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What is Cardano: A Simple Explanation

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DappRadar

A blockchain led by an Ethereum co-founder

Cardano is a Proof-of-Stake blockchain platform and home of the ADA cryptocurrency. Cardano boldly claims it is the first blockchain platform to evolve out of a scientific philosophy and a research-first-driven approach. 

Development of the platform began in 2015 and was launched in 2017 by Charles Hoskinson, a co-founder of Ethereum and BitShares. Hoskinson famously left Ethereum after a dispute with its co-founder Vitalik Buterin over accepting funding to create a for-profit entity while Buterin wanted to keep it running as a nonprofit organization. 

After leaving Hoskinson co-founded IOHK, a blockchain engineering company, whose primary business is the development of Cardano, alongside the Cardano Foundation and Emurgo. No stranger to bold statements, Cardano claims that it overcomes existing problems in the crypto market: mainly that Bitcoin is too slow and inflexible, and that Ethereum is not safe or scalable. 

ADA debuted with a market cap of $600 million. By the end of 2017, it had a market cap of $10 billion and reached a value of $33 billion briefly in 2018 before the general shrinking of the crypto market reduced its value back to $10 billion. Overall Cardano is well funded, has a strong and experienced team, and has a true belief in the product they are building. 

TL:DR

What’s special about Cardano?

The Cardano platform has been designed from the ground up and verified by engineers and academic experts in the fields of blockchain and cryptography. Something the platform takes extremely seriously. It has a strong focus on sustainability, scalability, and transparency and is a fully open-source project aiming to deliver an inclusive, fair, and resilient infrastructure for financial and social applications on a global scale. 

Security is one of its founding principles and Cardano is written in the Haskell programming language. Being a functional language, Haskell permits building a system using pure functions, leading to a design where components are conveniently testable in isolation. Furthermore, the advanced features of Haskell enable Cardano to easily test complex coding before deployment.

Overall, the blockchain wants to serve as a stable and secure platform for the development of decentralized applications (dapps). Cardano focuses on solving current issues through:

  • Scalability — The Cardano ledger is capable of processing a large number of transactions without affecting network performance. Cardano is implementing various techniques (like data compression for instance) and is working to introduce Hydra, which will enable the option to create multiple side-chains.
  • Interoperability — Cardano wants to ensure 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. 
  • Sustainability — A proof-of-stake blockchain means it is vital to ensure that the system is self-sustainable. Cardano is built to allow the community to maintain its continuous development by participating, proposing, and implementing system improvements. 

Under the hood

Cardano is based on the Ouroboros proof-of-stake blockchain protocol, which is claimed to be four-million times more energy-efficient than Bitcoin (BTC). In short, the resulting energy contrast is similar to the difference in energy usage of a household and a small country. Interestingly, Ethereum is in the process of shifting from a Proof-of-Work protocol to a Proof-of-Stake, arguably showing that the technology is highly regarded in the industry as a path to success. 

Cardano’s layered blockchain architecture is composed of two main elements: the Cardano Settlement Layer (CSL) and the Cardano Computational Layer (CCL).  Most other existing blockchain platforms only function with a single layer, which often causes network congestion, slows transactions, and drives fees higher.

The CSL powers Cardano’s unit of account. Simply put, this is where peer-to-peer transactions are facilitated, such as the transfer of tokens between users. The CCL is the lifeblood of the Cardano network. It maintains the chain’s security, can deploy smart contracts, and also serves as a framework that is designed to meet the goals of the network to ensure regulatory compliance with various jurisdictions. 

Technology evolves 

As mentioned, traditionally, blockchains have functioned on a single layer resulting in congestion which can result in downtime, a loss of users or worse, the collapse of an entire network. Since Cardano’s conception in 2015 the blockchain industry has embraced layer-2 and Ethereum Virtual Machine (EVM) compatible solutions in order to solve the issues around transaction speed and cost. 

Lightning Labs, a company focussed on building faster, cheaper and a globally available layer-two for Bitcoin entered the space in XYZ. Lightning Labs basically develop software that powers the Lightning Network, an open source, secure, and scalable system that enables users to send and receive money more safely and efficiently. 

Polygon, is a layer-2 solution for Ethereum offering faster transaction times at lower costs. Their solution means that any project can have a dedicated, optimized iteration of Ethereum which combines the best features of stand-alone blockchains such as sovereignty, scalability, and flexibility and Ethereums security, interoperability, and developer experience and support.

Another interesting protocol is Immutable X. Best described as an Ethereum layer-2 solution leveraging rollups, built specifically for the creation and transfer of non-fungible tokens or NFTs. In essence, rollups add an extension to Ethereum that allows the batching of transactions to be processed quickly and within the Ethereum smart contract. That will then be settled on the main Ethereum blockchain at a future point.

What Is Cardano’s Transaction Speed (TPS)?

When the Cardano chain was first tested in 2017, it was able to process as many as 257 transactions per second (TPS). For context, Bitcoin can process 4.6 TPS, and Ethereum 1.0 slightly higher 15-20 TPS. Already, Cardano can process a higher transaction volume than the first and second-generation chains combined.

In 2020, Cardano rolled out the Shelley upgrade that aimed to make its blockchain “50 to 100 times more decentralized” than other large blockchains and also introduce an incentive scheme, or staking, designed to reach equilibrium around 1,000 stake pools.  

At the time, Hoskinson predicted that this would pave the way for hundreds of assets to run on its network.

Hail Hydra 

Hydra is a layer-2 scaling solution implemented on top of Cardano’s Proof of Stake protocol. It implements state channels that enable the fast processing of payments and smart contracts off-chain. Simulations have shown that each “Hydra head” can currently process about 1,000 transactions per second (TPS). With 1,000 stacking pools, each of which processes 1,000 TPS, Cardano could achieve a throughput of up to one million transactions per second.

The research is now complete and implementation of the code has begun, Hoskinson said. Currently, IOHK is forming a Hydra team to code Hydra in parallel with the other stages of Cardano’s development. Fortunately, thanks to the work already done by Lightning Labs and other state channel projects, IOHK developers do not have to “start from scratch”.

It will be interesting to see if Charles Hoskinson and the Cardano team can deliver on the statements made in 2020. Moreover, can Cardano entice and launch ‘thousands of dapps by the end of 2021’? Watch this space. 

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