Beginners Guide

A Beginner’s Guide To The Cardano Blockchain

Author: Qadir AK

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Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Updated by: Sahana Vibhute

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A passionate cryptocurrency and blockchain author qualified to cover every event in the crypto space. Researching minute occurrences and bringing new insights lie within the prime focus of my task.

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Reviewed by: Nidhi Kolhapur

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Nidhi is a Certified Digital Marketing Executive and Passionate crypto Journalist covering the world of alternative currencies. She shares the latest and trending news on Cryptocurrency and Blockchain.

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In the last few years, cryptocurrencies have grown phenomenally, with more than 20,000 cryptos in circulation currently.

And as of the start of 2023, “Cardano” is one of the most trending cryptocurrencies, as it happens to be the 5th biggest cryptocurrency with a market capitalization of $18 billion and with a circulation of 35,000,000,000 ADA coins.

Cardano (ADA) is one of the most rapidly growing blockchain assets across the market for cryptocurrency, since its debut in 2014. With its constantly evolving technology, the company hopes to rival Ethereum for the creation of a massive blockchain ecosystem.

It is distinguished from competitors by developing technology that employs scalability, interoperability, and sustainability.

But what exactly is Cardano and why is it distinct from other crypto brands?

Let’s understand that through its detailed guide and find out more.!!!

Evolution of Blockchain Technology

Blockchain technology has evolved, with each generation building upon the foundations laid by its predecessor (Bitcoin & Ethereum). Its technology can be broadly categorized into three generations:

1st generation blockchain, also known as the Bitcoin blockchain, was the first implementation of blockchain technology. It is a decentralized ledger that uses a proof-of-work (PoW) consensus mechanism to record transactions.

This generation of blockchain is focused primarily on providing a decentralized and secure way to transfer digital assets and it is limited in terms of its functionality and scalability.

2nd generation blockchain, also known as the Ethereum blockchain, builds upon the first generation by introducing the concept of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement written into the code.

This allows for more advanced applications beyond digital currency, such as decentralized applications (dApps) and decentralized autonomous organizations (DAOs).

3rd generation blockchain, such as Cardano blockchain, builds upon the first and second generation by introducing new features such as scalability, interoperability, and sustainability.

Cardano uses a unique PoS consensus mechanism called Ouroboros. The blockchain also takes into consideration the environmental impact of mining, thus Cardano comes with a more sustainable solution.

Need of 3rd Generation Blockchain

The necessity of 3rd Generation blockchain is required because as the usage of blockchain grew, the need for more complex use cases and performance grew. As a result, the limitations of the 1st and 2nd generation blockchain like scalability, interoperability, and sustainability became apparent.

Some examples of third-generation blockchain technologies include Cardano, EOS, and Solana, which use different techniques such as sharding, multi-chain architectures, and new consensus algorithms to improve the speed and scalability of transactions, while also providing support for smart contracts and decentralized applications.

Thus the 3rd generation blockchain platform like Cardano is designed to be more flexible and upgradeable than other platforms, allowing for the easy integration of new features and protocols in the future.

Okay!

But, What is this Cardano, & who created it?

What is Cardano?

Cardano is a blockchain platform that aims to provide a more secure and sustainable environment for the development and execution of smart contracts and decentralized applications (dApps).

Cardano was created by IOHK (Input Output Hong Kong), a blockchain research and development company. The project was co-founded by Charles Hoskinson, who is also a co-founder of Ethereum, and with a team of engineers & researchers

It is built using the Haskell programming language and is the first blockchain platform to be built on the Haskell programming language.

The goal of the Cardano project is to create a blockchain platform that is more secure and scalable than existing platforms, while also being more environmentally friendly.

To achieve this, the Cardano team has developed a unique proof-of-stake consensus mechanism called Ouroboros, which is intended to be more energy-efficient than the proof-of-work consensus mechanism used by other platforms like Bitcoin and Ethereum.

Additionally, Cardano is focused on resolving those limitations and enabling new features that enhance the security, privacy, and governance of the Blockchain ecosystem.

Let’s understand more from the starting phases of Cardano and how it got evolve timely.

History of Cardano

The Cardano blockchain launched its mainnet in September 2017 and uses a unique proof-of-stake consensus mechanism called Ouroboros, which is based on research and formal methods to provide a secure and energy-efficient method for maintaining the integrity of the blockchain.

Cardano’s native cryptocurrency is called ADA, and it has a smart contract platform called Plutus.

The Cardano project is being developed in a series of stages, with each stage adding new features and capabilities to the platform.

  • The first stage, called Byron, focused on building the core infrastructure of the network.
  • The second stage, called Shelley, focused on decentralizing the network and improving its performance.
  • The current phase is called Goguen, which is focused on adding smart contract capabilities and developer tools.
  • Basho was the fourth hard fork of Cardano, which was launched in 2020. It introduced new features like enhanced performance and scalability.
  • Voltaire is the fifth hard fork of Cardano which is planned to happen in the future. It will introduce the governance layer and a treasury system to the Cardano protocol.

The Cardano project is different from other blockchain projects in that it is based on a research-first approach, and uses formal methods to mathematically prove the security of its protocol.

And also it is built on a proof of stake mechanism which is seen as more energy efficient than the proof of work mechanism.

All these phases are important milestones in the development of Cardano, as they bring new features and improvements to the network. Eventually, this all lead to the creation of various hardfork such as ( Alonzo & Vasil ).

Cardano’s Hardfork

The Cardano blockchain was hard forked by the Byron model that was federated to a Shelley decentralized model. This hard fork was different, instead of making radical changes, it ensure that the transition was smooth for a new protocol while keeping the history of the prior blocks.

The chain didn’t alter in any way, rather it consists of Byron blocks, and then, after the transition period, it is now populated with Shelley blocks. There was no major restart point, which erased the history of prior actions.

Alonzo Hardfork:- support for smart contracts

Alonzo is the name of the protocol upgrade that was implemented in September 2021 in the Goguen development theme. It is built upon the metadata of transactions token locking, token metadata, and native asset capabilities to support smart contract development.

This upgrade provides a versatile platform that opens up new opportunities for developers and companies through the development of smart contracts as well as Decentralized Applications (DApps) for financial decentralization (DeFi).

Vasil: Plutus 2.0 along with the introduction of pipelining

Vasil is the new protocol that will go live by June 20, 2022. It is named after the late Bulgarian mathematician, and prominent Cardano user Vasil Dabov. The Vasil upgrade includes five essential methods to boost the efficiency of the blockchain. These include

  • CIP-31 (Reference inputs)
  • CIP-32 (Inline Datums)
  • CIP-33 (Reference scripts )
  • CIP-40 (Collateral Outputs)
  • Diffusion pipelining.

These enhancements improve Cardano’s user-friendliness and scalability, by expanding the size of the block to accommodate more transactions in each block. Developers will enjoy more experience developing apps on Cardano since Vasil will significantly cut down on the amount of work involved in developing and installing DApps for Cardano.

Let’s understand briefly about the reason why was Cardano created & what were the various drawback Cardano deciphered.

Why Cardano was Created?

Cardano was created by the blockchain development company IOHK (Input Output Hong Kong) as a next-generation blockchain platform. The developers behind Cardano aimed to address some of the limitations and drawbacks of first-generation blockchain platforms like Bitcoin and second-generation platforms like Ethereum.

One of the main drawbacks of first-generation & second-generation platforms was, that they were not well-suited for running complex decentralized applications with scalability issues and limited governance capabilities.

To address these limitations, Cardano has been built as a highly modular and flexible platform, using a unique proof-of-stake consensus mechanism called Ouroboros.

This mechanism allows for high scalability and fast transaction processing, as well as a formal governance system that allows for the evolution of the platform through community-driven and assisting in better decision-making.

In addition, Cardano is built with a focus on security and uses a formal verification process to mathematically prove the correctness of its code. This allows for more reliable and secure smart contracts, which is an important aspect for any platform that aims to support complex decentralized applications.

Lastly, Cardano is also working on creating its ecosystem of Dapps, intending to improve interoperability, and scalability to support the growing demand of its users.

Now, let’s understand the working of Cardano, how it assists in securing the blockchain network, and many more.

How does the Cardano Blockchain Work?

Cardano is a decentralized blockchain platform that uses a Proof-of-Stake (PoS) consensus algorithm called Ouroboros. In PoS, instead of miners using their computational power to validate transactions and create new blocks, validators are chosen to create new blocks based on the amount of stake they hold in the network.

This creates an incentive for validators to act in the best interest of the network since the value of their stake is directly tied to the health of the network. Additionally, PoS consumes less energy than Proof of Work (PoW) consensus mechanisms.

This algorithm enables users to validate transactions and create new blocks on the blockchain by staking their own ADA (the native cryptocurrency of the Cardano network).

The Cardano blockchain is divided into two separate layers: the settlement layer and the computation layer.

  • The settlement layer is responsible for managing transactions and the transfer of ADA.
  • The computation layer is used to execute smart contracts and run decentralized applications.

Each block on the Cardano blockchain is created by a group of elected slot leaders, who are chosen through a process called slot leaders election. The slot leaders are responsible for validating transactions and creating new blocks, and they are rewarded for their work with a certain amount of ADA.

Overall, Cardano Protocol aims to provide a more secure and scalable blockchain platform that can be used for a wide range of applications, from digital currencies to supply chain management and beyond.

The Cardano Protocol

The Cardano protocol is a blockchain platform that aims to provide a more secure and scalable infrastructure for the development and execution of decentralized applications and smart contracts.

One key feature of the Cardano protocol is its use of a proof-of-stake (PoS) consensus mechanism, rather than the more commonly used proof-of-work (PoW) mechanism.

The Cardano protocol is designed to be highly scalable, allowing for a large number of transactions to be processed per second. This is achieved through the use of a system called “layer 2 scalings” which allows for the off-chain processing of transactions. This reduces the load on the main blockchain, allowing it to handle a higher volume of transactions.

In addition to its proof-of-stake consensus algorithm, Cardano also uses a system called Plutus, which is a functional programming language that is used to develop smart contracts for the computation layer. Plutus is designed to be highly secure and expressive, and it allows for the creation of complex decentralized applications.

In terms of security, the Cardano protocol uses several different mechanisms to ensure the integrity of the network. These include the use of formal verification to mathematically prove the correctness of the protocol, and a system of governance that allows for the community to vote on proposed changes to the protocol.

PoS allows network participants to “stake” their coins by committing them as collateral to help secure the network and earn rewards for doing so.

Use Cases of Cardano

Cardano is an open-source, decentralized blockchain platform that runs on a proof-of-stake consensus algorithm. Here are some of the potential use cases for Cardano include:

Digital Identity: Cardano can be used to create and manage digital identities for individuals, organizations, and devices. This could be used for things like secure voting systems and digital financial services.

Supply Chain Management: Cardano’s smart contract functionality can be used to create transparent and tamper-proof supply chain management systems.

Decentralized Finance (DeFi): Cardano could be used to build decentralized financial applications, such as lending and borrowing platforms, prediction markets, and stablecoins.

Internet of Things (IoT): Cardano’s scalability and low transaction costs make it well-suited for use in IoT networks, where it could be used for things like micropayments and secure communications.

Social Impact: Using its smart contract functionality, Cardano can be used for social impact projects like electronic voting and carbon credit tracking.

Predictive marketplaces: Cardano can be used to build predictive marketplaces, which allow people to buy and sell predictions about future events.

These are just a few examples of the types of applications that can be built on the Cardano platform. The flexibility of blockchain technology means that new use cases are likely to emerge as the platform continues to evolve and mature.

What is all about this Cardano Staking?

Staking Cardano is the process of holding and supporting the Cardano blockchain network by delegating your ADA (the native cryptocurrency of Cardano) to a stake pool. By doing so, you are participating in the network’s consensus mechanism, called Ouroboros, which helps to secure the network and process transactions.

Here are the steps to stake Cardano:

Step 1:- First, you will need to download and set up a Cardano wallet that supports staking, such as Daedalus or Yoroi.

Step 2:- Then, you will need to acquire some ADA and transfer it to your wallet.

Step 3:- Next, you will need to choose a stake pool to delegate your ADA too. You can find a list of stake pools on the Cardano explorer, and you can compare their performance and fees.

Step 4:- Once you have selected a stake pool, you can delegate your ADA to it by using the stake pool’s ticker or ID.

Step 5:- After a few days, your delegation will be active and you will start earning rewards for supporting the network.

Pros & Cons of Staking Cardano

Pros of staking Cardano include:

  • Earning rewards for supporting the network
  • Helping to secure the network
  • Being a part of the Cardano community and ecosystem

Cons of staking Cardano include:

  • The need to lock up your ADA for some time
  • The risk that the chosen stake pool may underperform or fail
  • The risk of malicious actors attempting to harm the network.

When you stake your ADA, you’ll be given a certain percentage of the block rewards depending on the total amount staked in the pool. The more ADA in the pool, the lower the percentage of rewards you’ll receive.

It is important to do your research and choose a pool with a good track record, low fees, and a vision that aligns with your own.

Cardano’s Role in NFT Space

Cardano is a blockchain platform that is being developed to support the creation, issuance, and exchange of non-fungible tokens (NFTs). The platform aims to provide a secure and scalable infrastructure for NFTs that can be used for a wide range of applications, such as digital art, gaming, and collectibles.

Cardano’s native cryptocurrency, ADA, is used to pay for transactions on the network, and its smart contract capabilities allow for the creation of custom NFTs with unique attributes and ownership rules. The platform also features a decentralized marketplace for buying and selling NFTs.

Further, Cardano has implemented a new technology known as “Plutus” which is a smart contract programming language, which aims to reduce the risk of errors that could lead to the loss of funds.

Additionally, Cardano is working on implementing a digital identity layer to support use cases such as know-your-customer (KYC) compliance and anti-money-laundering (AML) regulations.

It is possible to create and mint NFTs on Cardano already. But it is not a focus of the current development, and more Dapps, use cases, and infrastructure have to be built on top of it for it to become a fully featured NFT platform.

Further Scope of Cardano

Cardano’s proof-of-stake consensus system is mainly designed to reduce energy consumption during the block generation process. This protocol includes an indefinitely scalable consensus method.

It’s also worth noting that Cardano is built using a highly-acclaimed and academically-rigorous philosophy and technology stack, Ouroboros, which is a first-of-its-kind proof-of-stake algorithm that gives the ability of scalability and security to the platform. This is one of the reasons that it’s highly regarded by some experts.

Cardano’s scalability and energy efficiency make mining and transaction times on the platform swift and easy. Cardano is a popular cryptocurrency because of its ability to transfer and receive funds fast and with low costs. As a result, it offers a lot of investment potential.

However, if you’re seeking the finest cryptocurrency to invest in 2023, you should consider in investing one.

Conclusion

Cardano is built on the principle of research first and is constantly being refined and refined by a dedicated group of engineers and scientists. The third-generation blockchain project is poised to become an important smart contract platform within the market however, it has a lot of development to go.

In all, Cardano has the potential to be an important player in the world of blockchain and could change the method we conduct transactions and interact with decentralized applications.

It is only time to see how long-lasting the impact on Cardano will be on the crypto world and the entire world. Although, the future looks very promising.

FAQs

  • What is Cardano and how does it work?

Cardano is a decentralized public blockchain and cryptocurrency project. It is built on a proof-of-stake consensus algorithm and is designed to provide a more secure and sustainable platform for the development and execution of smart contracts and decentralized applications.

  • How is Cardano different from other cryptocurrencies?

Cardano differentiates itself from other cryptocurrencies through its use of a unique proof-of-stake consensus algorithm, formal verification of smart contracts, and a multi-layer architecture that separates the settlement and computation layers of the network.

  • What problem does it aim to solve?

It aims to solve the scalability, interoperability, and sustainability issues present in many existing blockchain networks.

  • What is the native token of the Cardano network?

The native token of the Cardano network is called ADA. It is used to pay transaction fees and can also be used to vote on governance decisions.

  • What is the total supply of ADA?

The total supply of ADA is approximately 45 billion coins, which were all created at the launch of the network.

  • How can I acquire ADA?

ADA can be acquired by purchasing it on a cryptocurrency exchange, by participating in a staking pool to earn rewards, or by developing and deploying a decentralized application on the Cardano network.

  • What are the benefits of holding ADA?

Holding ADA gives holders a right to participate in the Cardano network through staking, and also gives a right to vote on important network decisions, the benefits also include potential appreciation in the value of ADA due to network growth and adoption.

  • What is the governance model of Cardano?

Cardano uses a decentralized governance model in which token holders can vote on network upgrades and changes through a system of stake-weighted voting.

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