If you have been in the crypto space for any length of time, chances are you have heard about Cardano. It is currently the 6th largest cryptocurrency by market capitalization and its founder and (previously) co-founder of Ethereum, Charles Hoskinson believes it’s headed for the number one spot. Why? Because it was created as a solution to many of the faults seen in Bitcoin and other top cryptocurrencies.
In this article, we will discuss in detail what Cardano is, how it works and also explore some of the recent improvements on the project that are making it relevant in the emerging blockchain industry.
So what is Cardano?
Cardano is an open source, public blockchain project. By open source, it means anyone can contribute to the development of the program that runs it, making it impossible for one person to control with private codes. It is also decentralized, meaning there is no central authority that controls it, such as a bank or government.
The project uses a Proof-of-Stake (PoS) consensus algorithm which requires less energy consumption compared to Bitcoin and other Proof-of-Work (PoW) projects. This is one of the arguments for Cardano’s superiority and the chances that it could overtake Bitcoin according to Hoskinson.
The project is also more scalable than Bitcoin as it can process up to 1 million transactions per second at a much lower cost per transaction. This is thousands of times faster and cheaper than Bitcoin which can only process less than 10 transactions per second.
Recently, the team behind Cardano has been working on integrating some functionalities such as smart contracts, dApps and, NFT etc that were not built into the project from the start. By solving the problem of scalability and high cost of transactions, the team believes the project is the future of crypto for payments and many other purposes that cryptocurrencies can be used for.
How does Cardano work?
The cardano project uses PoS to verify transactions. This means a number of large holders of the native token, ADA, stake their holdings to secure the network and are rewarded with more ADA as an incentive.
Scalability
One of Cardano’s most emphasized strengths is its scalability. As stated earlier, the network can process a million transactions in a second, remember? This is made possible with the use of Epochs. This is a system that assigns blocks to nodes and decides who validates which block on the network.
Epochs divide the transactions into slots, and any node (computers running the network) can be nominated as slot leader. The slots can also be splitted into smaller units, making it possible for the network to handle large numbers of transactions. This is the secret of Cardano’s scalability.
Blockchain interoperability
Cardano also makes blockchain interoperability possible. This is done through what the creators call DMZ sidechains protocol. Before now, every cryptocurrency ran only on its own blockchain. For instance, you cannot use Bitcoin on another blockchain, say Ethereum, as the blockchains are not compatible.
However with Cardano’s interoperability solution, users can easily connect to other blockchains through the use of bridges. This means one can easily move ADA for instance, to Ethereum blockchain without having to use an exchange or any other intermediary.
Sustainability
Another major problem that Cardano solves in the crypto space is the problem of sustainability. With the growing demand for crypto and blockchain technology, it is expected that more and more users will use the crypto projects in the future for payments and other use cases.
For many projects though, long term sustainability is not guaranteed, so how can we be sure that the network will remain functional and not crash when the load increases greatly in the future?
To guarantee sustainability, the project must keep developing and have a functional community and keep it up to date. By paying incentives to the developer community using fees generated from transactions, Cardano is basically self-sustaining. The incentives ensure that the community keeps working on it to improve it and make sure it stays on the edge of the industry.
How is Cardano different from Ethereum?
Charles Hoskinson, the founder of Cardano is one of the initial founders of Ethereum. So, why did he create Cardano when Ethereum already existed?
Well, because he wanted to solve some of the problems inherent in Ethereum. Cardano was also intended to be a project that solves real life problems for large businesses and governments around the world, more like business, unlike Ethereum which is a free platform for transactions and developing decentralized applications (dApps) and smart contracts. Since Cardano also supports dApps and smart contracts, what are the fundamental differences between the two projects?
PoS over PoW
First, Ethereum started out originally as a PoW project. Like Bitcoin, it requires the use of sophisticated machines to validate transactions through a process called mining. Ethereum is however in the process of migrating to PoS consensus to cut the energy consumption, high fees and improve scalability. Cardano on the other hand has been a PoS project from the start, and so has never used high tech computers for transaction validation.
ADA is deflationary
Secondly, the total supply of the native token, ADA, is deflationary. This means that there will be fewer and fewer ADA in the future in circulation, meaning the price will appreciate over time. For Ethereum the supply is inflationary so there will be more ETH in circulation everyday, also it is also expected to appreciate in value especially as the project migrates to PoS consensus.
In general, the Cardano project has many use cases and is already working with the governments of some countries such as Ethiopia and Georgia to use its technology for ID and certificate verification respectively. It is also partnering with universities to carry out research to help check the reliability of the project.
In the future, any use case for Cardano will be in one of the areas of Foundation, Decentralization, Smart Contracts, Scaling and Governance. Hoskinson has been working on major developments recently to ensure that the project finds relevance in these key areas.
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