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Cardano (ADA) Introduction

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2022-08-12
Cardano (ADA) Introduction

Cardano is a decentralized third-generation proof-of-stake blockchain platform and home to the ADA cryptocurrency. It is the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach.

What is Cardano (ADA)?

The Cardano platform has been designed from the ground up and verified by an industry-leading combination of top engineers and academic experts in the fields of blockchain and cryptography. It has a strong focus on sustainability, scalability, and transparency. It is a fully open source project that aims to deliver an inclusive, fair, and resilient infrastructure for financial and social applications on a global scale. One of its primary goals is to bring reliable, secure financial services to those people who do not currently have access.

Cardano has been designed with security as one of its founding principles. It is written in Haskell, a functional programming language. In a functional language like Haskell, building your system using pure functions is encouraged, which leads to a design where components are conveniently testable in isolation. Furthermore, the advanced features of Haskell enable us to employ a whole range of powerful methods for ensuring the correctness of the code, such as basing the implementation on formal and executable specifications, extensive property-based testing, and running tests in simulation.

Cardano is developing a smart contract platform that seeks to deliver more advanced features than any protocol previously developed and will serve as a stable and secure platform for the development of enterprise-level dApps. In the near future, Cardano will use a democratic governance system that allows the project to evolve over time, and fund itself in a sustainable way through a visionary treasury system.

Why Cardano?

Cardano is an open source proof-of-stake blockchain project that began in 2015 to address existing blockchain challenges in the design and development of cryptocurrencies. It aims to provide a more balanced and sustainable ecosystem that better accounts for the needs of its users as well as other systems seeking integration.

The first generation of blockchains (like Bitcoin) offered decentralized ledgers for secure cryptocurrency transfer. However, such blockchains did not provide a functional environment for complex deal settlement and decentralized application (Dapp) development. As blockchain technology matured, the second generation (like Ethereum) provided more enhanced solutions for writing and executing smart contracts, application development, and the creation of different token types. On the other hand, the second generation of blockchains often faces issues in terms of scalability.

Cardano is conceived as the third-generation blockchain as it combines the properties of the prior generations and evolves to meet all the arising needs of users. When comparing blockchain properties, many aspects should be considered. Thus, the best solution must ensure the highest security, scalability (transaction throughput, data scale, network bandwidth), and func·tionality (besides transaction processing, the blockchain should provide all means for business deal settlement). Moreover, it is important to ensure that blockchain technology is constantly developing in terms of sustainability and is interoperable with other blockchains and financial institutions.

Building Cardan Two layers of the Cardano blockchain

The Cardano ecosystem is built as a third-generation blockchain platform consisting of two layers — a settlement layer (CSL) and a computation layer (CCL) that serve as the fundamental components of every transaction.

Cardano Settlement Layer (CSL)

Cardano’s developers wanted to build a system that separates the value of a transaction from its computational data.

The Cardano Settlement Layer is designed to manage the movement of the value (or the currency) between the sender and the receiver. In other words, the settlement layer is the routing layer for all the control layers and systems.

The CSL uses two dedicated ing languages — Plutus and Marlowe — for moving the value and enhancing support for overlay network protocol.

Cardano Computation Layer (CCL)

The Cardano Computation Layer helps Cardano to replicate the Bitcoin (BTC) ecosystem’s smart contract platform, Rootstock (RSK blockchain). The reasoning behind CCL’s implementation lies in its ability to help scale specialized protocols over the years. This involves adding hardware security modules (HSM) to the existing stack of protocols as technology advances.

The two layers of the Cardano blockchain allow the ecosystem to proactively implement changes to support faster and more secure transactions while eliminating any user metadata that proves to be irrelevant to the process.

Cardano roadmap: Exploring the five eras

The development of the Cardano ecosystem follows a five-step process where each step represents a set of functionalities to be implemented sequentially over time. The five steps or eras of the Cardano roadmap are Byron, Shelley, Goguen, Basho, and Voltaire.

Byron — Foundation

The Byron era represents the two years of development (2015–2017) in which the first version of the Cardano blockchain was launched, and the ADA cryptocurrency debuted. The in-house ADA token was named after Ada Lovelace, an English mathematician credited for her work as one of the first computer programmers.

Along with the launch of the Cardano blockchain and ADA token, IOHK and Emurgo released official ADA-supported wallets named Daedalus desktop wallet and Yoroi light wallet, respectively. Let’s check out some of the main differences between the two Cardano ADA wallet offerings.

Shelley — Decentralization

The Shelley era is dedicated to the growth and development of the existing Cardano ecosystem. The network was federated throughout the Byron era, but as the Shelley era continues, more and more nodes will be operated by the Cardano community. One of the main goals of this phase is to decentralize the node network by involving more network participants and is aimed at achieving greater security and robustness.

This stage also sees the introduction of a reward system and staking principles that encourage users to participate in the Cardano ecosystem.

Goguen — Smart Contracts

The Goguen era represents the introduction of smart contracts and decentralized applications (DApps) in the Cardano blockchain. This phase of development runs parallel to the Shelley era and is focused on the creation of a purpose-built smart contract development language and execution platform, Plutus.

Once implemented, Plutus will enable users to create and execute functional smart contracts on the Cardano network without prior technical knowledge. This era also sees the introduction of Marlowe, a domain-specific language (DSL) for financial contracts built on Plutus.

In addition, the Goguen era will add support for a multi-currency ledger that will enable users to create new natively-supported fungible and nonfungible tokens.

Basho — Scaling

The Basho era is dedicated to improving the underlying performance of the Cardano network in terms of operability, scalability, and optimization. Core developments include sidechain implementations with enormous potential to expand the network's capabilities. By offloading work from the main chain onto a sidechain, sidechains can be used as a sharding technique to boost the network's capacity. They can also be used to test new features without compromising the main blockchain's security.

Voltaire — Governance

The Voltaire era is the final stage of the Cardano roadmap dedicated to building a self-sustaining governance system supported by the network participants. This phase will introduce voting and treasury systems, allowing users to share network improvement proposals and fund the suggested developments. Following the voting process, a portion of all transaction costs will be pooled to generate cash for development activities.

The completion of this phase will signal a truly decentralized Cardano network, working independently of IOHK's management. This means that Cardano will be completely decentralized and will no longer be managed by IOHK once both a vote and a treasury mechanism are in place. Instead, the community will be in charge of Cardano's future, with everything they need to expand and evolve the network thanks to IOHK's safe, decentralized foundation.

ADA — Cardano’s native cryptocurrency token

ADA is the in-house token of the Cardano blockchain that resides on the Cardano Settlement Layer. The maximum supply of the ADA cryptocurrency is limited to 45 billion tokens, to be released over time through minting. The hard limit on the total token supply guarantees a deflationary attribute to ADA. However, the ecosystem is destined to showcase an inflationary trend until the ecosystem releases a major portion of the reserves for circulation, estimated to initiate from 2030.

Just like any other popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), ADA can be exchanged for fiat currencies such as the United States dollar and stored on crypto wallets. In addition to Cardano’s native wallet offerings like Daedalus and Yoroi, third-party wallet services also support ADA storage and transfers.

Why Use ADA?

ADA and the Cardano ecosystem are supported by a strong community of investors and developers. As the cryptocurrency continues to gain momentum in terms of value, enthusiasts have slowly started accepting ADA as payment.

The most popular mode of payment is peer-to-peer (P2P) transfers between the sender and the receiver. In this type of transaction, the sender can send existing ADA tokens directly to the receiver’s wallet address with no intermediaries. With its rising popularity, businesses have started to integrate dedicated ADA payment gateways, allowing customers to make online purchases with ADA.

Cardano charges an average fee of 0.16 ADA per transaction. This calculation is based on two factors — a standard fee for each transaction and the size of the transaction. As a result, the transaction fees will increase based on the dollar value of the transaction.

Users can also earn ADA tokens by validating payment transactions on the Cardano blockchain, a process commonly known as staking. This involves adding your existing ADA holdings to a staking pool, which is then repurposed by the node operators to validate and confirm transactions in real-time.

Note that ADA wallets cannot be paired with multiple staking pools. Readers are advised to do their research and identify long-term benefits when staking cryptocurrencies.

The ADA staking rewards, or yields, are usually predetermined and vary from pool to pool. Every wallet can be paired with only one staking pool. Users are advised to do their research before making any investments or commitments to ADA staking pools.

Cardano (ADA) Token Distribution

Cardano distributed vouchers for 25.9 billion ADA in a public token sale from September 2015 to January 2017. Participants could redeem the vouchers for actual ADA through Cardano’s native Daedalus wallet. The three entities supporting Cardano’s development received 5.2 billion ADA following the mining of Cardano’s genesis block.

ADA’s Initial Supply: 31,112,484,644

Their allocation was as follows:

  • 2.46 billion ADA were allocated to IOHK which voluntarily adopted the following vesting schedule for its Ada: A third of IOHK’s ADA holdings were immediately available to IOHK. A third was made available on June 1st of 2018. The final third of IOHK’s Ada will be made available on June 1st of 2019

  • 2.07 billion ADA were allocated to Emurgo.

  • 0.648 billion ADA were allocated to the Cardano Foundation

Disclaimer: All products and projects listed in this article are not endorsements and are provided for informational purposes only.

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