Our whitepaper is here! Read it now!
5 min

What Is Cardano?

Published on
June 22, 2022

What Is Cardano (ADA)?

Cardano (ADA) is a decentralized finance platform that supports cryptocurrencies, non-fungible tokens (NFTs), games, and smart contracts (eventually). Cardano does not currently support smart contracts. However, they will add them in a future upgrade scheduled for 2021.

Ethereum, Polkadot, and Solana are just a few of the major blockchain platforms in the cryptocurrency sector. What distinguishes Cardano from other cryptocurrencies? Cardano is known for implementing Haskell, a popular programming language that allows Cardano code to be peer-reviewed and developed according to scientific norms.

Apart from its blockchain platform capabilities, Cardano is best known as the home of ADA, one of the most valuable cryptocurrency tokens by market capitalization. The ADA frenzy has propelled it to the fifth most valuable crypto asset, with a market cap of $54 billion.

This Cardano guide explains what Cardano is, how it works, and all you need to know about the ADA token in plain English. Let's get started!

What exactly is Cardano?

Charles Hoskinson founded Cardano, a decentralized blockchain platform that promotes rigorous peer-reviewed programming to maximize network security. Cardano is now utilized primarily as the blockchain that supports ADA, the network's native coin.

Cardano will eventually feature smart contracts, putting it in direct competition with Ethereum, Polkadot, and Solana, which all have smart contract capabilities.

According to Hoskinson, Cardano is the first blockchain to achieve scalability, security, and decentralization. Most blockchains excel at two of these attributes, while trade-offs make achieving all three qualities sufficiently tricky.

Several different foundations develop the Cardano blockchain. IOHK is in charge of technical development, whereas Emurgo is in order of marketing and outreach, and the Cardano Foundation is in charge of the protocol as a whole.

Despite the lack of support for smart contracts, Cardano has a unique dual-layer architectural design:

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

Cardano developers feel that designing a general-purpose blockchain with two layers rather than one allows for improved interoperability and scale. To truly grasp how Cardano works, it's necessary to get its dual-layer architecture.

Cardano Settlement Layer (CSL)

Cardano's value ledger, the Cardano Settlement Layer (CSL), is where digital asset transactions are finalized. AS YOU MIGHT EXPECT, the ADA cryptocurrency and other digital tokens issued on Cardano after smart contract activation are stored on the CSL.

The accounting of value is removed from why it moved by keeping value separate from computation (whereas blockchains like Ethereum merge the two on a single layer). Understanding why an event occurs on a blockchain is always a computational question. As a result of its solitary focus, the CSL has more flexible scalability.

The CSL also houses Ouroboros, the network's proof-of-stake consensus algorithm, which we'll go over later.

Cardano Computation Layer (CCL)

The Cardano Computation Layer (CCL) operates as the network's brain, accounting for the rationale underlying transactions on the CSL. The CCL provides unique Cardano blockchain capabilities such as programmable tokens with custom rules for private organizations and DAOs.

Every transaction involves a value flow and the conditions that govern that flow. The CCL makes it possible to specify those requirements, which is a critical feature in a regulated blockchain context.

In short, the CSL is in charge of Cardano transactions, but the CCL is in charge of the regulations that govern them.

Proof of Stake Consensus Algorithm Ouroboros

Ouroboros, a trusted proof of stake consensus algorithm with several sophisticated features, is used to secure Cardano. Among them are the following:

  • Stake delegation
  • Scalable sidechains
  • Random validator selection
  • Lightweight data structures

Unlike Bitcoin's proof-of-work model, Ouroboros focuses on being as light and modular as feasible. Why? Because Cardano envisions a blockchain that can scale to billions of users while remaining completely decentralized. To get there, consensus must be reached promptly and without undue strain.

When you look at Ethereum, you can see the drawbacks of proof of work consensus. Slight increases in usage result in network congestion, high gas prices, and a bad user experience. As a result, Cardano concentrates all of its efforts on developing a lightweight PoS algorithm to avoid the same issues.

Cardano interoperability

As blockchain technology advances, the ability of several chains to work together has become increasingly important. Consider this: traditional firms like Google, Amazon, and Facebook operate under their own rules. As a result of this privacy, the internet is divided into silos of data, information, and protocols that stifle rather than develop it through mutualism.

Blockchains are taking a different approach by recognizing the inherent benefits of collaboration. After all, each blockchain has its strengths, so consumers benefit if developers can create applications that can activate smart contracts across several blockchains.

For example, Cardano's fundamental design goal is to give underdeveloped countries a single app that combines decentralized banking, digital identity, and property rights. What if Solana is home to the finest app chain for digital identity? Cardano will benefit from working with the Solana-based app to integrate data and give better services to Cardano consumers.

Interoperability isn't limited to blockchain-to-blockchain communication. Cardano also plans to use oracles to connect its blockchain to traditional banks, central banks to enable central bank digital currencies (CBDC), and other off-chain institutions.

Cardano Scaling

The most successful blockchains in 2021 will have to learn to scale their networks fast or risk being left behind. Ethereum has again shown the industry what happens when adoption outpaces technological ability to support it.

Cardano's present scalability is difficult to assess because it does not yet allow smart contracts. Because all Cardano does, for now, is allow ADA transactions, it's too early to say. Smart contracts inflate blockchain networks with activity.

On the other hand, Cardano is attempting to get ahead of the curve with Hydra, an intriguing approach to layer two scaling solutions, well before its smart contract debut. What makes Hydra unique is that it allows developers to run their layer one smart contract code on the scalable off-chain layer two-channel.

Allowing developers to reuse code on and off-chain saves time, lowers redundancy, and improves security by reducing the number of things that can go wrong when reusing previously audited code.

What is ADA cryptocurrency?

The Cardano blockchain network's native cryptocurrency token is ADA. Any discussion of the most valuable cryptocurrencies must include ADA, which is presently placed fifth with a market valuation of $54 billion.

Why is ADA gaining so much traction among cryptocurrency investors? The Cardano ecosystem has wonderfully advertised itself worldwide, aside from having an instantly recognizable brand. Since 2015, Cardano's enthusiasm has grown year on year, thanks to a frequently updated Cardano Roadmap and highly followed founder Charles Hoskinson.

So, should you invest in ADA? Well, that is debatable. Aside from investor speculation, ADA has a wide range of applications. Let's look at ADA's two most enticing features to see if it's a wise investment.

ADA is a type of digital currency.

To begin with, ADA is a digital currency that allows for the frictionless transfer of value between wallets anywhere on the planet. With the Cardano blockchain securing your transactions, you can transfer, receive, and save ADA cryptocurrency using the network's Daedelus wallet.

To earn rewards, stake ADA.

Cardano's stake evidence Anyone can stake ADA tokens to earn rewards because of the blockchain design. You can earn ADA staking rewards in one of two ways: delegate your stake or create a stake pool.

Running a stake pool necessitates a significant initial investment in ADA tokens or many ADA assigned to the pool. As a result, most people prefer to delegate their ADA stake.

Currently, the rewards for staking ADA are hovering around 5% interest per year. Staking pool rewards in the ADA are substantially larger, at 700 percent or more, but distributed between delegators and pool operators.