Introduction to Cardano
If you’re familiar with crypto, you likely know the name Vitalik Buterin. In 2015, Buterin and a team of co-founders launched a project called Ethereum, now known as the second-largest cryptocurrency with incredible potential. Ethereum had a few other important founding members, one of whom was Charles Hoskinson. Just a couple of short years later, Hoskinson found himself at the center of a brand-new project: Cardano, named after the Italian mathematician Gerolamo Cardano.
Welcome to Whiteboard Crypto, the number one YouTube channel for crypto education. Here, we explain topics of the cryptocurrency world using analogies, stories, and examples so that you can easily understand them. In this blog post, we will explain what Cardano is, how it works, and how Ethereum fits into the equation.
What is Cardano?
To make things simple, Cardano is a proof-of-stake cryptocurrency. To really understand what this means and why it’s not just another random altcoin, let’s delve into the intentions behind the project as explained by its founder.
The Three Main Problems Cardano Addresses
Charles Hoskinson identified three main problems that cryptocurrencies would face:
- Scalability
- Interoperability
- Sustainability
Scalability
Fans of Bitcoin are all too familiar with scalability issues. Due to Bitcoin’s block size, the network can only confirm around five to seven transactions per second. This is not even comparable to Visa, which can handle tens of thousands of transactions per second. The block size debate in Bitcoin raged on for years, raising a fundamental question for nearly any cryptocurrency: How can the project scale?
Hoskinson emphasized that as more users engage with a system, it should speed up rather than slow down. Essentially, a blockchain’s capability should scale linearly with its usage. Cardano addresses this by using epochs, which divide up who validates certain blocks in the blockchain. To be even more precise, Cardano uses slots, and any of the nodes—computers operated by individuals or organizations running the blockchain—can be nominated to be a slot leader. Although these terms might seem technical, they are crucial for Cardano’s proof-of-stake system to scale. Cardano calls this system Ouroboros, which could warrant its own discussion due to its complexity. The important takeaway is that slots can be further divided, allowing the network to scale effectively.
Interoperability
Interoperability is a longstanding technological problem. For instance, setting up a wireless network requires connecting devices to a router, but imagine if your iPhone only connected to Apple routers. This would force everyone to use the same brand and could be seen as monopolistic.
Cardano ensures that cryptocurrencies don’t face the same problem by allowing for easy bridging between Cardano and other cryptocurrencies using different blockchains. This is achieved through the KMZ Sidechains Protocol, which is similar to easily exchanging U.S. dollars for Canadian dollars or euros. Unlike other cryptocurrencies, Cardano recognizes that it won’t be the only cryptocurrency and proactively works on interoperability solutions using bridges.
Sustainability
Sustainability in this context doesn’t just mean environmental sustainability, though many argue that Cardano’s proof-of-stake mechanism is more environmentally friendly than proof-of-work. Instead, it refers to the network’s ability to continue functioning, making improvements, and maintaining a healthy development community. Cardano tackles this by establishing a treasury that collects fees and allocates them to those who contribute to the network. In essence, Cardano is a self-sustainable cryptocurrency with the intention of ongoing improvement.
Cardano’s Methodical Approach
Cardano seems to be designed with a focus on solving problems rationally and logically. Named after an Italian mathematician, Cardano’s token, ADA, is named after Ada Lovelace, who is considered the first computer programmer. Charles Hoskinson, with his background in mathematics, has demonstrated a methodical approach to tackling challenges within the Cardano project. The project involves extensive research, paper writing, and peer reviews to gather third-party feedback.
Cardano vs. Ethereum
Cardano and Ethereum are both smart contract platforms but differ in several key ways:
- Proof-of-Stake vs. Proof-of-Work
- Cardano has been a proof-of-stake blockchain from the beginning. This means transactions are validated based on the number of tokens validators stake. For instance, owning a lot of ADA gives more power in the network compared to those with less ADA. In contrast, Ethereum started as a proof-of-work chain and is now transitioning to a proof-of-stake model.
- Deflationary Nature
- Cardano is deflationary, meaning there is a fixed supply. For ADA, 45 billion total coins will be minted. Ethereum, on the other hand, mints more coins each year. Economically, this suggests that ADA might appreciate more than Ethereum, though this is speculative.
Real-World Applications and Future Prospects
Despite the ICO craze of 2017, which was notorious for many scams, Cardano started with a credible ICO. Since then, it has demonstrated its seriousness through rigorous research and testing. IOHK, Cardano’s development company, has collaborated with the University of Edinburgh and the University of Wyoming to support their blockchain initiatives.
Cardano has also established significant real-world partnerships. For example, the government of Georgia (the country, not the state) is building an ID verification system using Cardano and IOHK’s Atala enterprise solution. In 2021, Cardano signed an agreement with the government of Ethiopia to use Cardano for student ID verification. Commercially, Cardano’s partnership with New Balance stands out, as IOHK is using its technology to verify the authenticity of New Balance sneakers, similar to how VeChain is used for supply chain authentication.
Cardano’s future is outlined in its roadmap, which includes five eras: Foundation, Decentralization, Smart Contracts, Scaling, and Governance. Each era introduces new challenges and features to Cardano’s capabilities. The roadmap reflects Cardano’s commitment to continuous improvement and strategic planning.
Conclusion
Cardano is a unique project designed to address scalability, interoperability, and sustainability in the cryptocurrency world. With its methodical approach, significant real-world applications, and future-focused roadmap, Cardano continues to make strides in the blockchain space. If you have any questions, feel free to leave them in the comments below. Thank you for reading, and we hope to see you in our next post.
