What is Cardano (ADA)?

A beginner’s guide to the Cardano smart contract platform and its native cryptocurrency, ADA.

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Cardano cryptocurrency physical coin

A smart contract platform designed to offer scalability and security, Cardano has the ambitious goal of delivering more advanced features than any protocol previously developed. Though the platform is still being built, Cardano’s Ada token (ADA) has grown into one of the world’s top 10 largest digital currencies by market capitalisation at the time of writing.

If you’re thinking of buying some ADA but want to know more about how Cardano works and the problems it aims to solve, you’ve come to the right place.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

What is Cardano?

Cardano is a decentralised public and cryptocurrency project. A platform for the development of decentralised applications (dapps) and deployment of smart contracts, Cardano is built on a unique, layered architecture. It’s designed to provide enhanced security and scalability compared to other smart contract platforms.

One of the key factors that sets Cardano apart is that it’s the first blockchain project guided by academic research and a scientific philosophy. On its website you’ll find copies of a number of peer-reviewed academic papers to peruse, and the platform is being developed by a global collective of expert engineers and researchers.

Cardano’s developers hope to create a platform that combines the need for consumer privacy and protections with the simultaneous need for regulatory oversight.

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Cardano use cases

When the Cardano project first started to take shape in 2015, the overarching aim was to change the way cryptocurrencies are designed and developed. According to its whitepaper, “The overall focus beyond a particular set of innovations is to provide a more balanced and sustainable ecosystem that better accounts for the needs of its users as well as other systems seeking integration.”

That all sounds great in theory, but what real-world uses does the platform have? Cardano can be used:

  • As a payment protocol, providing fast and affordable transfers between users
  • To create and deploy smart contracts, which themselves have myriad applications across numerous industries
  • To build and power dapps
  • To digitise physical assets

What is Ada and what does it do?

Ada is the cryptocurrency on the Cardano blockchain. It can be used to send value between friends, pay for goods and services, deposit funds on an exchange or enter an application.

You’ll need Ada to complete a transfer on Cardano’s settlement layer (see below for more details), while any applications built on Cardano will use Ada as their native token.

The supply of tokens is capped at a maximum of 45 billion ADA, and at time of writing (May 2018) almost 26 billion of those were in circulation.

What makes Cardano unique?

Any new smart contract platform is inevitably compared to Ethereum, and this is a good starting point for anyone looking to get a handle on what the project has to offer. Just like Ethereum, Cardano offers a platform where developers can create dapps and deploy smart contracts.

However, it’s also designed to offer a number of other versatile features. Thanks to its layered architecture, Cardano allows smart contracts to be executed on a different layer to where transactions take place. This makes it possible to quickly deploy a wide range of advanced smart contracts on the blockchain.

It’s also the first cryptocurrency to be based in Haskell code, which is widely considered to be one of the most secure programming languages and provides a range of security benefits.

Rather than a roadmap or whitepaper, the project was initially based on a collection of design principles, engineering best practices and other key considerations, including:

  • Separating accounting and computation into different layers
  • Small groups of academics and developers competing with peer-reviewed research
  • Building in the ability to upgrade systems once they’ve been deployed without destroying the network
  • Building a cryptocurrency that can work on mobile devices and provide a reasonable and secure user experience
  • Finding a “healthy middle ground for regulators to interact with commerce without compromising some core principles inherited from Bitcoin”

From these ideas and principles, Cardano was created.

The technology behind Cardano

Cardano is being built with two layers – the Cardano Settlement Layer and the Cardano Computation Layer – to provide the flexibility businesses need to tailor smart contracts to their requirements.

  • Cardano Settlement Layer. This is the first layer and acts as the platform’s balance ledger. It uses a proof of stake (PoS) algorithm to generate new blocks and confirm transactions.
  • Cardano Computation Layer. This is the layer on which smart contracts can be run, and the Cardano team is developing a new programming language (Plutus) which will be used to build smart contracts.

As mentioned, instead of using a proof of work (PoW) consensus algorithm like bitcoin, Cardano uses a new proof of stake (PoS) algorithm called Ouroboros. Under this system, blocks are generated and transactions verified by slot leaders. Anyone who holds an ADA token can become a slot leader, with slot leaders randomly chosen using a coin-flipping protocol.

Cardano’s team and history

The Cardano platform is the brainchild of Charles Hoskinson, a tech entrepreneur and mathematician who also happens to be a co-founder of Ethereum. Founded in 2015, Cardano is being developed by not one but three organisations:

  • The Cardano Foundation. Registered in Switzerland, the foundation’s mission is to standardise, protect and promote the Cardano Protocol technology.
  • Input Output Hong Kong (IOHK). A tech company founded in 2015 by Hoskinson and Jeremy Wood, IOHK is responsible for most of the technology behind Cardano.
  • Emurgo. Founded in 2017 and registered in Japan, Emurgo focuses on integrating businesses into Cardano’s blockchain.

Cardano held an extended ICO from September 2015 until January 2017, raising just over US$62 million, and it launched the first phase of its mainnet in September 2017.

Next for Cardano: the roadmap

Cardano maintains a detailed roadmap that’s well worth a look for anyone interested in the project. It’s split into several phases named after poets, a computer scientist and a philosopher, as follows:

  • Byron featured the launch of the Cardano Settlement Layer mainnet
  • Shelley will see the addition of key elements to ensure that the Cardano platform grows into a decentralised and autonomous system. Scheduled for Q2 and Q3 of 2018, key milestones in this period include:
    • Making it possible for stakeholders to delegate their stake
    • Development of consensus incentives and fees to encourage users to run a full node
    • Light client support
    • Support for Cardano to be added to the Ledger Nano S wallet
    • Launch of a Cardano debit card
  • Goguen will focus on the integration of smart contracts. Key milestones in this phase include:
    • The addition of sidechains to enhance the ability to move Ada, improve scalability and allow the addition of new features without forking
    • Finalising the Plutus Core language and integrating it into the Settlement and Computation Layers
    • The creation of IELE, a virtual machine featuring a universal language framework for translating and executing smart contracts
    • Smart contracts deployment and interaction
    • IELE testnet launch
  • Basho will focus on performance improvements
  • Voltaire will feature the addition of a treasury system and governance

What to watch out for

As the roadmap above reveals, there’s still a long way to go until Cardano is fully developed. While its initial release occurred in September 2017, there are still many crucial features yet to be added. For example, smart contracts and sidechains are still some way off.

Until the Goguen phase of the roadmap has been successfully completed, there’s always going to be a level of uncertainty surrounding the project. In other words, it all sounds great on paper, but only when there’s a fully functioning product will we know just how good Cardano can be.

At the same time, don’t forget that Cardano is far from the only dapp/smart contract platform out there. Ethereum, NEO, NEM, EOS and a host of other projects will all provide stiff competition and could affect levels of adoption.

Read more about where Cardano might be headed in our prediction for 2020.

The bottom line

Cardano has huge potential but, like so many other popular cryptocurrency projects, still has a long way to go before that potential might be realised. In the meantime, there are several other smart contract platforms at various stages of development while Ethereum, the biggest and best-known of them all, continues to grow. Whether or not Cardano can deliver on its promise remains to be seen.

There’s a lot to like about its science-based approach, its development team and the architecture underpinning its system. And if Cardano can effectively find a balance between the needs of users and regulators, there are many who say it could have a very bright future indeed.

However, as always, make sure you do your own research before buying.

Cardano FAQs

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Images: Shutterstock

Disclosure: At time of writing the author holds IOTA and XLM.

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