What Is Cardano (ADA)?

TL;DR

Cardano is a Proof of Stake blockchain project that has yet to reach its full potential. A “third-generation” blockchain, it seeks to address the scalability issues inherent in second-generation blockchains, much like the highly anticipated Ethereum 2.0. 

Cardano’s development is characterized by a scientific philosophy and plenty of academic research. With the 2020 Shelley release, Cardano moves closer to achieving its goals.

Introduction

The Cardano project and its associated ADA cryptocurrency have generated a lot of community buzz since its 2015 inception. The academic rigor applied to its development makes Cardano somewhat unique in the cryptocurrency space.

The Cardano project is developed mainly by the technology company Input Output Hong Kong (IOHK), founded by Charles Hoskinson. Hoskinson was also involved with Ethereum in its early days. 

But what is Cardano, and what functionality does it have planned in its lengthy roadmap? Let’s find out.

What is Cardano (ADA)?

Cardano is a general-purpose blockchain designed based on peer-reviewed academic research. It’s being developed by a multidisciplinary team of engineers, mathematicians, scientists, and business professionals. 

Ongoing platform development is always accomplished using a scientific approach. According to its creators, the key design principles behind Cardano are security, scalability, and interoperability.

Ada, the native currency of Cardano, is used to perform operations on the Cardano blockchain, much like the relationship between ether (ETH) and Ethereum.

Cardano’s development is separated into multiple business units. IOHK handles the development of the Cardano protocol, while the Cardano Foundation supervises the project, and EMURGO is responsible for business development and driving adoption. IOHK also has been involved with the development of Ethereum Classic (ETC).

What is the Cardano (ADA) roadmap?

The Cardano roadmap consists of five main phases: Byron, Shelley, Goguen, Basho, and Voltaire. Byron, the first phase marked the launch of the network along with basic functionality, such as transferring ADA. The Shelley hard fork took place in 2020 and offers further steps towards decentralization. Nodes are now operated by the Cardano community, with stake pools run by ADA holders.

As of December 2020, functional smart contracts cannot be deployed on the blockchain platform. As part of the roadmap, this will roll out as a part of the Goguen update. Following Goguen, the Basho era focuses on optimization of scalability and interoperability, and the Voltaire era introduces a treasury system to address governance.

How does Cardano (ADA) work?

Cardano is designed as a “third-generation” blockchain, aiming to solve the scalability problems of generation one (e.g., Bitcoin) and generation two (e.g., Ethereum). 

According to the proponents of this classification, previous generation blockchains suffer from bottlenecks that fundamentally limit the amount of throughput they can handle. This makes them an inefficient choice for worldwide mass use. We can look to fluctuating BTC and ETH transaction times to confirm this problem.

Cardano references VISA’s computational power in their documentation as a comparison:

the network reportedly handles an average of 1,736 payment transactions per second (TPS) with the capability of handling up to 24,000 TPS.

Cardano aims to improve throughput in a number of ways. One of the most significant pillars of this goal is their own Proof of Stake (PoS) consensus mechanism called Ouroboros. Ouroboros reduces energy costs compared to Proof of Work (PoW) while providing provable security guarantees.

Cardano’s Layer 2 solution for further scalability, Hydra, is named after the mythical creature of the same name. The idea is that throughput is increased as each new node is added to the network.

The hard fork combinator is also a key feature of Cardano, which allows hard forking without interruptions or restarts to the blockchain. The success of the Shelley update is a testament to the effectiveness of this approach.

Cardano (ADA) key features

As we’ve mentioned, Cardano’s strong points are the academic and scientific philosophy behind it. The team developing Cardano has published more than 90 whitepapers for the underlying technology. The project has a well-defined roadmap, while the network wants to have baked-in security, scalability, and interoperability.

While not yet operational, the Cardano blockchain will allow for scalable smart contract functionality in the future. Built looking to VISA as a competitor and hardware limits as a theoretical goalpost, Cardano could have all the necessary building blocks to be used as a powerful fintech disruptor.

Much like Ethereum, the possibilities for the use cases of Cardano are vast. It only aims to act as the base layer for applications to be built on top.

Despite big promises, Cardano has yet to fully deliver – just like almost anything in the cryptocurrency space apart from Bitcoin. While Cardano is ambitious in its foundations, its development is relatively slow.

What is the ADA token?

ADA is Cardano’s token, named after the 19th-century mathematician Ada Lovelace. 57.6% of the ADA supply was distributed in an Initial Coin Offering (ICO), in which Cardano raised $62.2 million.

The token is both a digital currency and a way to make transactions on the Cardano network (similar to how you need ether to transact on Ethereum).

ADA holders also have a stake in the Cardano network, which can be used in stake pools to generate staking rewards. Cardano staking is also available through Binance Earn.

How to store Cardano (ADA)

Developed by IOHK, Daedalus is the open-source desktop software wallet of choice for storing ADA. It’s a full node wallet, which means the full Cardano blockchain needs to be downloaded, and each transaction is verified for maximum user security.

Light wallets, which don’t require downloading the full blockchain, are the Yoroi Wallet and AdaLite. ADA can also be stored on cold storage hardware wallets such as Ledger and Trezor via Daedalus, Yoroi Wallet, and AdaLite.

Closing thoughts

Cardano is an ambitious project that aims to provide blockchain infrastructure in the crypto ecosystem. While the project progresses slower than some may expect, it also aims high.

But will this third-generation blockchain project end up becoming the dominant smart contract platform, or will it come to market too slowly? Are there fourth-generation blockchains that could do what it does better? These questions remain to be answered as Cardano progresses further on its roadmap.