What Is Cardano (ADA) & How Does It Work?

Key Takeaways

• Peer-to-peer review and research methods form the core of Cardano’s architecture.
• Speed and energy efficiency are two of Cardano’s main characteristics.
• The layered architecture separates transactions and smart contracts, enhancing scalability and flexibility.
• Cardano’s continuous development will advance further with its upcoming Chang hard fork.

Cardano appeared in 2017 after some experimentation and results with previous major blockchains, like Bitcoin and Ethereum. It aims to provide a more secure and scalable infrastructure for the development of decentralized applications (dApps) and the execution of smart contracts. It stands out for its rigorous academic foundation, scientific approach, and popularity as a “green blockchain.”

In contrast with other blockchains, Cardano tries to create a highly secure and sustainable ecosystem. It uses Ouroboros, a proof-of-stake (PoS) consensus mechanism, which, combined with its specific architecture, positions it as a unique platform capable of maintaining energy efficiency, handling complex applications, and having enormous speed.

Cardano (ADA) is the native cryptocurrency of the Cardano blockchain. Their creators named it in honor of Ada Lovelace, the 19th-century mathematician considered one of the first computer programmers.

Understanding Cardano

When Cardano appeared in the ecosystem, it aimed to address specific earlier challenges blockchains Bitcoin and Ethereum faced. Some of them were security, sustainability, and the complexity of smart contracts. By employing a rigorous scientific approach and a solid academic foundation, Cardano has achieved a secure, scalable, and sustainable platform for dApps and smart contracts. 

Its PoS consensus mechanism and unique architecture position Cardano as an energy-efficient platform capable of managing complex applications. Focusing on decentralization and scalability, Cardano aims to overcome its predecessors’ limitations and establish itself as a potential leader in the blockchain space.

How Cardano Works

In contrast with proof-of-work (PoW), Cardano’s  PoS consensus mechanism, Ouroboros, is energy-efficient and secure and significantly enhances network stability. Validators create new blocks and validate transactions by staking ADA tokens. ADA holders can either stake or delegate their tokens to a staking pool. 

The network selects validators based on the amount of ADA they hold and are willing to stake. Those with more stake are more likely to be chosen, but the process also incorporates randomness to maintain fairness and decentralization. 

ADA serves multiple purposes. Holders can send and receive value using ADA. They can also stake their tokens to participate in the network’s consensus mechanism and earn rewards. With the completion of Cardano’s next major upgrade, the Chang upgrade, ADA holders can also participate in governance decisions, influencing the platform’s development.

Cardano’s Layered Architecture

Cardano’s architecture has two distinct layers separating different parts of the blockchain.

The first layer is the Cardano Settlement Layer (CSL). This layer handles basic ADA transactions, such as receiving ADA, confirming transactions, and managing user accounts. CSL keeps track of who owns what.

The second layer is the Cardano Computation Layer (CCL). This layer hosts the more complex blockchain applications, focusing on running smart contracts and supporting dApps.

By splitting the blockchain into these two layers, Cardano aims to make the network more efficient, secure, and flexible. This design allows for faster transactions and easier development of new blockchain features.

Cardano’s Features

In response to the needs that earlier blockchains faced and in conjunction with its scientific approach, Cardano has focused on specific features that make it unique and especially popular in the community focused on environmental issues. 

• Scalability solutions: Early blockchain platforms struggled with scalability, limiting the number of transactions they could process per second. Cardano’s layered architecture and proof-of-stake consensus aim to handle more transactions without sacrificing speed or security.

• Security: Cardano employs a rigorous scientific approach based on peer-reviewed academic research and formal methods. Cardano’s verification systems and protocols follow a systematic process involving academic rigor and mathematical methods.

• Interoperability: Cardano aims to facilitate interoperability between blockchains and traditional financial systems, enabling the transfer of assets and data across diverse networks.

• Governance: Cardano’s governance model empowers ADA holders to participate in the decision-making process, proposing and voting on changes and improvements to the network.

• Smart contracts: On Cardano, smart contracts are self-executing, with the terms of the agreement directly written into code. These contracts run on the Cardano blockchain, ensuring transparency, security, and automation without the need for intermediaries. The platform uses Plutus, a smart contract development language designed for high-assurance applications.

• dApps: These run on a decentralized network rather than a centralized server. Cardano supports dApps that utilize its secure and scalable blockchain infrastructure. Developers can create various applications, from financial services to gaming, benefiting from Cardano’s robust features.

• Sustainability: Cardano introduced a system based on economic resources allocated to fund future development to ensure the network’s sustainability. This system, known as the treasury, collects a portion of transaction fees to support ongoing improvements and innovations within the network.
• Environmental impact: Cardano stands out as having a low environmental impact using the Ouroboros PoS consensus mechanism, which is much more energy-efficient than the PoW systems used by other blockchains like Bitcoin. 

Use Cases Of ADA

ADA, the native cryptocurrency of the Cardano blockchain, serves several purposes:

• Transaction fees: Used to pay fees for transactions on the Cardano network.
• Staking: ADA can be staked to secure the network and earn rewards.
• Governance: ADA holders can vote on proposals for protocol updates.
• Medium of exchange: Used within the Cardano ecosystem to interact with dApps and smart contracts.

History Of Cardano

Cardano has its roots in the early days of cryptocurrency. Charles Hoskinson, co-founder of Ethereum, initiated the Cardano project due to a disagreement and with a central focus on research. It aimed to create a more secure, scalable, and sustainable platform. 

Its mainnet has existed since 2017 thanks to Input Output Hong Kong (IOHK), a company led by Hoskinson, and it became one of the largest PoS blockchains at the time.

Key Milestones And Achievements

Since its beginning, Cardano’s journey has had significant milestones and continuous innovation. Starting as a project in 2015, it has evolved through various phases, each bringing crucial advancements. Soon, Cardano will see its latest development, the Chang hard fork, as part of completing “the Voltaire era.”

• 2015: Cardano is born as a project.
• 2017 The Byron era: This initial phase focused on the foundation of the Cardano network, including the development of the core protocol and the launch of the mainnet.
• 2020 The Shelley era introduced staking and decentralization to the Cardano network, marking a significant step towards complete decentralization.
• 2021 The Goguen era enabled smart contracts on the Cardano platform, opening up new possibilities for dApps.
• 2022 The Basho era: It focused on improving scalability and performance.
• 2023 The Voltaire era: It introduces governance features, allowing ADA holders to participate in decision-making processes.

According to Cardano’s website, the Voltaire era is the last one in the roadmap, stating that When both a voting and treasury system are in place, Cardano will be truly decentralized. “Cardano’s future will be in the hands of the community, who will have everything they need to grow and evolve Cardano from the secure.” 

Cardano Vs. Ethereum Vs. Bitcoin

Bitcoin, Ethereum, and Cardano represent distinct generations of blockchain technology, each offering unique advantages and limitations. Bitcoin pioneered the concept but faced significant scalability challenges. 

In 2022,  Ethereum shifted from a PoW to a PoS consensus mechanism to reduce energy consumption and enhance scalability. Cardano focuses on scalability and sustainability from the ground up. 

These consensus mechanisms, transaction speeds, and smart contract capabilities differently, shaping their roles in the evolving blockchain landscape.

According to recent studies , Ethereum stands out as the most inclusive platform for developers, renowned for its advanced smart contract capabilities and extensive development tools.

However, “Cardano’s Ouroboros consensus algorithm offers a combination of sustainability and scalability, making it well-suited for DApps that demand robust security procedures.” This positions Cardano as a strong contender in the blockchain space, especially for applications requiring high levels of security and efficiency.

Conclusion

Cardano stands out in the blockchain ecosystem for its unique approach to security, scalability, and sustainability. Its rigorous scientific methodology, based on peer-reviewed research and formal methods, ensures robust and reliable systems. 

Its Ouroboros PoS consensus mechanism significantly reduces energy consumption compared to PoW systems, enhancing network scalability and environmental friendliness.

Significant milestones and continuous innovation have marked Cardano’s journey since its very beginning. Starting as a project in 2015, it has evolved through various phases, each bringing crucial advancements. Soon, Cardano will see its latest development: the Chang hard fork.

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About the Author

Lorena Nessi

Lorena Nessi is an award-winning journalist and media and technology expert. She is based in Oxfordshire, UK, and holds a PhD in Communication, Sociology, and Digital Cultures, as well as a Master’s degree in Globalization, Identity, and Technology. Lorena has lectured at prestigious institutions, including Fairleigh Dickinson University, Nottingham Trent University, and the University of Oxford. Her journalism career includes working for the BBC in London and producing television content in Mexico and Japan. She has published extensively on digital cultures, social media, technology, and capitalism. Lorena is interested in exploring how digital innovation impacts cultural and social dynamics and has a keen interest in blockchain technology. In her free time, Lorena enjoys science fiction books and films, board games, and thrilling adventures that get her heart racing. A perfect day for her includes a spa session and a good family meal.

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