What is Cardano? (ADA)
A Beginner’s Guide to Cardano
Who created Cardano?
Cardano was created in 2017 by technologists Charles Hoskinson and Jeremy Wood.
The most high-profile of the two co-founders, Hoskinson, is a co-founder of Ethereum (ETH) and briefly served as CEO for a planned for-profit entity for the project.
Today, Cardano is maintained by three separate and independent organizations.
- The Cardano Foundation – Based in Switzerland, this non-profit is responsible for supervising and overseeing the development of the Cardano blockchain.
- IOHK – Co-founded by Hoskinson and Wood, IOHK built Cardano and designed Ouroboros, the proof-of-stake algorithm Cardano uses to operate its network.
- Emurgo – The company charged with helping encourage enterprises and larger organizations to adopt Cardano’s technology.
At the time of its launch, approximately 31 billion ADA were created, nearly 26 billion of which were sold to investors by a Japan-based company hired to manage the sale. Participants were able to purchase vouchers that could later be exchanged for ADA on the software’s release.
The remaining 5 billion ADA were distributed to IOHK, Emurgo and the Cardano foundation.
How does Cardano work?
Cardano’s primary use case is to allow transactions in its native cryptocurrency, ADA, and to enable developers to build secure and scalable applications powered by it.
The Cardano Blockchain
The Cardano blockchain itself is divided into two layers:
- The Cardano Settlement Layer (CSL) – The CSL is used to transfer ADA between accounts and to record transactions.
- The Cardano Computation Layer (CCL) – The CCL contains the smart contract logic that developers can leverage to programmatically move funds.
Further, computers running the Cardano software can join as one of three nodes.
- mCore nodes – Stake ADA tokens and participate in blockchain governance
- Relay nodes – Send data between mCore nodes and the public internet
- Edge nodes – Create cryptocurrency transactions.
Since 2017, Cardano has seen 5 major platform upgrades, including Byron, which enabled the transfer for ADA cryptocurrency for the first time and Voltaire, which introduced a new model for how users could fund development for software changes.
What is Ouroboros?
Orobouros is the proof-of-stake (PoS) consensus algorithm used by computers running the Cardano software to secure the network, validate transactions and earn newly minted ADA.
Ouroboros divides time into epochs and slots, where epochs are the overarching time frames, and slots are 20-second increments within epochs.
Within each slot, a slot leader is randomly chosen and is responsible for choosing the blocks that get added to the blockchain. Only mCore nodes can be elected to become slot leaders.
Ouroboros enables two types of blocks that get added to the blockchain:
- Genesis blocks: Include the list of all the slot leaders associated with the epoch and contain a series of main blocks
- Main blocks: Contain all transaction information, proposals for software updates and the list of votes for these updates.
Once the epoch has ended, the previous slot leaders elect the slot leaders of the next epoch.
The votes happen via a mechanism where each slot leader performs a “coin tossing act,” which the Cardano team says increases the randomness by which new slot leaders are picked.
Why does ADA have value?
Cardano users need to buy ADA to facilitate transactions and participate in governance.
Ownership of the token determines who gets to be a slot leader and add new blocks, and who earns a share of fees paid for transactions in blocks.
ADA tokens are also used for voting on software policies, such as its inflation rate, giving participants an incentive to hold ADA and ensure its future value.
With the Shelley platform upgrade release, Cardano enabled delegated staking. This allows ADA owners to allocate votes to other users and earn ADA rewards on its live blockchain.
The maximum supply of ADA is further capped at 45 billion tokens. As of early 2020, 31 billion ADA are in circulation, with the remaining 14 billion scheduled to be issued through minting.
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Why use Cardano?
Users may find the Cardano project appealing based on its scientific philosophy and strong commitment to peer-reviewed academic research.
The Cardano blockchain might also be interesting to developers looking to launch decentralized applications. To date, there are a variety of projects that have been built on the platform.
Some examples include an enterprise traceability solution and a workplace incentive platform.
Investors may also seek to add ADA to their portfolio should they believe the market will one day favor staking protocols and blockchains built to enable decentralized applications.