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Cardano Basics

Updated: Oct 18, 2021

Ada Is The Native Token Of Cardano

It is named after Ada Lovelace: a 19th-century mathematician who is recognized as the first computer programmer, and is the daughter of the poet Lord Byron. Ada is a digital currency. Any user, located anywhere in the world, can use ada as a secure exchange of value – without requiring a third party to mediate the exchange. Every transaction is permanently, securely, and transparently recorded on the Cardano blockchain. Every ada holder also holds a stake in the Cardano network. Ada stored in a wallet can be delegated to a stake pool to earn rewards – to participate in the successful running of the network – or pledged to a stake pool to increase the pool's likelihood of receiving rewards. In time, ada will also be usable for a variety of applications and services on the Cardano platform.

What is 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 functionality (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.

To address these needs, Cardano focuses on such core concepts as:

  • Scalability — ensures that the Cardano ledger is capable of processing a large number of transactions without affecting network performance. Scalability also provides higher bandwidth capabilities to allow transactions to carry a significant amount of supportive data that can be easily managed within the network. For these needs, Cardano is implementing various techniques (like data compression for instance) and is working to introduce Hydra, which will enable multiple side chains functionality.

  • Interoperability — ensures the most multi-functional environment for financial, business, or commercial operations by enabling users to interact not only with one type of currency, but with multiple currencies across various blockchains. Moreover, interoperability with centralized banking entities is as important to grant legitimacy and convenience of use. Cardano is being developed to support cross-chain transfers, multiple token types, and commonly used smart contracts languages.

  • Sustainability — designing a proof-of-stake blockchain means it is vital to ensure that the system is self-sustainable. To drive growth and maturity in a truly decentralized manner, Cardano is built to allow the community to maintain its continuous development by participating, proposing, and implementing system improvements. To ensure sustainability, the treasury system is controlled by the community and is refilled constantly from potential sources such as newly-minted coins being held back as funding, a percentage of stake pool rewards, and transaction fees.

What sets Cardano apart

  • Academic research — formal methods, such as mathematical specifications, property-based tests, and proofs, are the best way to deliver high assurance software systems and give confidence to users for the management of digital funds. Cardano has been built using formal methods to achieve strong guarantees on the functional correctness of core components of the system. All of the research and technical specifications that underpin Cardano are publicly available, and all Cardano development activity is published online.

  • System design — Cardano is written in Haskell, a secure functional programming language that encourages building a system using pure functions, which leads to a design where components are conveniently testable in isolation. Furthermore, advanced features of Haskell enable us to employ a whole range of powerful methods for ensuring correctness of the code, such as basing the implementation on formal and executable specifications, extensive property-based testing, and running tests in simulation.

  • Security — Ouroboros (the Cardano proof-of-stake protocol) establishes rigorous security guarantees; it was delivered with several peer-reviewed papers presented in top-tier conferences and publications in the area of cybersecurity and cryptography.

  • Power consumption — Cardano is a proof-of-stake blockchain. In contrast to proof-of-work blockchains, Cardano requires much less energy and computational power. The Bitcoin network grows through computers doing ever-more-energy-intensive computations – proof of work – which is unsustainable in the long term. Cambridge University has an online tool that shows the computers powering Bitcoin already consume twice as much energy as Switzerland every year.

  • Seamless upgrades — traditionally, blockchains upgrade using hard forks. When conducting a hard fork, the current protocol would stop operating, new rules and changes would be implemented, and the chain would restart – with its previous history being erased. Cardano handles hard forks differently. Instead of implementing radical changes, the Cardano hard-fork combinator technology ensures a smooth transition to a new protocol while saving the history of the previous blocks and not causing any disruptions for end users.

  • Decentralization — Cardano is maintained by over 2,000 distributed stake pools operated by the community. All blocks and transactions are validated by network participants without any reliance on a centralized authority.

  • Functional environment for business use cases — Cardano is establishing a foundation for global, decentralized finance to develop a range of DApps that can run using functional and domain-specific smart contracts, providing multi-asset tokens for any needs. With a multi-asset ledger already available, Cardano is bringing smart contract support in 2021.

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