Cardano: What is Cardano and How does it work?

Cardano is one of the most valuable cryptocurrencies in terms of market capitalization. It is intended to be a next-generation refinement of the Ethereum concept, with a blockchain that is a flexible, sustainable, and scalable platform for executing smart contracts, allowing the creation of a diverse variety of decentralised financial applications, new crypto currencies, games, and more.

However, as of March 2021, developers have yet to implement smart-contract capabilities. An update expected for the second quarter of 2021 will enable smart-contract functionalities, taking Cardano one step closer to its aim of offering developers with a powerful, secure, scalable, and extremely energy-efficient blockchain platform.

The Cardano blockchain’s native cryptocurrency, ADA, is similar to the Ethereum blockchain’s native cryptocurrency, ETH, and can be purchased or traded on exchanges such as Coinbase. ADA may now be used to hold value (possibly as part of an investment portfolio), transmit and receive payments, stake, and pay transaction fees on the Cardano network.

How does Cardano function?

Cardano aspires to be the most environmentally friendly blockchain platform. It employs a novel proof-of-stake consensus process known as Ouroboros, as opposed to the energy-intensive proof-of-work technique that Bitcoin and Ethereum presently use. (With the ETH2 update, Ethereum will also transition to a proof-of-stake mechanism.)

What exactly is work proof? Without a central authority like Visa or PayPal in the middle, decentralised cryptocurrency networks must ensure that no money is spent twice. They utilise a “consensus method” to do this. Proof of work is the original crypto consensus process, which was popularised by Bitcoin mining.

• Proof of work requires a massive amount of processing power, which is provided by virtual “miners” all over the globe vying to solve a time-consuming arithmetic challenge.
• The winner gets to update the blockchain with the most recent verified transactions and is rewarded with a set amount of cryptocurrency.

What exactly is evidence of stake? Proof of stake, as opposed to a network of miners racing to solve a challenge, employs a network of invested players known as validators. Validators stake their own ADA rather than giving computing power to protect the network and validate transactions, as miners do.

• The network chooses a winner depending on how much ADA each validator has in the pool and how long they’ve kept it there, thus rewarding the most involved members.
• After the winner has confirmed the most recent block of transactions, additional validators may testify to its accuracy. The blockchain is updated when a certain amount of attestations are received.
• All validators who participate earn a reward in ADA, which is dispersed by the network in proportion to their stake.
• Although being a validator entails significant responsibilities, interested persons may alternatively receive ADA benefits by “delegating” portion of their cryptocurrency to a staking pool managed by someone else.

The Cardano blockchain has two layers: the Cardano Settlement Layer (CSL) and the Cardano Computing Layer (CCL) (CCL). The CSL holds the account ledger and balances (and is where the transactions are validated by the Ouroboros consensus mechanism). The CCL layer is where all calculations for applications running on the blockchain are conducted – through smart contract operations.

The purpose of dividing the blockchain into two layers is to allow the Cardano network to process up to a million transactions per second.

What exactly are Cardano native tokens?

The Cardano blockchain enabled the creation of native tokens on March 1, 2021. Cardano native assets, like Ethereum tokens (which might include NFTs or stablecoins like USD Coin), can be produced and distributed on the blockchain and interact with smart contracts.

Cardano native tokens, unlike Ethereum-based tokens, are not produced by a smart contract. They instead use the same architecture as the ADA coin. Cardano native assets are now “first-class citizens” on the blockchain, according to the non-profit Cardano Foundation. Their native design may possibly make these tokens more secure and lower transaction costs.

Cardano’s Brief History

Cardano, founded by Ethereum co-founder Charles Hoskinson in September 2017, intends to be a third-generation blockchain (or blockchain 3.0) project, expanding on the technology pioneered by Bitcoin (first gen) and Ethereum (second gen) (second gen). Cardano’s vision is to create a highly scalable, low-energy smart contract platform.

A team of computer scientists and cryptographers from the University of Edinburgh, Tokyo University, and other institutions developed the Ouroboros consensus method via peer-reviewed research. Their objective was to create a decentralised network capable of validating transactions in a scalable and secure manner, while also ensuring that the Cardano platform was as energy-efficient as possible.

What exactly is ADA?

The Cardano platform’s native cryptocurrency is ADA (named after Ada Lovelace, the 19th-century mathematician often regarded as the “world’s first computer programmer”).

ADA coins power the Cardano platform in the same way that ETH tokens power the Ethereum platform. They are used to pay transaction fees and are staked by validators (and delegators) who wish to assist maintain the network’s security and stability in return for incentives.

ADA will be utilised as a governance token in the future, allowing holders to vote on improvements and upgrades to the Cardano platform.

What is Cardano’s next step?

Smart contract capability is expected to be added to the Cardano platform in the second quarter of 2021. The blockchain will also be compatible with Ethereum-based smart contracts later this year, possibly enabling it to run a broad variety of current applications and letting developers to work on Cardano projects using the familiar Solidity programming language.

Cardano also intends to become entirely decentralised by implementing community-driven governance and an automated treasury mechanism to finance the network’s development.