Cardano is one of the biggest smart contract platforms. It has been under development for a long time due to its academic approach. Now, Cardano is finally ready to challenge its rivals and build a flourishing DeFi ecosystem. This article is the Cardano beginner’s guide. We’ll go through the project’s history, technology, and potential as an investment.
Cardano is a smart contract platform
First, let’s place Cardano into the correct crypto category. We categorize cryptocurrencies into three clusters: currencies, platforms, and tokens.
Bitcoin is the best-known currency, even if its narrative has shifted towards digital gold. Litecoin and Monero are other popular examples. Currencies are designed to be P2P digital money. They don’t have any other significant functions besides transferring and holding value.
Ethereum is the king of platforms. These are operating systems for smart contracts and dapps. You can think of platforms like Android and iOS. Cardano is one of the biggest players in this category. Other popular platforms include BNB Chain, Solana, and Avalanche.
Tokens are created (minted) on smart contract platforms. It means they don’t have a blockchain. Tokens are usually either governance or utility tokens. They have utility and use cases inside a specific Dapp. Aave, Chainlink, and Uniswap are popular DeFi tokens.
Some cryptocurrencies are easier to categorize than others. With Cardano, there are no problems. It’s one of the best-known platforms on the planet. This also means Cardano is not a rival of Bitcoin in any way.
ADA is the native token of Cardano. The name comes from Ada Lovelace, who was an English mathematician in the 19th century. She is often regarded as the first computer programmer. If you invest in Cardano you don’t “buy Cardano” but you are buying ADA tokens instead.
ADA has similar functions as other platform tokens. It is “digital oil” inside the Cardano ecosystem. ADA is used to pay transactions and it’s also staked by the network validators.
Charles Hoskinson & the history of Cardano
Almost every cryptocurrency has a leader or a figurehead. Whether we are talking about a foundation, a fintech company, or any other enterprise. Bitcoin is one of the few exceptions. It has a truly decentralized development team with no leader to give orders.
Charles Hoskinson is the man who gives a face to Cardano.
Many think Hoskinson is much older, but he was born as late as 1987. He is a mathematically gifted person. Hoskinson studied math and cryptography at the universities of Denver and Colorado. It’s safe to say he is one of the best-known figures in the crypto scene.
Check this article if you want to read more about Hoskinson’s past. We also recommend viewing the Youtube video below. Hoskinson goes through the history of Ethereum and Cardano on it.
Despite his relatively young age, Hoskinson has been “in the game” for a long time. He was introduced to cryptocurrencies already in 2011. Hoskinson learned everything about mining and started quickly to understand the importance of cryptos in the big picture. His eyes opened fully after the Cyprus banking crisis of 2013.
Some readers might not know that Hoskinson is also one of the Ethereum founders. He was part of Vitalik Buteri’s core team. Eventually, Hoskinson grew apart from Buterin and left the project. Or, depending on the source, was thrown out.
Before Cardano, Hoskinson also established the Bitcoin Education and the Cryptocurrency Research Group projects. He has had hundreds of lectures and seminars all over the globe.
Charles Hoskinson made a big move in 2015. This is when he founded IOHK (Input Output Hong Kong) with Jeremy Woods. This is the most critical part of Cardano because IOHK is the company in charge of the development work.
IOHK won’t run Cardano forever. The idea is to guide the project to the Voltaire phase. After that, the community will vote for Cardano’s future.
Cardano’s native token ADA was created through an ICO in 2017, like almost all coins at the time. Almost 95 percent of early investors were Asian. The idea back then was to build the “Ethereum of Japan” and have a strong focus on the Asian market. We’ll take a look at ADA’s price development in a separate chapter.
The project was building quietly through the 2018-2019 crypto bear market. The most significant updates have taken place in 2020, 2021, and 2022. Let’s go through them next.
Cardano hard forks in 2020, 2021, and 2022
Cardano has taken important steps forward in 2020, 2021, and 2022. The ecosystem has grown from a beta phase to a full-blooded smart contract platform. Let’s go through the main events of the last few years one by one. These are also called hard forks.
Shelley hard fork
The first major hard fork took place in July 2020 when the long-awaited Shelley update was launched. It brought staking to Cardano’s MainNet. Staking has been a huge success since it was introduced. There are over 3000 staking pools worldwide and more than 70% of the ADA tokens in circulation are staked.
Staking fundamentally changed the structure of the whole ecosystem. It moved Cardano’s blockchain to the management of thousands of staking pools. Shelley is definitely one of the most significant updates. It also made the transition from the Byron phase of the roadmap to the second phase.
Mary hard fork
The Mary hard fork in March 2021 was an important step in the Shelley phase of the roadmap. A dedicated token standard was activated in the Cardano blockchain. Users were able to issue their own tokens in the ecosystem. This meant NFT support in practice.
Cardano differs significantly from Ethereum and its ERC20 token standard. On the Cardano platform, no smart contracts are needed to transfer tokens due to its exceptional architecture.
Alonzo hard fork
The Alonzo hard fork, completed in September 2021, is the most hyped one in Cardano’s history. Its timing coincided with the final stages of the cryptocurrency bull market, which also caused a huge price jump for the ADA token. At the same time, the whole ecosystem moved from the Shelley phase to the third phase of the roadmap, called Goguen.
The Alonzo hard fork activated smart contracts on Cardano. This made Cardano theoretically a full-blooded smart contract platform, and at the same time turned Cardano’s ADA token from speculation into a more tangible investment.
Today, as smart contracts go live on Cardano, take a moment to appreciate how hard @IOHK_Charles & the team have worked & the criticism they have taken for so many years to make this happen.
It’s a huge day today.
Charles, Well done my friend. Proud of you.
— Ran Neuner (@cryptomanran) September 12, 2021
In the end, Alonzo’s hard fork was a disappointment, at least for investors. Many found out that Cardano was not technically compliant with the requirements of DeFi applications, which is why Cardano’s DeFi ecosystem did not take off as expected.
Vasil hard fork
If the Alonzo hard fork was Cardano’s most anticipated upgrade, the Vasil is the most important and demanding. At least if you ask founder Charles Hoskinson, who says that around half a million hours of programming went into the Vasil update.
Vasil addresses the limitations that have emerged since the Alonzo hard fork. It significantly improves the transaction capacity of Cardano and also brings updates to the Plutus programming language. Vasil is the update that investors expected Alonzo to be.
The Vasil hard fork was successfully completed in September 2022, several months behind the original schedule. This article has been updated a few days after the Vasil hard fork, so its broad implications are not yet known.
The Cardano roadmap can be found at roadmap.cardano.org. At the time of writing, we are in the Basho phase. Bryon, Shelley, and Goguen are passed already.
The price history of the ADA token
Let’s look at the price history of the ADA token. You can see the real-time price of ADA here.
As mentioned in the history section, the ADA token originated from an ICO in 2017. The price was just $0.0024 for the early investors. The price reached $1.33 at the peak of the 2017/2018 altcoin boom in January 2018. This was the first time Cardano reached the attention of retail investors.
The 2018 bear market was brutal for ADA. Its price even fell to below $0.03 in December 2018, a drop of 98% from January’s all-time high.
The price chart shows very well how long it took for ADA token holders to see some green color in their portfolio. In December 2020, ADA was still about 90% down from the ATH recorded almost three years ago.
Cardano took off at the beginning of 2021. At the time, the entire crypto market was booming. ADA got an extra boost from the Mary hard fork that was scheduled for March 2021. The Alonzo hard fork in September 2021 generated even more hype. ADA mooned to record highs of $3.10 at the time.
The much-hyped Alonzo hard fork was a classic buy the rumor, sell the news event. ADA’s price plummeted immediately after the update. The downward spiral that started in September 2021 has continued into 2022, driven also by the general downturn in the crypto market.
The ADA token has finally formed a bottom in the summer of 2022 at around $0.4-0.5.
Cardano’s layered blockchain system
Let’s go through some of Cardano’s important technical features. This is a multi-level protocol, which is called a layered blockchain system. These layers are Cardano Settlement Layer (CSL) and Cardano Computation Layer (CCL). Cardano has the following reasoning for this solution.
We have chosen the position that the accounting of value should be separated from the story behind why the value was moved. In other words, separation of value from computation. This separation does not mean that Cardano will not support smart contracts. On the contrary, by making the separation explicit, it permits significantly more flexibility in the design, use, privacy and execution of smart contracts. (Source: Cardano.org)
CSL is the layer where the Cardano blockchain is run. All ADA transactions are processed on this level. The blockchain is maintained using a Proof of Stake consensus algorithm called Ouroboros. The CSL layer handles also custom-made tokens and NFTs.
CCL is the computation layer. This is where Cardano smart contracts are run. They are programmed using the Plutus language. Separating transactions from computations is beneficial when the platform is updated in the future.
A good example of this architecture was seen in the spring of 2021 when the Mary hard fork was executed. It enabled custom-made tokens and NFTs on Cardano. This was possible even without smart contracts. In Ethereum, transactions and computations are done on the same layer. Transactions cannot be done without using smart contracts.
In general, it’s important to understand the approach chosen by Hoskinson. Years of academic research were done for Cardano before writing a single line of code. This approach has been significantly slower than the “build & break” approach of its competitors. Cardano is finally catching up.
Cardano’s consensus algorithm Ouroboros
Cardano has chosen a Proof of Stake consensus algorithm like all competitors. Ethereum is the last one using Proof of Work, but this will also change in 2022. There are no physical mining machines required in a Proof of Stake system. The blockchain is maintained by validators who are staking the native token, in this case, ADA.
There are several different variations made of Proof of Stake. Cardano’s version is called Ouroboros.
In Ouroboros, time is split into units called epochs. These are further divided into slots, which are configurable time frames. Each epoch lasts several days (120 hours) and it includes 432,000 slots. At the time of writing this article, the Cardano blockchain is at epoch 365. The first was created on 9/23/17.
Below is a video explaining Ouroboros further.
This is where Cardano’s ADA token is needed. Since there is no mining in a Proof of Stake system, the block producers are chosen among the validators. You can become one by holding & staking enough ADA. The entity chosen to produce the block is called slot leader. A new slot leader is chosen after each slot.
Cardano staking
Let’s look more at the staking process. As mentioned in the history chapter, Cardano staking has become exceedingly popular. You can see the network stats at adapools.org. The numbers are quite impressive.
At the time of writing this article, over 71% of all circulating ADA tokens are staked. This means 23.4 billion out of 32 billion coins. There are more than 3000 staking pools. We can safely say that staking is decentralized.
Cardano staking became popular instantly after it was launched on the MainNet. This happened in the summer of 2020. Thousands of community members had already participated in the TestNet. There are over 800,000 unique addresses staking or delegating their ADA.
If you own ADA and you want to participate in staking, there are two options. You can either run your own staking pool or delegate your tokens to an existing one. This is roughly how other Proof of Stake platforms work as well. You can either become a validator or delegate.
ADA staking can be easily done by using one of Cardano’s own wallets (Daedalus). Other wallet manufacturers support ADA staking too. One of the popular ones is Exodus. In practice, you are delegating your ADA. It’s so easy even an amateur can do it with a couple of clicks.
There is lots of information about Cardano staking on Youtube and Google. Note for Scandinavian readers: Norwegian Block Exchange (NBX) has Cardano staking.
Cardano vs. competition
Cardano is fighting for market share in a very competitive niche. Ethereum’s position is extremely strong at the top. There is no real competition for the #1 platform position. However, there are several strong candidates fighting for the top 5 positions.
This article is written right after Ethereum’s The Merge update. Next, Ethereum is going to scale to the level its competitors are at. This is the moment for competing platforms to gain market share. A scalable ecosystem with cheap transactions could lure investors and programmers out of Ethereum.
We can divide the platform category into two groups: EVM-compatible platforms and others.
EVM is Ethereum Virtual Machine. It is processing all smart contracts on Ethereum. Many platforms have been built EVM compatible on purpose, such as BNB Chain. This makes it easy to clone popular Ethereum Dapps and launch them on an EVM-compatible platform.
EVM-compatible platforms are most likely to eat Ethereum’s market share in the short term. These projects will be in problems once Ethereum is scaling with the help of Layer 2 solutions and the 2.0 version. Then they have very little to offer to potential users.
Cardano is in the “others” category. Smart contracts must be programmed using a programming language called Plutus. The downside is that Cardano must be able to attract enough developers to learn a new language. In the long term, this solution is better.
Cardano’s academic approach has given it a big handicap. Smart contracts were released as late as September 2021. Many rivaling platforms have had a MainNet running for years, or even longer. Not to mention Ethereum.
If we think about the network capacity, all 3rd generation platforms promise thousands (or tens of thousands) of transactions per second. It depends also on the stage of the development. It’s too early to say which platforms can handle high loads for long periods of time.
How about staking? Let’s look at the data provided by adapools.org. We can see that all popular platforms are in the same ballpark when it comes to staking percentage. Tezos and Solana are the leaders in this category. They have over 75% of the native tokens staked.
Cardano as an investment
The Cardano project has come a long way. Nevertheless, its most important stage is probably just beginning. In 2021, Cardano finally became a real smart contract platform. After the Vasil hard fork (2022), its potential will be properly measured.
Previous versions of this article were full of speculation. First on staking, then on tokens, and finally on smart contracts. The market has given massive gains for ADA holders ahead of the updates. Now the investor needs to look at Cardano from a new perspective. The actual framework is complete, and now it is time to watch for DeFi applications to enter the Cardano ecosystem.
You should also check the video below by Coin Bureau for more info.
Cardano seems to have cemented its position in the top 10 list of cryptocurrencies. In terms of market capitalization, it is in the same ballpark as BNB Chain, Solana, Polkado,t and Avalanche, which can be seen as Cardano’s main competitors.
Cardano has the advantage of an exceptional approach to building the whole project. On the other hand, it is also Cardano’s main criticism. It is clear that the academic approach has delayed Cardano significantly. Its competitors have gained popularity and investments, especially in 2021.
On the positive side, the Cardano community seems to be very strong. It has stood behind Hoskinson all these years despite criticism and delays. But now the speculation is over. After the Vasil hard fork, Cardano will have to get popular DeFi applications built and really rise to the occasion.
Time will tell whether Cardano’s EVM incompatibility will become an obstacle. Most of the developers are Solidity experts, and this is where EVM-compatible platforms like BNB Chain come in. They are trying to “steal” the popularity of Ethereum by offering an easy way to port applications to their platform.
Cardano does not have this option for the time being. Its Plutus programming language may be a constraint to growth. Is Cardano then a better or worse investment than the above-mentioned smart platforms or Ethereum, for example?
At the time of writing, it is difficult to answer this question. We are currently living in the depths of a bear market where all projects are suffering. Cardano’s market value is roughly at the same level as its competitors, so it does not appear to be particularly overvalued or undervalued right now.
Investors should follow the development of the DeFi ecosystem in Cardano. You will stay well informed about these developments by following our weekly news!
Cardano ADA price and how to buy ADA
Cardano’s ADA token is nowadays listed in the most popular exchanges. You’ll find the best liquidity and trading pairs from Binance. This is the exchange we recommend for ADA purchases.
Coinbase and KuCoin are also excellent options.
There is also a solid desktop wallet built for Cardano called Daedalus. You should also check Yoroi, which has become quite popular. Both support ADA staking. Exodus is the third option.
Follow reddit.com/r/cardano for the latest news and discussion. We recommend following Charles Hoskinson on Twitter. His handle is @IOHK_Charles. The official website is cardano.org.