A Deep Dive Into Cardano [Updated]

The 2010s, the first full decade of the cryptocurrency, has largely been dominated by Bitcoin and Ethereum. Bitcoin has pioneered the crypto space from the outset as the original blockchain-based asset, while Ethereum redefined the parameters of what is possible by introducing smart contracts and hosting thousands of new ERC20 protocols that continue to move the industry forward to this day.

Due to Ethereum’s dominance and market share, most developers choose to work on its network, aiming to improve upon previous projects or build out exciting new fields such as DeFi on top of Ethereum’s robust infrastructure. However, there are ambitious alternatives available, such as Cardano (ADA).

Cardano (ADA) can be considered a global blockchain initiative, given that it is the first blockchain that is peer-reviewed and academically-developed by a group of experts on the field.

The Cardano team is made up of engineers, academics and an Ethereum co-founder. The eclectic group chose to do something different in 2015 and build a native blockchain from scratch.

Together, they are laser-focused on ensuring that Cardano fulfills the purpose that it was created for: to run a digital platform free from financial middlemen; one that is more inclusive and sustainable than other blockchain platforms.

Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?

What Is Cardano?

Cardano is an open-source and decentralized blockchain project created to facilitate peer-to-peer transactions. It has a layered architecture that facilitates smart contracts, enabling a platform that is both adaptive and scalable without having to compromise security.

Cardano began in 2015 by project leader Charles Hoskinson, co-founder of Ethereum and BitShares, who left Ethereum after an argument about keeping the project non-profit. In 2017, the ADA cryptocurrency was officially launched as the ICO boom neared its peak.

Who Is Cardano (ADA) Named After?

The platform has been named after Italian polymath and mathematician Gerolamo Cardano. Fascinatingly, its native asset ADA is fittingly named after the influential British mathematician Ada King, Countess of Lovelace and the only child of famous poet Lord Byron.

Ada Lovelace was a brilliant mathematician, writer and is now recognized as one of the first computer programmers ever. Lovelace recognized the mathematical potential of computers early on and published the first algorithm in 1843 that such a machine could carry out. It is said that without Lovelace’s work, computers as we know it today wouldn’t exist.

As a further homage, the smallest unit of 1 ADA (0.000001 ADA) is also called a “Lovelace,” much like Bitcoin’s smallest sub-unit is referred to as 1 Satoshi (0.00000001 BTC) to honor its founder, Satoshi Nakamoto.

Which Organizations Are Behind Cardano?

There are several other organizations that are working together to develop the platform, however three stand out. They are the Cardano Foundation, Input-Output Hong Kong (IOHK) and Emurgo.

What Is the Cardano Foundation?

The Cardano Foundation is a blockchain and cryptocurrency organisation based in Zug, Switzerland, with a core mission to "standardize, protect and promote" the Cardano Protocol technology. More information could be found here.

What Is IOHK?

IOHK is an organization founded by Hoskinson and Jeremy Wood, which is focused on building technological solutions that aim to promote better financial inclusion.

What Is Emurgo?

Emurgo is a worldwide initiative designed to support developers, startups and enterprises in developing blockchain solutions. It is considered the sister company of IOHK.

How Cardano, a “Third-Generation Blockchain,” Came to Be

Hoskinson categorizes Cardano as a third-generation blockchain, with Bitcoin and Ethereum considered the first and second-generation chains. According to reports like this from Forbes, it was Hoskinson’s disagreement with how Ethereum was supposed to be built that led him to create a separate movement from the team.

This is also the reason why they did not build on the already existing chains in developing Cardano; instead, they went on to create a completely independent network from scratch.

Cardano stands out from other blockchain projects as it follows a data-driven and very academic approach. Since the papers outlining the model and plans of the network are publicly available, expert engineers and developers can weigh in on its road ahead (interestingly, no whitepaper was published for Cardano). Furthermore, the platform is based on the Ouroboros blockchain – the first proof-of-stake (PoS) blockchain that has undergone a peer review.

Cardano’s Smart Contracts

Cardano has been designed to use smart contract technology to its full potential. Its smart contract support will enable the platform to establish self-executing agreements that do not require professional oversight. With smart contracts, anyone on the platform can conveniently input any particular condition that has to be met, which will be automatically executed without the need for a user’s constant involvement.

The deployment of smart contracts on the Cardano network will enable the support of decentralized applications (DApps). Ultimately, the end goal of the Cardano philosophy is to make the services once offered exclusively in the traditional financial space more accessible and inclusive through innovative blockchain solutions.

Cardano’s Architecture: CSL and CCL

Cardano’s layered blockchain architecture is composed of two main elements, the Cardano Settlement Layer (CSL) and the Cardano Computational Layer (CCL), which makes Cardano truly unique. Most other existing blockchain platforms only function with a single layer, which often causes network congestion, slows transactions and drives fees higher.

The CSL powers Cardano’s unit of account. Simply put, this is where peer-to-peer transactions are facilitated, such as the transfer of tokens between users.

The CCL is the lifeblood of the Cardano network. It maintains the chain’s security, acts as ground zero to deploy smart contracts and also serves as a framework that is designed to meet the goals of the network to ensure regulatory compliance with various jurisdictions.

In addition, CCL will enable a flexible data storage and access model that abides by the laws governing crypto that are implemented on the locality of any user.

What Is Cardano’s Transaction Speed (TPS)?

When the Cardano chain was first tested in 2017, it was able to process as much as 257 transactions per second (TPS).

For a better comparison, Bitcoin can only process 4.6 TPS, with Ethereum 1.0 at a slightly higher 15-20 TPS. Clearly, ADA can process a higher transaction volume than the first and second-generation chains combined.

How Does Block Production Work on Cardano?

In Cardano, there is a network of block producers tasked to add new records of transactions to the chain. Its security is ensured by the consensus protocol run by validator nodes that decide which candidate block shall be used to continue the chain.

The Ouroboros Praos protocol is a proof-of-stake (PoS) model that guides the consensus mechanism of Cardano. It enacts a cycle for block creation through epochs that consist of 432,000 slots, each lasting for approximately five days. To manage the whole process, block producing nodes are tasked to nominate 21,600 slot leaders per epoch.

The slot leaders are chosen from staking pools based on the volume of their stake and a random seed. The seed uses a multi-party computation (MPC) system to determine which stakeholder can be nominated to generate the next blocks.

Decentralized Applications (DApps)

DApps are also a feature enabled by smart contracts. DApps function like computer programs and are designed to run specific purposes for users. A DApp is also used by network participants to interact with a blockchain through an abstracted user interface.

Following the launch of the Shelley mainnet, users are expecting the release of more DApps on the Cardano platform. The next set of DApps will implement Haskell-based languages like Plutus, Cardano’s smart contract platform, and Marlowe, its DeFi platform, which would make it a lot easier for developers to write and deploy dapps on Cardano.

ADA Token

ADA is Cardano’s native token. It is a digital asset that the participants of the platform use to make peer-to-peer transfers, as well as participate in the network’s staking functionality. All holders of ADA that also stake their tokens can be considered validators since they also function as a node, especially when they use Cardano’s own, ADA-designed wallets.

Cardano Roadmap

Cardano has outlined its plans for the development of the platform. There are five eras that will consist of each phase of Cardano’s blockchain development, namely: Byron, Shelley, Goguen, Basho and Voltaire. Each phase will focus on a specific functionality related to the goal of the platform.

Cardano (ADA) Roadmap

Byron (Foundation Era)

The Byron era of Cardano (named after Lord Byron, Ada Lovelace’s father) began in September 2017 with the launch of Cardano’s first version.

The Byron stage of Cardano enabled the buying and selling of ADA on a federated network powered by the Ouroboros consensus protocol, the first PoS protocol built on extensive academic research.

The Byron era focused on putting a strong foundation in place for Cardano and building a loyal community of blockchain supporters. It saw the launch of IOHK’s Daedalus desktop wallet and Emurgo’s Yoroi wallet, a lightweight alternative for faster transacting and daily use, as well as the listing of ADA on all major crypto exchanges. It came to an end in 2020 with the launch of the Shelley era. More information about Byron Era could be found here.

Shelley (Decentralization Era)

Shelley is an integral part of Cardano’s transition to better decentralization. The Shelley mainnet was officially launched on July 29, 2020, heralding in the proof-of-stake era for Cardano and offering staking rewards to participants. The Shelley era will make way for better network participation among the community, which can be done by transferring more nodes under their own control.

Shelley derives its name from Mary Shelley, author of the horror book Frankenstein, which represents a clever nod towards the network’s goal of becoming fully autonomous, much like the fabled horror creature.

With more users running the nodes of the network, Cardano hopes to achieve greater security and performance than its earlier Byron-derived approach. And if Shelley is successful, the Cardano team believes it can achieve the level decentralization it is striving for.

The backbone of the Shelley upgrade is the participation of ADA holders, who are also the validators powering the PoS system of the network. Like other PoS chains, Shelley enables ADA holders to also delegate their stake to other validators as a form of network participation.

Shelley also enables a system where ADA holders can create staking pools that can entitle them to network incentives distributed to stakers who take part in securing the network. Cardano’s team is hoping to be 50 to 100 times more decentralized than other networks through an incentive scheme that can support around 1,000 stake pools. More information about Shelley Era could be found here.

Goguen (Smart Contracts Era)

The Goguen mainnet (named after U.S. computer scientist and academic Joseph Goguen) is expected to be launched around March 2021. The Goguen era will usher in a bigger technical capability for developers to create DApps that can provide more functionality to the chain, including the implementation of its multi-asset blockchain plan.

Another feature that will be made available through the Goguen implementation is wider interoperability with other existing smart contracts, regardless of the difference in coding language used to develop them.

Its use of the Marlowe language (its DeFi platform), built on top of Plutus (its smart contract platform), will ensure that even those who do not have a lot of technical expertise can freely craft their own smart contracts.

In preparation for the launch of the Goguen mainnet, Cardano has already enabled token locking. This is to ensure the sustainability needed for the network to implement the next phase, the Voltaire era, where network participants will be given the ability to vote on protocol upgrades and modifications.

Unfortunately, Cardano is still drawing criticism from some members of the community for its gradual upgrade. Many, however, believe that a gradual process is important for Cardano since it allows time for platform testing and review, making it reliable enough for a massive roll-out. More information about Goguen Era could be found here.

Basho (Scaling Era)

Cardano’s Basho era, the launch date of which is yet to be confirmed, will optimize the network, helping it to scale and become more interoperable.

Basho, named after famous Japanese poet and haiku master Matsuo Bashõ (1644–1694), will bring two core developments to effect sustainable scalability:

Firstly, it will introduce sidechains that will be used as a sharding mechanism to scale the network capacity further without affecting its security.
Secondly, it will launch accounting styles that run parallel to Cardano’s UTXO model, thereby fostering greater interoperability.

More information about Basho Era could be found here.

Voltaire (Governance Era)

Cardano’s Voltaire era, named after the famous 17th century French poet, writer and philosopher, will deliver the final touches to the network to help it mature into a fully self-sustainable and decentralized platform.

Voltaire will see a voting and treasury system introduced, and participants can utilize their stakes and voting rights to steer Cardano’s future development. With these self-governance pieces in place, Cardano’s journey to full decentralization will be complete and its management will be transferred from IOHK to its community. More information on the Voltaire Era could be found on here.

How to Stake Cardano

Staking can be an excellent way to earn passive income. The simplest way to stake Cardano is through a cryptocurrency exchange platform like Binance, Coinbase, Kraken and other major exchanges. You’ll need to open an account and purchase or transfer ADA tokens into the wallet of your exchange platform. Then, find the staking function of the exchange and select the staking duration. Finally, enter your desired amount of tokens, and voila, you have now staked Cardano!

You can also stake Cardano through a brokerage like eToro; all you need to do is purchase ADA tokens and hold onto them. However, keep in mind that staking with brokerages can be risky because if a brokerage suddenly shuts down, you have no access to your coins.

One of the most secure ways to stake Cardano is via a staking pool from a Web 3.0 wallet like Daedalus and Yoroi, which is described in greater detail below.

How to Stake ADA

Unlike other cryptocurrencies, ADA cannot be mined, since it does not implement a proof-of-work (PoW) consensus model. Since it has no miners, it depends on the network nodes through Cardano wallets and staking pools to achieve network consensus.

As already mentioned, Cardano’s PoS network functions through validators who ensure its integrity. These are the nodes that are tasked with keeping an updated copy of the state of the blockchain, which will then be used to verify transactions later on.

ADA holders can delegate their stake using Daedalus or Yoroi wallets. Staking Cardano can be as simple as delegating your ADA tokens in your wallet to a preferred pool and letting an operator maintain their stake on their behalf. Stakers will then be entitled to a reward proportional to their stake, allowing them to earn passive rewards for validating blocks.

There are two Cardano addresses that users have to keep in mind whenever storing ADA. One is used for transactions, and the other is for staking. What makes it different from most staking pools on decentralized finance (DeFi) is that the assets you hold in pools can be easily removed from staking wallets at any given time.

A step-by-step guide on how to stake ADA can be found here.

Where to Stake ADA

There are staking pools that compose Cardano’s validator network, and they are open for users to join.

ADA holders can join existing staking pools by delegating their tokens through the Daedalus or Yoroi wallet. In such cases, there is no need for the staker to maintain a constant internet connection. The only issue that the ADA staker has to consider is the fees charged by pools.

Those interested can also choose to run their own staking pool for ADA. However, establishing your own pool can be a much more complex process.

To operate an independent staking pool, a staker must make sure that their node is always online, which means that their hardware must stay on and connected to the internet at all times. Beyond that, you must also have the knowledge needed to run and maintain Cardano nodes.

Unlike other PoW-based networks, there is no need for a powerful mining rig when staking, but you do need a reliable internet connection. And even without holding ADA, anyone can operate individual staking pools by helping provide their technical expertise to other network participants who are staking as well.

Staking on Daedalus Wallet

Staking on the Daedalus wallet is straightforward and does not require much time. First, in Daedalus, navigate to the Delegation center. Select the stake pools tab, choose the stake pool you want to delegate to, and click on “Delegate to this pool”. Select the wallet that holds the funds you want to delegate. Then, confirm your stake pool selection. Finally, use your spending password or connect your hardware wallet to confirm the transaction.

More detailed instructions can be found here.

Staking on Yoroi Wallet

Staking on Yoroi is slightly more complicated if you still have ADA coins in the Byron wallet. In the Byron and Shelley eras, different formats of wallet addresses were used. ADA holders have to convert to Shelley wallets before they can stake.

Converting to Shelley wallet requires users to reinstall their chrome extension of Yoroi. After reinstalling and creating a new Shelley wallet, users can transfer their ADA funds from their old Byron to the new Shelley wallet.

From there, users can easily go to Delegation and insert a stake pool ID. After confirming the transaction, just provide the spending password to pay the fee and click Delegate. Stake pool IDs can be found here. A more detailed guide with illustrations can be found here.

Ada Staking Rewards and What Stake Pools to Choose

According to poolstats, as of August 2021, ADA staking rewards can go as high as 36% (based on a 30-day average). However, with over 2000 staking pools to choose from, holders of ADA may ask: how do you choose a stake pool?

From a protocol standpoint, performance indicators can be used to determine which stake pools to choose from. Examples are saturation, rank, live stake, pool margin, pledge, cost per epoch and produced blocks. These are key performance indicators that are identified by IOHK. However, community created sites also track other useful metrics to help ADA stakers, such as adapools.

From an off-protocol view, ADA holders might consider factors relating to the stake pools, such as whether it is operated by someone you trust or an NGO, or if it runs on green energy. Other factors to consider include if it donates to a charitable cause, its geographic location, stakeholder structure, transparency and user interface.

IOHK provides a more detailed description here.

Cardano Review

Cardano vs Bitcoin

Bitcoin is the biggest cryptocurrency in terms of market capitalization. It was launched in 2009 and has remained on top of every other altcoin ever since. And while it has been touted as the ultimate store of value and hard currency, it lacks customer support.

Cardano, on the other hand, is already on its way to include smart contracts via a new platform called Plutus, to be deployed in the forthcoming Goguen update. And while Bitcoin devs also have a plan of their own, it appears far from actual implementation considering its targeted smart contract language, named “Sapio,” is still under development. Furthermore, Bitcoin also has perceived limitations in running smart contract applications, unlike Cardano.

Cardano is stronger in terms of transaction throughput. Bitcoin’s scalability problem is seen from its capacity to only settle 4.6 TPS. This pales in comparison with Cardano, which can handle 257 TPS; therefore, Cardano is much faster than Bitcoin at its current state in facilitating peer-to-peer transactions.

Cardano vs Ethereum

The first point of comparison between Cardano and Ethereum is on their consensus algorithm. The Shelley-era for Cardano and the newly-launched Ethereum 2.0 will implement fully PoS-based consensus models. It can be difficult to compare both their performance on this end, since neither of them are completely operational.

However, on the current setup between Cardano and Etherum, Cardano appears much stronger than its competitor, Ethereum, in terms of TPS. When it comes to transaction costs, Ethereum also lags behind due to its problems with expensive gas fees.

In addition, smart contracts on Ethereum are less tolerant of errors as compared to what Cardano will support with the release of the CCL. According to the team behind Cardano, there will also be segments of coding that will be accessible to anyone to ease the use of smart contracts on the platform.

Cardano vs EOS

EOS is one of the relatively younger blockchain projects in the space. It is designed to support the deployment of smart contracts.

EOS touts itself as the fastest and most scalable smart contract blockchain network in the space, implementing a delegated proof-of-stake (DPoS) consensus mechanism. This enables the platform to pursue a decentralized system where the task of verifying transactions to be stored in blocks is also community-centric.

Compared to Cardano, EOS promises a stronger transaction throughput with the ability to settle 6,000 TPS. It also has no transaction fees. Instead, EOS inflates the value of EOS tokens by 1% each year.

Cardano’s strength against EOS lies in the difficulty of developing DApps on EOS. The health of EOS’ network depends on the dapps built on the platform. But as of yet, there aren’t enough dapps deployed on EOS that can support greater adoption.

Furthermore, unlike Cardano, there are only 21 block producers tasked to keep the EOS network secure, making it a semi-centralized network.

What Is the Best Cardano Wallet?

There are many wallets that can be used to store ADA, such as Daedalus, Yoroi, Ledger and Trezor. There are also hot wallets offered by cryptocurrency exchanges where ADA can be held under the custody of these platforms.

The downside for hot wallets operated by exchanges is that they can be susceptible to hacks. This is why it is advised to keep your ADA in your own wallet. ADA-dedicated wallets like Daedalus and Yoroi feature some extra benefits to holders as well.

Daedalus Wallet

Daedalus Wallet is one of Cardano’s own wallets specifically designed to store ADA. It is a desktop-based, full-node hierarchical deterministic (HD) wallet for the network’s native token.

But more than being just a store of tokens, this wallet functions as a full Cardano node. It allows users to view every transaction they have made, including making specific inquiries on information concerning the state of the Cardano chain.

This also helps secure the network by keeping a copy of the whole state of the blockchain, as well as validating blocks and transactions before they are finalized and added to the chain.

To use the Daedalus wallet, users just have to download the wallet for Windows, Mac or Linux. It can occupy as much as 6 GB of space since it has to store the copy of the blockchain to the wallet. More information could be found here.

Yoroi Wallet

Yoroi Wallet is a light, HD, browser-based wallet designed to store ADA. Unlike the Daedalus wallet, it is only connected to a full Cardano node linked to the Emurgo ecosystem. Since it does not need to have a copy of the full blockchain state and runs as an extension on Firefox or Chrome, it can be easily installed and set-up without requiring much system resources from the user.

More information could be found here.

Where to Buy ADA

ADA is already available on several cryptocurrency exchanges such as Coinbase, Binance, Kraken, Gemini and CEX.io, among others. It currently has some fiat pairs, and can also be purchased with Bitcoin (BTC), Ethereum (ETH) or stablecoins.

In addition, those who already have ADA can apply for a debit card from Cardano that can be used just like a regular card. But while it stores ADA, it automatically converts the token to fiat so it can be used for regular transactions. Since it is linked to the application the user utilizes to interact with the Cardano network, the user can monitor their transaction and balance online as well.

How to Buy Cardano

In purchasing ADA, there are two initial steps that need to be done. One is to create a Daedalus or Yoroi wallet, and second, open an account in the crypto exchange of your choosing. Once you already have both, the next step is to purchase either BTC or ETH, then transfer it back to your ADA Wallet.

Step 1 - Set Up Your ADA Wallet

You can choose either the Daedalus or Yoroi wallet to store ADA. Both are downloadable online, you just need to find which version fits your computer.

After the necessary steps to set-up the wallet application, you will need to wait until the wallet is synchronized to the Cardano network. Once you have opened a wallet, find your wallet address from the “receive” button on the interface.

Step 2 - Get BTC, ETH, or Stablecoins

You cannot buy ADA with fiat currency, which is why you will need to get BTC, ETH or stablecoins like USDT, BUSD, USDC, etc. After you have chosen an exchange that offers the best prices for BTC or ETH, you can then open an account there and purchase how much you need.

Step 3 - Exchange BTC/ETH/stablecoin for ADA

As soon as you have purchased BTC/ETH/stablecoin, you can then use the same exchange to purchase ADA.

Perhaps one of the most important pieces of advice on the process of accumulating ADA is to make sure that you keep it in your own wallet. This is not compulsory, but is highly recommended.

As soon as you’ve bought enough ADA, you can transfer them back to your wallet.

Make sure, however, that throughout your process of transferring, you have the wallet addresses right. Transactions that are broadcast to the chain cannot be reversed due to the nature of these systems. Always double check before you hit “send” every time you make a blockchain transaction.

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators. This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap.