Cardano (ADA) – A Comprehensive Guide to the Blockchain and Cryptocurrency

Last Updated: 6 November 2023

Cardano, with a remarkable market capitalization exceeding $10 billion, has firmly established itself as one of the leading blockchains in the world. Founded in 2015 by Charles Hoskinson and Jeremy Wood, the blockchain is distinguished by its utilization of the proof-of-stake (PoS) consensus mechanism, offering a robust foundation for decentralized applications. This guide provides an in-depth exploration of Cardano and its native cryptocurrency, ADA.

The Origins of Cardano

Cardano’s roots trace back to its co-founder, Charles Hoskinson, who previously played a pivotal role in the inception of Ethereum. Launched in 2015, Cardano’s initial mainnet went live in September 2017, marking the beginning of its journey. The blockchain was designed to facilitate ADA transactions through a federated network, empowered by the energy-efficient Ouroboros PoS consensus algorithm. Notably, Cardano incorporates the Plutus smart contract framework, allowing developers to use the Haskell programming language for creating applications.

ADA – The Native Cryptocurrency

ADA serves as the native asset of the Cardano blockchain, holding a pivotal role in its operation and security. In stark contrast to cryptocurrencies like Bitcoin, which primarily function as digital stores of value, ADA offers a broader spectrum of use cases, from facilitating transactions to participating in the network’s security through staking.

Cardano’s consensus mechanism, Ouroboros, leverages PoS principles, diverging significantly from the PoW mechanism employed by Bitcoin. PoS relies on validators chosen based on the amount of ADA they are willing to stake as collateral. ADA holders have the opportunity to engage in staking, where they validate transactions, add new blocks to the blockchain, and, in return, receive ADA rewards. This incentive structure encourages users to hold and stake their ADA, rather than merely using it for transactions.

In terms of its economic model, ADA features a capped supply, similar to Bitcoin. The total supply is limited to 45 billion tokens, with a current circulating supply of approximately 35 billion. Transaction fees within the Cardano network are paid using ADA, with these fees adjusted algorithmically to adapt to network activity. Additionally, certain network upgrades and functionalities may necessitate ADA payments, further integrating the cryptocurrency into the Cardano ecosystem.

Storage of ADA is possible in various wallet types, including hardware, mobile, and desktop wallets. Cardano provides its official wallet, Daedalus, offering a full copy of the blockchain and enhanced security features. An alternative is the Yoroi wallet, a lightweight Cardano wallet in the form of a browser extension.

The Evolution of Cardano

Cardano’s development has unfolded through several distinct phases, each introducing significant features. The journey commenced with the Byron Era in September 2017, launching the first mainnet and enabling ADA transactions through the Ouroboros consensus mechanism.

Subsequently, the Shelley upgrade, implemented in mid-2020, marked a transition towards a more decentralized network consensus. This pivotal update shifted control of most nodes from a centralized entity to the community.

Following Shelley, the Goguen era ushered in a series of hard forks, enhancing Cardano’s capabilities. The Mary hard fork, introduced in March 2021, added support for native assets, further expanding the blockchain’s functionality. In 2022, Cardano reached the Alonzo phase, introducing smart contracts for the first time. Simultaneously, the Plutus Pioneer Program was launched to train over 1,000 developers interested in building decentralized applications on Cardano.

Cardano’s Consensus and Architecture

Cardano boasts a unique two-layer architecture. The Cardano Settlement Layer (CSL) handles all ADA transactions, while the Cardano Computation Layer (CCL) governs computational functions, encompassing smart contracts and decentralized applications.

Time on the Cardano blockchain is divided into epochs, each comprising a series of slots. In each slot, a slot leader is elected to validate transactions and incorporate them into the blockchain. Notably, the election of slot leaders is not random but is determined by the amount of ADA held and staked by an account.

The election of slot leaders constitutes a pivotal aspect of the Ouroboros protocol, with more staked ADA equating to a higher likelihood of being chosen as a slot leader. This proportional election system aims to ensure a democratic and decentralized transaction validation mechanism. Ouroboros further employs multi-party computation to guarantee random and secure slot leader selection, eliminating exploitable patterns.

Security is a paramount concern in Ouroboros, offering provable security provided the majority of ADA staking is controlled by honest nodes.

The e-UTXO Model

Cardano employs an Extended Unspent Transaction Output (e-UTXO) model, a variation of the Unspent Transaction Output (UTXO) model employed by Bitcoin. The traditional UTXO model tracks token ownership based on unspent outputs from prior transactions. In contrast to account-based models, such as Ethereum’s, where the ledger resembles a state machine, the UTXO model treats each transaction as an atomic operation, consuming specific outputs and generating new ones without affecting other parts of the ledger.

The e-UTXO model extends this framework by allowing e-UTXOs to carry additional data fields and adhere to complex conditions specified by smart contracts. This integration of complex logic enhances Cardano’s scalability and parallel transaction processing while preserving the benefits of the UTXO model.

The Cardano Entities

Cardano operates through three independent entities, each contributing to its development and oversight. The Cardano Foundation, a non-profit organization based in Zug, Switzerland, supervises and governs the project. Input Output leads research and development efforts and delivers protocol upgrades. Emurgo serves as the private investment arm, supporting and accelerating Cardano-related projects.

A Research-Driven Approach

Cardano’s strength lies in its robust academic foundation. A research-driven approach has been integral to the network’s software architecture and functionalities. Extensive peer review and rigorous academic scrutiny have characterized the project’s evolution, prioritizing transparency and empirically substantiated features. Cardano’s research team has produced over 100 scholarly papers, spanning topics from distributed systems to programming languages and game theory.

While the research-driven approach underscores the project’s commitment to robustness, it has occasionally resulted in software upgrade delays during its progression.

This academic rigor and wealth of peer-reviewed research within Cardano’s development not only fortify its technological foundations but also serve as an invaluable resource for investors seeking in-depth insights into the cryptocurrency’s potential. The extensive scholarly work spanning various disciplines such as distributed systems, programming languages, and game theory provides a comprehensive understanding of Cardano’s innovative approach, thereby offering investors on platforms like Immediate Connect or Bitcoin Pro unique and insightful perspectives into the long-term investment prospects of this blockchain project.

  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.

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