts), Basho (scaling), and Voltaire (governance and self-sustainability). Each era is delivered sequentially, even as work on each one is happening simultaneously.

Cardano vs. Ethereum

Because Cardano was created by an Ethereum co-founder, the two platforms share a number of key features. Both facilitate trading of their own cryptocurrencies, allow developers to create dApps on their marketplaces, and host smart contracts, for example.

But there are important differences. 

  • Protocol. Cardano already operates on the much more energy-efficient PoS protocol, while Ethereum was built on PoW. Ethereum does plan, though, to transition to PoS. 
  • Smart contracts. While Cardano offers smart contracts and plans to expand that functionality, it was Ethereum that launched the concept on its blockchain.
  • Time in market. Ethereum is the No. 2 cryptocurrency with a longer track record, while Cardano is newer.
  • Network management. Cardano solicits feedback not only through peer review of its research but also through stakeholder voting, the latter of which some critics say could lead the network astray. 

The bottom line

Cardano’s Ada is one of the largest cryptocurrencies by market capitalization, and the platform aims to make cryptos more scalable and sustainable. Its Ouroboros infrastructure leverages a newer and less energy-intensive technology called proof-of-stake blockchain, in which Cardano grows by letting users earn newly minted Ada for staying on the network and helping verify transactions. 

Cardano’s creators see it as a tool to bypass the intermediaries that slow and add costs to transactions of all kinds. Beyond that, the blockchain supports an ecosystem that can facilitate traditional financial services, features a marketplace of decentralized applications (dApps), and permits smart contracts—with more functionality planned in the future.

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