Cryptocurrencies came into existence to eliminate the need for middlemen while transacting value from one to another. Satoshi Nakamoto was able to achieve this with the help of Blockchain technology. Though it gave the world Bitcoin, it was confined just to payments and hasn’t evolved to a greater extent. Ethereum exploited the blockchain technology and introduced the revolutionary smart contracts. Though this marked the beginning of the second generation of the blockchain, some challenges were left unsettled. Cardano took a distinctive approach in fixing the persisting issues by building on the already existing things that make sense and adding sustainable features with the help of new technology and innovation. In this post, ChangeHero will introduce give you a quick summary of the Cardano.
Cardano is a decentralized blockchain aiming to build a platform for the development of DApps and verifiable smart contracts. Dubbed as the third generation of the blockchain, Cardano aims to fix the pestering problems like scalability, interoperability and sustainability. Charles Hoskinson, Ethereum’s co-founder launched Cardano in the year 2015. Additionally, three organizations support and contribute to the development of the ecosystem. Cardano Foundation, a non-profit organization based in Switzerland, oversees and supervises the development of the ecosystem. Input Output HK (IOHK) is an independent firm contracted to carry out the designing and building of the network. Finally, Emurgo is employed to boost adoption through its commercial ventures.
It is the first blockchain which is based on scientific philosophy and developed by academics and engineers around the world. Unlike the traditional cryptocurrency projects, Cardano did not start with a whitepaper, instead, it began with a set of principles. Cardano is a multi-layered protocol — Cardano Settlement Layer (CSL) used to settle transactions of ADA and functions similar to other networks for recording the transactions. The second one is called Cardano Control Layer (CCL) and used for smart contracts. This strategy of using different layers enables storing of metadata separately and strengthens the security of the network. The platform uses Haskell coding language and the smart contracts to be coded in Plutus. In addition, Marlowe, a new language, designed specifically for the freshmen in development to build financial instruments like smart contracts. These are functional programming languages which strengthen the security and accommodates for quick changes in case of future updates.
Scaling with Ouroboros
Scalability is a baffling issue that all the cryptocurrencies face. Cardano network itself was built in a layered structure to cope with the scalability issues. As explained earlier, transactions and smart contracts take place on different layers and the information will not be shared from one to another. In addition, Cardano tackles this with a modified version of Proof-of-Stake consensus called Ouroboros, a Provably Secure Proof of Stake. Unlike Bitcoin, all the nodes in Cardano are not required to have a full copy of the blockchain. Instead, a slot leader brings all these nodes together in the process of reaching a consensus. Though full nodes like Daedalus wallets can reach consensus, only slot leaders are capable of creating and adding a block to the chain. In Ouroboros, time is divided into Epochs which further sectioned into slots. These slots are short periods of time which usually last for 20 seconds. Each slot will have its own slot leader who works similar to miners and responsible for confirming the transaction and adding blocks to the chain. They can create not more than one block per slot and the transaction fees along with the block rewards of the epoch will be pooled together and distributed to these leaders and further to the stakeholders.
Theoretically, even a user holding 1 ADA can become a slot leader but the probability is quite low. At the moment, there is no accurate figure of ADA to be staked to get a chance to add the block. We’ve also been hearing that it would be somewhere between a million and two million ADA to become a slot leader. But it’s clear that the higher the stake, the higher the chances of becoming a slot leader. These qualified candidates are considered electors for the next epochs. Elections will be held by a random number generation method and the owner of the coin becomes a slot leader for the next epoch. Cardano has also adopted the RINA (Recursive Inter-Network Architecture) to improve the scaling. On top of this, the team is inclined towards Partitioning in which users can have only a chunk of blockchain and aiming to achieve this through side chains.
Interoperability with Side Chains
Even in 2020, it is difficult for different blockchains to understand each other and even tougher to communicate with traditional financial services. Though cryptocurrency exchanges bridge the gap, they are vulnerable to attacks and can be influenced by regulatory policies. Cardano envisions to build the Internet of blockchain and enable users to perform cross-chain transactions with the help of side chains. Cardano supports the Kiayias, Miller and Zindros (KMZ) proofs of proofs of work to allow for the movement of funds from the CSL to CCL and other blockchains as well. Moreover, Cardano is also working on a mechanism to incorporate the Metadata into the transaction in an encrypted manner.
There are a ton of projects in the blockchain space. To stay alive in this red ocean, continuous innovation and a robust governance system are a must. Sustainability lies right in the core of the Cardano’s founding principles. The ecosystem has a grants fund called Treasury. Whenever a block is added to the chain, a part of the reward will be added to the Treasury. Someone who intends to develop the platform can submit a ballot for a grant which will be decided by the stakeholders through voting. As the network grows and the transactions increase, and the funds in the treasury keeps on filling up. This results in the availability of funds all the time for the development of the network.
In addition, the network will use Liquid Democracy for governance providing more room for the stakeholders. Furthermore, the team aims to build a constitution for the protocol to avoid any unintentional hard forks. Cardano follows a timeline in the form of eras to deploy vital upgrades to the platform. On February 20, the team has successfully completed the OBFT hard fork, a pre-planned one. It is a development over the already existing consensus mechanism, Ouroboros Classic. With this planned upgrade, Cardano has begun the transition to the Shelley era which focuses on the community and decentralization.
ADA is the native cryptocurrency of the Cardano network. The sole purpose of the Cardano is to enable a true peer-to-peer payment with the help of the ADA digital currency. Simply put, ADA can be used to transact value across individuals without any middlemen. It does allow the developers to create smart contracts and also provides voting rights to the holders for governance. As of writing, ADA was being traded at a price of $0.0581 and has a total market cap of 1.5 Billion Dollars according to CoinMarketCap. Furthermore, the team specifically designed the Daedalus wallet for holding and transacting ADA.
Despite the criticism for its consensus mechanism and delays in the network upgrades, Cardano is delivering on what it promised. With all being said, Cardano is a unique project which is delivering the best by fusing in the essentials from the existing chains and adding sustainable features through innovation in a scientific approach. For the Blockchain 3.0, the best bet would be to wait for the future upgrades and witness how things unfold.
Finally, a big shoutout to the Cardano community on Reddit for their comments and feedback on the article.