From Bitcoin and Ethereum to stablecoins like Dai, there’s a long list of cryptocurrencies and platforms to keep track of while managing your investments. But what is Cardano, and how can it help you build your wealth?
In this article, we take a look at the history, purpose, and future of Cardano so you can use it to make the most of your crypto investment.
What Is Cardano?
Cardano (ADA) is an open-source, peer-reviewed blockchain project and decentralized coin that uses a proof-of-stake (PoS) platform to help the blockchain’s security and data synchronization.
The Cardano blockchain, which is where Ada is run, can be used for a variety of purposes from building decentralized applications to smart contracts. Much like Bitcoin, there is a limit to the amount of Ada coins that will ever exist — 45 billion Ada, to be precise.
History And Background
Charles Hoskinson, one of the co-founders of Ethereum, wanted a more modernized and scalable blockchain. Hoskinson connected with former co-worker Jeremy Wood, who had similar goals, and the two began work on Cardano, which was first traded publicly in 2017.
The actual building process of Cardano consists of five phases, and each phase contributes to the objectives of transforming Cardano into a decentralized application (DApp) development platform.
Here is a basic breakdown of each phase:
The Byron Phase (Foundation)
Started in 2015, the heart of this network is the Ouroboros consensus protocol — the first proof-of-stake protocol created on the basis of academic research with a mathematically proven level of security.
The Shelley Phase (Decentralization)
Aimed to encourage greater decentralization, by the end of this phase, Cardano was expected to be 50 to 100 times more decentralized than other large blockchain networks.
The Goguen Phase (Smart Contracts)
This phase created Plutus, a smart contract development language and execution platform. This technology allows for native token issuance.
The Basho Phase (Scaling)
The Basho Phase is all about improving the performance of Cardano and developing sidechains to expand the network’s capabilities.
The Voltaire Phase (Governance)
The final stage, this era is being developed to introduce voting and treasury systems.
Each phase (also known as the five eras) is named after an influential historical figure.
In fact, much of Cardano’s background stems from important people throughout history. The name of the platform itself comes from 16th-century scientist and mathematician Gerolamo Cardano. The native token, Ada, is named for the 19th-century mathematician Ada Lovelace.
As of this writing, Cardano is currently in the Basho Phase, and each phase serves a different function down Cardano’s roadmap to achieve its goals.
Three of the main goals that Cardano has for improving the blockchain are solving for increased scalability, interoperability, and sustainability.
Let’s look at these solutions one by one to better understand how Cardano is reaching these objectives.
An ongoing concern with decentralized finance is the ability to operate a digital network at a reasonable speed despite growing interest and high user volume. This is known as scalability and is one of the main factors people cite for why DeFi is still in considerably early stages.
The hope for making a more scalable network is through the algorithm that Cardano uses known as Ouroboros. According to its developers, the PoS model used by this algorithm will allow for quicker processing of transactions.
Being able to seamlessly exchange assets across a variety of platforms is another feature that many believe is essential for crypto. But the ability for different blockchain networks to perform cross-chain transactions today is extremely limited.
Crypto exchanges, like Vauld, are among the few intermediaries that offer this feature, but Cardano hopes to allow for this capability using side chains to conduct off-chain transactions.
Cardano has been called “the green blockchain” and has notably been marketed as “the most environmentally sustainable” crypto. This is because the Ada mining process consumes little energy, especially when compared to other forms of crypto, such as Bitcoin.
Each year, the entire Cardano network only uses 6-gigawatt-hours of power. Compare this to Bitcoin’s 80,000-gigawatt-hours of estimated power annually.
Beyond the environment, sustainability also refers to governance structures or the framework of project management. The sustainable nature of Cardano seeks to incentivize miners to continue and grow this particular model.
How Does Cardano Work?
There are two layers of Cardano, known as the Settlement Layer and the Computing Layer, which help Cardano process up to one million transactions per second and achieve its goals.
The former layer stores the ledger, while the latter operates smart contracts and decentralized apps.
One thing that sets Cardano apart from other coins is that it does not rely on a white paper to outline the intended mission or plan for the crypto. Instead, Cardano takes a scientific, peer-reviewed approach to everything from its protocols to its framework.
Through Ouroboros, network participants also stake their own Ada to produce new blocks sustainably. Depending on the amount that has been staked, validators are rewarded in Ada accordingly.
What Is Cardano’s Purpose?
Similar to Bitcoin, Cardano serves a few key functions as a currency, an investment, and more. But Cardano’s use as a coin and a blockchain helps further expand its purpose.
As we mentioned, one of the primary features that Cardano is known for is its status as a digital currency. You can easily use Ada as a secure, permanent, and transparent exchange of value.
Although the token itself is often referred to as Cardano, only Cardano’s token Ada is available to be purchased.
You may know about the use of smart contracts in DeFi through Ethereum. Using a protocol to automatically execute legally binding documents, smart contracts are becoming more common in DeFi, healthcare, real estate, and many other industries.
Cardano’s smart contracts will operate on their respective blockchain in a similar way to Ethereum. Along with a few other claimed improvements, Cardano contracts will allow for more seamless execution cost predictions through its UTXO-based blockchain.
Another aspect that has many crypto users excited is the expanding ecosystem of Cardano and all of the projects planned to be integrated, such as ERGO DEX and Empowa.
ERGO, a smart contracts platform designed for decentralized finance DApps, partnered with Cardano to develop ERGO DEX. This decentralized exchange shares liquidity from platforms on the Cardano and ERGO blockchains, allowing for interchangeable transactions.
Empowa is another project that Cardano believes will assist in helping current issues around the world, such as the poverty and housing crisis in Africa. The long-term goal of Empowa is to create 50 million affordable homes for those who need them most.
Disadvantages Of Cardano
Along with the innovations that Cardano aims to bring to decentralized finances, there are a few drawbacks worth mentioning as well.
A potential disadvantage of Cardano’s research-based model is that it results in slower development. Since one of the goals of the platform is to make sure all updates and roll-outs are as efficient as possible, this means a longer testing process compared to other platforms.
This slow-and-steady method — paired with the fact that it is not yet in its final phase — gives established platforms like Bitcoin and Ethereum the upper hand.
Speaking of Ethereum, the similarities drawn between the two mean that it may be an uphill battle for Cardano. This is especially true as Ethereum’s platform launches its new version that also prioritizes energy efficiency through a PoS system.
Given the advantages and disadvantages of Cardano, what does all of this mean for the platform’s future?
What Is Cardano’s Future?
With the rapid growth we’re witnessing in the DeFi industry, it’s not always easy to predict which coins will grow with this process and which will be forgotten, especially with relatively new options like Cardano.
Before purchasing Ada, there are a few things to keep in mind. The first is that much like other cryptocurrencies, Cardano is known to be a volatile asset. While this means that many have successfully expanded their wealth with Ada, others have watched its value plummet.
Still, it’s important to remember that the majority of crypto options are volatile. Knowing the reason that you’re investing to begin with can help you better understand whether this is a good choice for you.
The bottom line is if you have any interest in Cardano, there’s no cause for concern. As of today, Ada is one of the largest coins available, and its long-term growth looks promising through market trends and Cardano’s plans for scalability, interoperability, and sustainability.
The other promising aspect of Cardano is its functionality beyond just a cryptocurrency. Through smart contracts and decentralized apps, Cardano aims to offer services that are not readily available across the industry.
Make The Most Of Your Cardano Investment
We started by asking, “What is Cardano?” Now, with a comprehensive guide on Cardano’s history, purpose, and future, you’re all set to make an informed decision on how Ada can impact your crypto endeavors.
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