What is Cardano? Cryptocurrencies explained

Cardano is a decentralized blockchain platform that aims to provide a secure and scalable infrastructure for smart contracts and dApps.

May 6, 2024 - 15:38
What is Cardano? Cryptocurrencies explained
In March 2021, Cardano blockchain introduced native tokens, similar to Ethereum's tokens like NFTs or stablecoins.

Understanding Cardano

Cardano, a major cryptocurrency, aims to advance the Ethereum concept, offering a blockchain that's adaptable, eco-friendly, and scalable for smart contracts. ADA serves purposes such as investment, transactions, and network fees, fostering DeFi, token creation, and gaming.

What is ADA?

ADA serves as the native cryptocurrency of the Cardano platform, honoring the legacy of Ada Lovelace, the pioneering mathematician dubbed the "world's first computer programmer." Comparable to ETH tokens on Ethereum, ADA tokens power the Cardano ecosystem. They facilitate transaction fees and are staked by validators and delegators to support network security and stability, earning rewards in return. Additionally, ADA will serve as a governance token in the future, enabling holders to participate in voting on platform changes and enhancements for Cardano.

A concise account of Cardano's evolution

Cardano, initiated in September 2017 by Ethereum's co-founder Charles Hoskinson, aspires to represent a third-generation blockchain project, advancing beyond the technologies introduced by Bitcoin and Ethereum. It aims to establish itself as a highly scalable and eco-friendly smart contract platform. The Ouroboros consensus mechanism, developed by a team of computer scientists and cryptographers from various prestigious institutions, is grounded in peer-reviewed research. Their objective was to construct a decentralized network capable of validating transactions in a scalable, secure manner, prioritizing energy efficiency within the Cardano platform.

Understanding Cardano's native tokens

In March 2021, Cardano blockchain introduced native tokens, similar to Ethereum's tokens like NFTs or stablecoins. These tokens can be created and distributed on the blockchain and interact with smart contracts. Unlike Ethereum tokens, Cardano native tokens are not created through smart contracts but operate on the same architecture as ADA cryptocurrency. This design, according to the Cardano Foundation, elevates native assets to "first-class citizens" on the blockchain, potentially enhancing security and reducing transaction fees.

Understanding the mechanisms of Cardano

Explaining proof of stake

Proof of Stake, an alternative to Proof of Work, employs a network of validators instead of miners. Validators stake their own ADA cryptocurrency to secure the network and verify transactions. The selection of a validator as the winner depends on their stake and the duration it has been held. Upon validation of transactions, other validators confirm the accuracy of the block. Rewards in ADA are distributed to validators based on their stake. Validators can also earn rewards by delegating their ADA to staking pools. 

Additionally, Cardano's architecture comprises two layers: the Cardano Settlement Layer (CSL) and the Cardano Computing Layer (CCL). The CSL records accounts and balances and validates transactions using the Ouroboros consensus mechanism. The CCL executes computations for blockchain applications, including smart contracts. This separation enables the Cardano network to process a high volume of transactions, potentially up to a million per second.

Understanding proof of work

Proof of Work is a consensus mechanism utilized by decentralized cryptocurrency networks, like Bitcoin, to prevent double spending without relying on a central authority. In this mechanism, miners globally compete to solve complex mathematical puzzles using significant computational power. The first miner to solve the puzzle validates transactions and updates the blockchain, receiving a predetermined cryptocurrency reward.

What lies ahead for Cardano?

In the second quarter of 2021, Cardano anticipates the introduction of smart contract capabilities to its platform. Additionally, developers have revealed plans to enable compatibility with Ethereum-based smart contracts later in the year. This move could open the door to running a diverse array of existing applications on Cardano and allow developers to utilize the familiar Solidity programming language for Cardano projects.

Furthermore, Cardano aims to achieve full decentralization by implementing community-driven governance and an automated treasury system to sustain the network's future development.