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October 17, 2022

What is Cardano? The Complete Guide

What is Cardano? Read the Complete Guide. Founded in 2015 by Charles Hoskinson, Cardano (and its native token ADA) is the first blockchain to be developed from peer-reviewed research.

What is Cardano? The Complete Guide

Cardano is a decentralised blockchain that works on the Proof of Stake PoS consensus mechanism. Founded in 2015 by Charles Hoskinson, Cardano (and its native token ADA) is the first blockchain to be developed from peer-reviewed research. Cardano’s main goals include; providing decentralised, fast, sustainable, scalable and secure financial services for everyone (especially those in developing countries).

Now we have an overview of what Cardano is, let’s dive in and find out just how it has the potential to change the world as we know it.

Sounds like a big claim right? We’re sure that by the end of this article you’ll agree.

Let’s go!

Introduction to Cardano

Cardano is a third-generation, decentralised Proof of Stake (PoS) blockchain, built from the ground up using peer-reviewed research. Launched in 2017, Cardano aims to provide the scalability and interoperability required for the future world economy.

Being a PoS blockchain, it achieves these goals whilst remaining much more energy-efficient than the first and second generation, Proof of Work (PoW) blockchains, like Bitcoin and Ethereum.



Cardano Development Phases


Cardano is being built in five key phases, from foundation to a fully decentralised, self-sustaining ecosystem. Let’s look at these phases in a little more depth.

  • Foundation (Byron era)
  • Planning started in 2015 with the first incarnation of Cardano launching in 2017. This first version allowed users to buy and sell Cardano’s native token ADA (named after the ground-breaking programmer, Ada Lovelace) while being able to store it on the two official Cardano Wallets (Daedalus and Yoroi), more on these later.
  • Decentralization (Shelley era)
  • With the Shelly era, Cardano started its first steps towards decentralisation. Shelley saw the introduction of delegation. Holders of ADA, can now run nodes and operate stake-pools, with more users being able to stake their ADA to these stake-pools and earn rewards.
  • The aim of this phase is to drive community adoption of Cardano, thus leading to increasing decentralisation.
  • Smart Contracts (Goguen era)
  • The Goguen era is a massive leap forward for Cardano. This phase brings smart contracts to the network, using the purpose-built Plutus platform. In short, this phase allows Dapps to be built on Cardano by independent developers (such as DEXs like Cardax) thus further increasing the decentralisation of the blockchain.
  • Scaling (Basho era)
  • Scalability is the name of the game with Basho. Allowing the community to grow exponentially, whilst still remaining fast, secure and inexpensive to use is core to the success of Cardano.
  • Governance (Voltaire era)
  • The final piece of the puzzle. The Voltaire era will bring true decentralisation, with the team responsible for developing Cardano, completely handing over the blockchain to the Cardano community. ADA holders will be able to vote on future developments of the network, developments that will be funded by a treasury system. Once this final stage is implemented, Cardano will be a self-governing, self-funding ecosystem, capable of supporting huge, global use cases for the future economy of the world.

Cardano’s Multi-Layered Architecture


The Cardano blockchain is unique in that it is composed of two separate layers that, while they work independently of each other, can communicate seamlessly.


  • The Cardano Settlement Layer (CSL)– The settlement layer is basically the ledger (balance sheet) of all the transactions that are carried out.
  • ADA (and any other tokens issued on the Cardano blockchain) lives on the CSL.
  • Cardano’s own PoS consensus mechanism, Ouroboros (see below) is also found on the CSL
  • The Cardano Computational Layer (CCL)– Smart contracts, identity recognition and tracking all live on the CCL. The CCL is analogous to being the brain of the network.

To avoid confusion, I find it helpful to think of it in the following way.

The CSL is a record of what transactions happened and the CCL is made up of the rules why those transactions took place.

Having these two separate layers allows for much easier scaling of the network. In comparison, Ethereum combines both into one single layer; the primary reason why it is much more difficult to scale a PoW blockchain.

Ouroboros

As mentioned above, Cardano works on its own delegated proof of stake protocol called Ouroboros. Ouroboros allows ADA to be sent and received easily and securely. This PoS consensus mechanism also rewards token holders who have staked their ADA.

Fun Fact: The term Ouroboros comes from an ancient Greek and Egyptian symbol of a snake or dragon eating its own tail and is said to symbolise unity and constant evolution.

ADA, Cardano’s Native Token

Like most blockchains, Cardano has its own native token, used by holders as a secure exchange of value. Unlike traditional finance, blockchain technology doesn’t require a middle man, making decentralised finance (DeFi) transactions cheaper, faster and more transparent.

As Cardano develops with more Dapps making use of the smart contract functionality, the ADA token will be used for many more applications and services.

Imagine being able to take a loan out without a broker or bank making money from your debt! This is just a fraction of what is possible.

When stored in a wallet, the ADA token can also be staked by users (delegated to a stake-pool to earn rewards).

ADA can be staked on a centralised exchange, such as Binance, but is much more secure to store them in a dedicated cryptocurrency wallet. If your ADA is on a centralised exchange, you are not in control of your precious coins.

ADA Wallets

The team behind Cardano have developed two main wallets to store your ADA tokens securely, the Daedalus and Yoroi wallets:

Daedalus Wallet

The Daedalus wallet is a “full-node” desktop wallet, meaning it downloads and stores a full copy of the blockchain and independently validates every transaction you make. Because it requires no third-party servers it makes it the most secure method of holding your ADA

Yoroi Wallet

Available as a web-browser based extension or a downloadable app, the Yoroi wallet is a light wallet (it doesn’t require a full copy of the blockchain to be downloaded) that is a perfect day-to-day solution for holding your ADA securely.

What is Cardano used for?

The team behind Cardano states that the blockchain’s main uses focus on identity management and traceability.

Put simply, Cardano has real-world, game-changing uses. Uses that can have a huge benefit on global society, especially in states where there is limited record-keeping and corruption.

Identity Management

With use cases ranging from academic records in education to identity verification in the finance sector and government, Cardano can securely streamline the collection and storage of data.

Traceability

In supply chain management, traceability is paramount, especially when it comes to preventing counterfeit goods from entering the market. Whether it is in the retail, agriculture or health-care industry, Cardano can easily and securely store traceability data to help reduce financial loss from counterfeit retail goods and medicines and make farm to table tracking of food supplies.

How is Cardano Different from Other Crypto Currencies Like Bitcoin and Ethereum?


PoW blockchains (such as Bitcoin and Ethereum) require new blocks to be mined. It is basically a competition for miners to use computational power to solve a complex mathematical puzzle to earn the right to produce the next block.


The drawbacks to PoW blockchains include the following:

  • Financially expensive to run due to the large amount of equipment needed.
  • Environmentally costly; all those mining computers need electricity to run, more electricity requires more fossil fuels to be burnt resulting in more Carbon Dioxide (CO2) being released into the atmosphere.
  • Holders don’t stake their tokens for rewards.
  • Difficult to scale the network. PoW blockchains have mathematical limitations on the ability of a blockchain to grow.
  • High transaction fees (e.g. gas fees on Ethereum).


In PoS, holders of “staked” coins help verify transactions on the blockchain, rather than using lots of computational power to do the same job (e.g on PoW blockchains).


This reduction in computational power has the knock-on effect of reducing financial and environmental costs, reducing transaction fees and making the network much easier to scale up. According to Cardano themselves, they can securely scale up the network with up to 4 million times the energy efficiency of Bitcoin!

Is Cardano Better than Ethereum?



Whilst Ethereum is much larger and utilised by many more Dapps (it does have a two-year head start!) it has become a victim of its own success.

Ethereum has run into several large stumbling blocks. Scalability and the associated transaction (gas) fees are the main ones. As Ethereum has become more widely used, more transactions are being processed.

This increase in transaction volume slows down the transaction speed creating congestion. Ethereum miners are therefore incentivised to charge higher gas fees.

For reference, currently, Ethereum can handle around 15 transactions per second, whereas Cardano can theoretically handle thousands of transactions per second!

Cardano doesn’t have this problem because the PoS consensus mechanism relies on delegators (those who have staked their ADA tokens) rather than miners. This results in vastly cheaper transaction fees. Scalability is also much easier for PoS blockchains.


For this very reason, Ethereum is currently transitioning from PoW to PoS (ETH 2.0). But this is (at the time of writing) still many months away from being implemented.

So, in short, yes, Cardano as a 3rd generation, PoS blockchain, is a better solution than Ethereum, not to mention the reduction in energy use!

Final Thoughts, Is Cardano a Good Investment?


Firstly we must state that this is in no way financial advice.

As we have shown here, Cardano is a blockchain that aims to bank the unbanked, thus improving the lives of millions of people around the world. It is much more energy-efficient than previous generation blockchains, resulting in much less damage to the environment.

The team behind Cardano have a strong roadmap for the future, ultimately aiming to hand over managing the blockchain to the holders making it truly decentralised.

It is secure and easy to use, with the added benefit of regarding holders with more ADA tokens just for staking their coins and thus helping run the blockchain.


Sounds like a winner to me!

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