What is Cardano? The Beginner’s Guide

Cardano is one of the most popular 3rd generation platforms. The goals and high standards of this project have gained many fans around it. Cardano’s ADA token was also one of the biggest movers in the altcoin boom of 2017. But what is Cardano? This article is a Cardano review. It’s the ultimate Cardano beginner’s guide to past, present and future of this project.

Cardano is one of the leading smart contract platforms

Let’s set Cardano first to a correct category among all cryptocurrencies.

As you may know, Bitcoin was the first cryptocurrency. Bitcoin, Litecoin and many other projects born in the early years (roughly 2009-2012) are often titled as 1st generation cryptocurrencies. The purpose of these coins is to function as digital P2P money.

Vitalik Buterin created Ethererum in late 2013 and it started to gain popularity in 2014. This was the first platform for smart contracts and dApps. Ethereum is titled as the 2nd generation cryptocurrency.

Cardano is also in the platform category with Ethereum, but it’s a 3rd generation product. Other competitors include projects like EOS and NEO. The difference is to Ethereum, that 3rd generation platforms have solved the scalability issues.

This means Cardano is not competing with Bitcoin, Litecoin or Monero for example. Cardano is like iOS or Android, it’s an operating system for digital applications. It is competing against other ecosystems.

Every platform has its own native token. Cardano’s native token is called ADA. The idea behind the native token is similar across all platforms: it is used as the virtual gas of the system. ADA is used to pay transactions and transfer value inside the Cardano ecosystem.

ADA has also purpose in the Proof of Stake consensus mechanism of Cardano, which will be explained later.

Next, we’ll go through the history of the Cardano project. How was it born and who created it?

Cardano and Charles Hoskinson

Almost every cryptocurrency project has one popular figure, who is featured in news and interviews. Whether the project is run by a foundation, a tech company or a community. Bitcoin is one of the very few exceptions in the market.

Charles Hoskinson is the man, who gives a face to Cardano.

Many people think Hoskinson is older than he is, but the American is just 32-years old. Hoskinson is a talented mathematician, who studied cryptography and maths in the universities of Denver and Colorado. He is one of the most loved persons in the crypto scene and very famous of his beard.

The following clip has an interview of Hoskinson from the spring of 2019.

Despite his young age, Hoskinson has been involved in many projects. He was first introduced to Bitcoin in 2011. Like many others before him, Hoskinson was first involved in mining. He started to see quickly the importance of this invention.

Hoskinson really saw the potential of cryptos after the Cyprus banking crisis in 2013. He has since founded The Bitcoin Education Project and Cryptocurrency Research Group projects and educated thousands of people all over the world.

Many might not know that Charles Hoskinson was also one of the founders of Ethereum. He was part of the core group with Vitalik Buterin and had a big impact on the birth of this platform.

Hoskinson took a major step forward in 2015 by founding IOHK with his friend, Jeremy Woods. IOHK (Input Output Hong Kong) is the most significant piece of Cardano because this is the company responsible for the development of the program code.

cardano iohk - input output hong kong
Screenshot from the home page of IOHK.

It’s important to understand, that IOHK is not going to have the same role forever. Their current contract extends to the year 2020. After this, Cardano Foundation should take over. This foundation is also the Cardano project promoter.

As you can see from the image above, IOHK is also involved in other crypto projects. It supports, for example, the development of Ethereum Classic due to Hoskinson’s involvement in the project. IOHK has also developed Deadalous wallet for storing Cardano’s ADA token.

The third major piece in the Cardano puzzle (besides IOHK and Cardano Foundation) is called Emurgo. That is the business partner of Cardano. The role of Emurgo is to support tech companies, which want to develop applications on Cardano blockchain.

As mentioned earlier, ADA is the native token of the Cardano blockchain. It was born in an ICO in 2017, as almost every single token in the past two years. Almost 95% of the early investors were from Asia.

One ADA token was priced as 0.0024 USD in the ICO, and it rocketed all the way to 1.33 USD at the peak of the 2017/2018 altcoin bubble. ADA crashed hard during the crypto winter of 2018 like other altcoins as well. It is still more than 95% down from the ATH.

What is Cardano – a layered blockchain system

Let’s dig deeper into the Cardano blockchain. Cardano is a protocol built on two layers, hence it’s called a layered blockchain system. These layers are called Cardano Settlement Layer (CSL) and Cardano Computation Layer (CCL).

CSL is the layer, where all transactions are performed, and the data is stored on the blockchain. Cardano is currently using the UTXO model, which we know from Bitcoin. If you aren’t familiar with UTXO, please read this article.

cardano layers

Below CSL, there is the computation layer (CCL). This is where all the applications and smart contracts are run.

The third layer, KMZ Sidechains, is basically a connectivity layer on other blockchains.

Cardano wants to separate these functions from each other on purpose. Charles Hoskinson argues that a layered system enables better scalability in the future when data storage and application processing are separated.

Cardano’s Proof of Stake algorithm Ouroboros

Cardano blockchain will eventually use a Proof of Stake consensus algorithm, like all other 3rd generation blockchains as well. There is no machine-based mining in PoS like there is in Proof of Work, used by Bitcoin for example.

Proof of Stake has become the number one choice for all 3rd generation platforms, which are after high capacity and scalability. Cardano has developed its own PoS variant, which is called Ouroboros.

In Ouroboros, time is divided into units called epochs. Each epoch is divided into slots, which are in practise configurable slices of time. Each slot is roughly twenty seconds long, but this could change in the future.

One epoch can be several days, so there are lots of slots inside each epoch.

Below is a great explanation of Ouroboros.

Now we can add Cardano’s ADA token to this equation.

As mentioned earlier, there is no traditional mining in a Proof of Stake consensus method. This means that block validators are chosen among the holders of ADA token.

You can become a block validator by simply holding enough ADA. This is roughly the idea of competing solutions as well. The entity chosen to produce blocks is called the slot leader in the Cardano system. Block producers are changed after each epoch and they are chosen randomly each time.

This is different from Delegated Proof of Stake systems, which are very popular among Cardano’s competitors. In DPoS, the block producers are voted.

Cardano review – Interoperability, scalability and sustainability

There are three clear themes which Cardano project wants to bring underline: interoperability, scalability and sustainability. In practice, these are referring to the Cardano’s connection to other ledgers, blockchain throughput and sustainable growth and development.

Cardano doesn’t only want to solve the current issues of Proof of Work (electricity cost), but it also wants to provide unrivalled scalability and throughput. On paper, Cardano can reach even hundreds of thousands of transactions per second.

Cardano blockchain is aiming to solve these problems using RINA (Recursive Inter-Network Architecture) technology. This means in practice, that network nodes don’t need to maintain the information of all transactions ever made in the blockchain. Which is the case now with Bitcoin.

There are also various pruning and subscription methods, which help to increase the capacity further by decreasing the amount of data needed to send. Otherwise, it’d be impossible to handle tens of thousands of transactions per second – the amount of data needed would exceed the capacity of physical network devices.

See the video below, where Charles Hoskinson is talking about scalability and Cardano.

There are also other problems, which the Cardano project is trying to solve. One trendy theme is interoperability, which means connectivity between different blockchains.

Even if Bitcoin would be a distributed and decentralized, you still need a centralized third-party service when you want to buy Bitcoins with USD, EUR or GBP. What if you want to exchange your Bitcoins to some altcoins? You need Binance or some other cryptocurrency exchange.

Cardano’s big plan is to create an internet of blockchains, where it would act as a judge and maintain order and integrity between blockchains. In practice, this means cross-chain transactions. Cardano is not the only project trying to solve this issue, though.

Then we have sustainability, where Cardano is offering a different solution.

The problem is now, that projects collect a bunch of money through an ICO, which gives them limited time and resources for development. Many projects have run out of resources during the long bear market of 2018-2019 and need more funding.

Cardano is planning something similar, which Dash has already developed. The idea is to build a treasury system for Cardano, which will have funds for future development. New features can be proposed by community members and voted.

The idea is for IOHK to step out gradually and leave Cardano foundation in charge of the long-term development.

Cardano’s roadmap

It is very important to understand that Cardano is very much a work still in progress. This is the status in September 2019. Even if there is progress in the roadmap, it’ll take several years before all features are fully implemented.

Charles Hoskinson has chosen a very academic approach when it comes to the development process. He wants to build slowly but surely something that is studied carefully. The programming language used in Cardano, Haskell, is a good example of this.

”Cardano is the first blockchain project to be built on peer-reviewed academic research. This level of scrutiny of the underlying technology is an industry first. Further to this, Cardano is unique in that it’s written in the Haskell coding language.

Haskell is considered to be one of the most secure programming languages, minimizing the number of errors and adding extremely robust security to the platform. This includes use of a technique called formal verification, which allows mathematical proof of the correctness of code.” (Source)

Cardano’s ADA token was a popular coin in the altcoin boom of 2017/2018. The small coin price combined with social media shilling brought in many investors, who had no idea where the project development really was. Cardano wasn’t much more than ideas on paper in 2017.

There are five major steps in the Cardano blockchain, which include dozens of smaller phases. These big steps are called Byron, Shelley, Goguen, Basho and Voltaire. We are currently waiting for the Shelly step to be finalized.

The video below will give you a great overview of the Cardano roadmap.

Shelley should be done by the end of 2019. The three following stages are planned to be finalized in 2020-2021.

The most important feature of Shelley is the Proof of Stake consensus, which was mentioned already earlier in this article. This will also introduce the staking of ADA token. ADA holders can stake their tokens to a special staking pool and earn rewards in return.

The Cardano blockchain is currently run by mostly its own team members. The Shelley upgrade is the first major step towards a truly decentralized blockchain. It means Cardano members and followers will take a much bigger role.

See the previous video for more details. It’s important to understand that Cardano is still years away from the final version, which will have all the fancy features.

Cardano ADA as an investment

Cardano has probably been both shilled and hated a lot since late 2017. The project has been titled as a billion-dollar white paper and many newbie investors got burnt badly with ADA token. The price is still over 95% down from the ATH in September 2019 – over 20 months after the major crash.

The biggest problem is probably the lack of knowledge. Many investors had no idea of the current state of the project. Cardano was being shilled as the Ethereum killer already in 2017 when it was almost five years away from its final stages.

See the video below by Crypto Lark. It goes through how the future looks for Cardano.

Cardano is so much behind its competing platforms, such as EOS, Tron and NEO. They have all had MainNets running for over a year already and new dApps are being developed every day. One shouldn’t really compare Cardano to these platforms just yet.

One should remember, that Ethereum is also building the new Ethereum 2.0 platform, which will see the ecosystem move to Proof of Stake consensus. Ethereum will eventually have the same scalability as its 3rd generation competitors.

We have to wait a few more years until we can see the Cardano platform fully to materialize. One should also remember, that IOHK is not going to develop Cardano the same way forever. What is really going to happen after 2020, when the current contract ends?

If you are interested in Cardano, follow closely what happens with the Shelley stage. Remember, that the project is still far away from its final stages.

ADA’s real-time price:

If you want to buy ADA tokens, you get the best price from Binance. There ADA/BTC pair has the most liquidity, which means you’d buy Bitcoin first with fiat money (USD, EUR, GBP…) and then move it to Binance and buy ADA.

You can buy Bitcoins with fiat easily from Coinbase or Binance Jersey.

Once you have bought ADA tokens, it’s recommended to move them from Binance to your personal storage. The best wallet is called Daedalous, and it’s developed by IOHK as well.

Follow Cardano Foundation on Twitter at @CardanoStiftung. You’d also follow Charles Hoskinson, whose Twitter handle is @IOHK_Charles. The official Reddit page is reddit.com/r/Cardano. There are also 100+ videos in the official Cardano Youtube channel. The official websites are whycardano.com and cardanohub.org.

If you are searching Youtube, try Charles Hoskinson instead of Cardano. For example Charles Hoskinson interview. Hoskinson has been in hundreds of interviews over the years. These are often the best resources.

Image: screenshot from cardanohub.org.

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