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What is Cardano All About?

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Marketing Specialist

Last updated May 24, 2022

Since the beginning of cryptocurrency, developers have strived to take the next step toward the evolution of this domain. And as Bitcoin established the first generation of cryptocurrency and Ethereum the second, Cardano is trying its best to lead crypto into the third generation.  

But what is Cardano?  

The “Ethereum Killer,” some say. But countless projects are claiming that.  

However, in Cardano’s case, there are quite a few things that may turn this project into a true competitor for Ethereum.  

So, what is Cardano?

So, what is Cardano

Cardano is a proof of stake blockchain platform initiated by Charles Hoskinson and Jeremy Wood under The Cardano Foundation, IOHK, and Emurgo. And, of course, on top of this platform resides the ADA cryptocurrency.  

In essence, the project aims to become a smart contracts platform for decentralized applications that can fit the needs of a high-demand global market.  

The Cardano project started its development in 2015 after Charles Hoskinson, and Jeremy Wood left the Ethereum team. And after 2 years of research and peer reviews, in 2017, the first phase of the project was launched. On September 29, 2017, the ICO took place and raised approximately $62 million.  

But as mentioned, the project was in its first phase, out of a total of 5 phases.  

And although Cardano was launched as a platform without many functionalities to begin with, the idea of a third-generation blockchain, improved scalability, interoperability, and sustainability caught the eye of the public.  

How does Cardano work?

How does Cardano work

Cardano employs a proof-of-stake algorithm called Ouroboros and is incentivized through ADA. Although it’s far from its final form, the project seeks to bring innovation specifically into 3 areas cryptocurrencies are usually lacking.  

First is scalability  

It’s not the first time a project attacks the low speed of Bitcoin, the wasted resources required for a robust proof-of-work consensus, and the database that only gets bulkier and harder to manage.  

Therefore, Cardano employed a proof-of-stake algorithm called Ouroboros.  

The Ouroboros algorithm is a system to reach consensus upon ADA transactions in which nodes stake their cryptos to create new slots.  

The staking process is organized in epochs consisting of 432,000 one-second intervals called slots. Typically, each epoch lasts for almost five days, and at the end of it, a snapshot is created.  

Sidenotes – Snapshots capture the distribution of staked ADA to pool members and utilize it to determine how much reward each individual is owed. 

In the staking process, the algorithm randomly chooses a slot leader from the stakeholders (the node owners that keep a certain ADA stake). The chosen slot leader will then confirm transactions and earn rewards in ADA.  

The chance is correlated to the number of coins held by a node. Naturally, whales may seem to have an advantage, but the algorithm also allows people to delegate their stake.  

The algorithm is supposed to address 2 layers:  

  • The Cardano Settlement Layer (CSL)  
  • The Cardano Computation Layer (CCL).  

The CSL is meant to stock data regarding the actual transactions, while the CCL is meant for the reason behind the transactions. Namely, CCL is addressing smart contracts.

Through scalability, Cardano can process a large number of transactions without messing up the network performance. This technique also provides increased bandwidth, allowing transactions to carry a substantial quantity of supporting data that can be readily controlled inside the network.  

For instance, Cardano brings and implements various techniques such as data compression and works in bringing Hydra, which will enable multiple side chains functionality.  

Secondly, interoperability  

Cardano’s interoperability guarantees the most multi-functional environment for financial industry operations by allowing users to engage with many currencies across several blockchains.  

Cardano is being designed to facilitate cross-chain transactions, a variety of token types, and widely used smart contract languages. 

Blockchain projects are mostly data silos. Although, nowadays, DeFi projects allow for the creation of tokenized versions of other cryptocurrencies, converting a cryptocurrency to another without a third party is not yet possible.  

In this regard, Cardano is looking to allow cross-chain transfers by implementing side chains that run along with the main chains via a two-way peg.  

Furthermore, in this matter, updates made lately on Cardano brought an ERC-20 converter to redeploy tokens from Ethereum to Cardano, which went live on Mainnet on April 18, 2022.  

Third comes sustainability  

ICOs redefined what crowd-funded projects used to mean. Unfortunately, money tends to run out, especially when developing advanced functionalities.  

In this regard, Cardano wants to implement a Treasury that gathers small transaction fees to distribute funds to promising projects.  

This way, developers can propose new features and projects and get voted through a DAO-like future by the Cardano community. Afterward, the developers won’t have to focus on an ICO to gather additional funds.  

Developments on Cardano

Developments on Cardano

The project as a whole sounds good. However, although Cardano has been online since 2017, the project has not reached its full potential.  

So, let’s take a look over Cardano’s roadmap.  

Byron (September 27, 2017)  

The Byron era brings to life the first crucial technology developments of Cardano, launching the mainnet and enabling users to trade and transfer ADA.  

Shelley (July 29, 2020)  

The Shelley era came after a long wait and started as a hard fork in the summer of 2020. From the centralized Cardano, in which the mining was done by a few selected entities, the project turned to the decentralized Cardano, in which the staking is transferred to as many community nodes as possible.  

Shelley also comes with the introduction of a delegation and incentives scheme, a reward system meant to drive stake pools and community adoption.  

Goguen (December 2021)  

The Goguen era is supposed to be the update that will truly turn Cardano into a smart contracts’ platform. And that’s because the mid-December hard fork is supposed to introduce smart contracts capabilities. With this event, Goguen adds the ability to build decentralized applications on Cardano’s solid foundation of peer-reviewed research and high assurance development.  

Goguen comes with Plutus, a purpose-built smart contract development language and execution platform that uses Haskell’s functional programming language. And for the less technical users, introduced Marlowe, a high-level, domain-specific language (DSL) for financial contracts.  

Basho  

The Basho does not have an exact release date but is expected to be around in 2022, but it will open the gates of interoperability and scalability. It will come to bring significant developments around performance improvements and introduce sidechains.  

Voltaire  

The final era of Cardano’s initial plan addresses the sustainability of a blockchain project. The Voltaire era will be the one to add to Cardano a treasury system and governance in which network participants will be able to use their stake and voting rights to influence the future development of the network.  

The updates for Cardano in 2022  

The platform’s roadmap only shows the major developments for the year; however, Cardano undergoes numerous more updates. So far, 2022 has brought Cardano challenges and many accomplishments, and it does not end there.  

Here are some of the initiatives launched by Cardano this year:   

At the beginning of 2022 

SundaeSwap, one of the most popular Cardano-based decentralized exchanges, has been available on the platform since December 2021. SundaeSwap is a Cardano DEX natively scalable, that offer decentralized exchange rates, and automates liquidity provision.  

However, the platform experienced some issues in the beginning, with customers complaining about transactions failing and not receiving their switched tokens. Despite the difficulties with the exchange, the ADA blockchain hit a record of around $80 million at the same time as the incident.  

Further, IOHK unveiled Hydra, their Layer 2 scaling solution; there is no definite timeframe for the formal release; it might take 6-12 months and may not be available until late 2022 or even 2023. Hydra may be moved closer to the Cardano Basho period, which aims to increase scale.  

The Hydra will strive to expand the Cardano blockchain by lowering latency and increasing throughput transactions per second (TPS). Hydra will allow each staking pool to process 1000 TPS, and with over 3000 staking pools, Cardano will be soon able to process over 3 million TPS. Moreover, the IOG developers raised the Cardano block size by around 12%.  

Updates for February 2022 

Cardano’s blockchain network got smart contracts features and support with the most recent successful update, the Alonzo hard fork in the Goguen era. Bringing an updated better usage of open, programmable, and low-cost transaction platforms to suit their blockchain requirements, scalability, sustainability, and interoperability.  

This accomplishment has also helped bridge Cardano dApps with Yoroi Wallet’s Cardano ADA customers moving ahead EMURGO, the creators of Yoroi Wallet – the forthcoming plan to create Yoroi dApp Connector to allow interactions between Cardano dApps and Yoroi users. However, the dApp Connector capability is currently available exclusively to Cardano developers. This phase brings Yoroi users one step closer to connecting with Cardano dApps via Yoroi Wallet.  

Updates made in March 2022 

In March 2022, Cardano unveiled its $16 million ADA Fund8 for its innovation engine named Project Catalyst; the initiative entails the Cardano Treasury gathering and sponsoring fresh proposal ideas or projects every three months. Project Catalyst began as an experiment in collaboration, competitiveness, and human potential and has now grown to become the world’s biggest decentralized innovation fund.  

The primary goal is to accelerate ecosystem expansion by giving resources to support new possibilities. However, the ADA price will be affected simultaneously, which is a sign of recovery for Cardano and its members who realize that the price is determined not only by the market but also by the project, which concentrates on growth and development.  

Grayscale will offer a smart contract fund for Ethereum competitors, including Cardano, towards the end of March 2022. The Grayscale Smart contract platform ex-Ethereum fund, popularly known as the ticker symbol GSCPxE, will give 24.63% fund and exposure to Cardano (ADA)

During the same time, WidsomTree releases crypto ETPs covering a variety of cryptocurrencies, including Cardano’s ADA, which is listed on the Swiss stock exchanges SIX and Borse Xetra. These crypto ETPs are conventional investment products that provide simple crypto exposure.  

On the same note, there was a huge transaction volume on Cardano in March that skyrocketed in 2022, implying that there is no institutional interest in the blockchain network. This year, the volume of big transactions on the Cardano blockchain has risen by more than 50 times.  

This volume refers to aggregated volume from transactions denominated in Cardano’s ADA token worth more than $100,000. Since the beginning of the year, the amount of major transactions has climbed from 1.35 billion ADA per day to a growth of 69 billion ADA, which is worth $81.4 billion.  

April 2022 

Anyhow, the Chicago Mercantile Exchange, or CME, said in early April 2022 that it was exploring providing a futures product for ADA as well as other popular cryptocurrencies. This is a significant occasion since the CME is the same exchange that notably launched Bitcoin futures at the end of 2017, kicking off the previous bull run.  

Shortly after, the CME said that it would be adding reference rates for ADA and ten other cryptocurrencies. At the moment, this is relevant since a reference rate is necessary for CME to list a future product, implying that Cardano futures for institutions are possible in the near future.  

Singularitynet, a Cardano project, finally published its widely anticipated ERC20 token converter in late April, allowing tokens and native assets to be moved between Ethereum and Cardano.  

The most important thing to remember is that the ERC 20 converter presently only supports Singularitynet’s Ajix tokens.  

Finally, in the most recent upgrade, IOG engineers increased network block size by 10% to 88KB, resulting in 500 TPS and 7 to 10 smart contract TPS for Cardano.  

Cardano vs Ethereum

Cardano vs Ethereum

Some consider that the true winner will be the crypto project that will prove to implement a true & reliable proof-of-stake consensus system. And Cardano is not the only ‘Ethereum killer’ competing in this race. There is also Solana, XRP, and Polkadot, which follow Cardano’s evolution.  

Ethereum 2.0 was scheduled for January 2020 but was postponed and continues to be postponed. Still, the Beacon Chain upgrade was introduced on December 1, 2020, with the actual change being the Merge that will combine the Beacon Chain with the Ethereum mainnet at some point in 2022.  

The crypto community members have already started opening up nodes and organizing themselves in staking pools. And Cardano is quite in the same situation, although it opened up staking with Shelley on July 29, 2021.  

In May 2022, Ethereum Beacon Chain Explorer shows us that the staking network already surpassed 375,023 active validators and 12 million ether staked.  

As for Cardano, the Cardano PoolTool network comprises over 1 million stake addresses and over 10,81 billion ADA at stake representing 73.34% of the total amount of supply.  

In regards to staking returns, network performance, and functionality, the verdict tends to go more to Cardano rather than Ethereum.  

The criticism surrounding Cardano

The criticism surrounding Cardano

No doubt, the Cardano project comes with an astonishing initiative to bring innovation to the crypto and blockchain world. Yet, the more complex it is, the more it is bound to have experts find faults in it.  

And such is the case with Cardano.  

The first critique on Cardano is that it’s still a blockchain in development and some of the most attractive claims are just theoretical. And until the Shelley update, there even were voices articulating that the Cardano development stopped. But it has been proven wrong as the Cardano already has many updates that have come up in 2022 already with the Goguen era.  

The scalability claims are also critiqued as Cardano is currently able to deliver around 500 transactions per second with the latest updates made for the simple transaction and 7 to 10 for the smart contract transaction, while there are already cryptocurrencies like Ripple’s XRP that offer 1,500 tps.  

And as for the security, Cardano has been accused that it did not solve the double-spending problem. Even though Cardano is secured by over 3000 staking pools that function as its validator nodes; as a result, this process makes Cardano one of the most decentralized cryptocurrencies. Thanks to the Cardano’s k parameter, which decreases staking rewards when there is too much stake in a single pool, this incentivizes the creation of new staking pools.  

Key takeaways

  • Cardano is the blockchain platform initiated by Charles Hoskinson and Jeremy Wood under The Cardano Foundation, IOHK, and Emurgo. ADA is the native cryptocurrency of the Cardano blockchain.  
  • Cardano employs a proof-of-stake algorithm called Ouroboros and is incentivized through ADA. Although it’s far from its final form, the project seeks to bring innovation into scalability, interoperability, and sustainability.  
  • Cardano’s roadmap comprises 5 eras, namely Byron, Shelley, Goguen, Basho, and Voltaire. Currently, the project is in the Goguen era and is soon going to cross into the Basho era.  
  • There have been many updates regarding Cardano and its evolution, making the blockchain more powerful.  
  • The match between Cardano and Ethereum will finally be judged by how successful will the PoS implementation be. Solana, XRP, and Polkadot are competitors in this race as well.  
  • In terms of criticism, most of Cardano’s claims are still theoretical, but the project’s developments will bring more and more of these claims to reality.  
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