Cardano has been considered one of the world’s leading blockchain networks thanks to its unique position as a protocol and ecosystem built through scientific methods that are peer-reviewed by industry experts.
Since the release of the iconic ‘Cardano whiteboard‘ presentation in 2017, the organization and community behind the project have been hard at work in developing a blockchain infrastructure built with the so-called “high-assurance code”. A high-assurance system applies the same principles used in creating jet engines and bullet trains, where system failure leads to human death.
Using these methodologies is significant as catastrophes and exploits have been rampant in the web3 space for a long time, from the DAO hack in Ethereum, Solana’s outage problems, and the fall of Terra Luna. One would think that if millions of dollars are involved, projects would be inclined to prioritize security in order to avoid death spirals, yet they still happen every now and again.
This allowed Cardano to carve its niche as a crypto ecosystem that takes the “tortoise approach” to development, ensuring that its launches don’t lead to catastrophic failures. With that being said, they haven’t always been smooth either. Nevertheless, the community, by and large, appears to have a strong conviction for the success of Cardano (which, in and of itself, is a major advantage).
What is Cardano?
Cardano is a proof-of-stake (PoS) blockchain platform and ecosystem that aims to bank the unbanked across the world by enabling decentralized applications to manage identity, value, and governance.
The Cardano network is fueled by the ADA cryptocurrency, while the protocol is founded on the principles of peer-reviewed research and developed through rigorous and nearly foolproof methods.
But the best mission statement so far has been stated by the founder himself, Charles Hoskinson.
The co-founder himself hammered this bold goal and has achieved tremendous feats in the last 4-5 years, many of which happened when ADA was trading at merely $0.1 But whether or not Cardano can indeed be a platform used by billions of people across the world remains to be seen. Nevertheless, it remains one of the top layer-1 blockchains in the space.
How Cardano Works
The Cardano Network is an operational blockchain project that has already undergone two phases of development: The foundational and decentralization stages.
It is currently in its third development phase, focusing on smart contract capabilities, and will soon transition into the ‘scaling’ and ‘governance’ stages in the future. All in all, it will go through five stages of evolution before it becomes the ultimate decentralized network as described in its whitepaper.
Cardano’s ADA token, meanwhile, serves as the central piece of the network’s economy and offers key utilities for users. Every time participants interact with ADA, each interaction helps move Cardano’s economic gears, which sustains the entire ecosystem.
The network, as well as the growing list of projects building on it, has created plenty of ways to increase users’ interaction with ADA. Starting on the platform, Cardano designed it to be traded, used for payment transactions, and equip holders with governance rights.
For web3 projects in the platform, P2E games are using the token as a reward for players and are starting to integrate staking functionalities to encourage gamers to use ADA apart from gaming.
As more interesting projects build on the Cardano network, the utilities for ADA will continue to increase, driving its value in the process and keeping Cardano’s economic strength for the long term.
What is ADA?
ADA serves as a digital currency and a medium to conduct transactions within the Cardano ecosystem. It can also be used to participate in the platform’s on-chain governance system, vote for Cardano’s future, and decide its treasury expenses.
Holders of ADA tokens automatically gain a stake in the network as the protocol allows them to delegate their assets in a stake pool to accumulate interest rewards.
Just to remind you, staking isn’t all about making money. By staking your asset, you are also helping a blockchain network (in this case, Cardano) become a more secure platform for its users.
By the way, ‘ADA’ isn’t just an abbreviation or a sliced-up name of its mother platform, but a name of a historical figure named Ada Lovelace, a 19th-century Math wiz considered to be the first-ever computer programmer.
If you’re interested in buying or selling ADA, you may check out this link for all the decentralized exchanges (DEXs) that support the token.
ADA holders can stake their tokens in two ways:
- Run their own stake pool (recommended for veteran crypto users).
- Delegate assets to a trusted stake pool operator.
Staking is a critical part of the Cardano protocol because it is the primary way of making blocks in the platform, which keeps it secure.
The network’s ‘Ouroboros Protocol,’ which we will discuss later, decides which pool should make Cardano’s next block and receive its rewards. And this selection heavily depends on the delegated stakes on the pools.
The competition for this selection is stiff, but participants can increase their chances by delegating more tokens to their stake pools. It won’t guarantee a win, but it will put more skin in the game, so to speak.
Once a stake pool is selected, it will have the right to produce the network’s next block, and everyone who contributed to this pool will share Cardano’s rewards. The percentage they get, of course, will depend on their contribution amount.
You can easily stake ADA through any type of Cardano-based wallet. For a step-by-step guide, click on any of the links below based on the wallet you use:
Cardano has created a roadmap called eras, which are basically phases of the platform’s development. One of these eras is called ‘Voltaire,’ a phase that deals mainly with enhancing the network’s ability to offer governance power to its users.
Each phase deals with different areas of the platform, and we’ll have a closer look at these eras later in the article.
Going back to Voltaire, its main task is to ensure that the community can finally have the power to wield their voting rights and decide on critical decisions on the ecosystem’s future. Moreover, it will soon allow participants to submit proposals that they think can improve the overall performance of the network and the welfare of its users.
Voltaire serves as the last phase of Cardano’s five-phase roadmap, and once this stage kicks off, the network will finally be a full-fledged decentralized network. Note: The platform is still in its third stage of development and hasn’t arrived at this phase yet.
Furthermore, Input Output Hong Kong (IOHK), the company that develops and manages the project, will eventually give the controlling reigns to the Cardano community once the protocol achieves 100% decentralization.
Advantages of Using Cardano
- Highly Decentralized at the Protocol Level
- Environmentally Friendly
- Highly Detailed and Transparent Roadmap
- Over 1000+ Projects Building on It
Drawbacks of Cardano
- Slower Pace of Development
- Dapp Ecosystem Still Premature
- Hasn’t Scaled Yet (Congestion Issues)
The Cardano Ecosystem
The value of a blockchain network like Cardano will ultimately be dependent on the applications built on top of it and the users who adopt those applications. Therefore, it’s important to take a closer look at its independent projects in all its subsectors, from DeFi to NFTs.
The Cardano ecosystem is teeming with talented developers and creatives, as well as die-hard users. One could argue that it doubles as a blockchain community and a cult due to the level of support the users bring to the ecosystem. This has some positive and negative sides.
If you use Crypto Twitter a lot, you might spot Cardano users arguing with other blockchain users every now and again over something. Whenever someone FUDs Cardano, the community usually rallies behind it to give their counterarguments. Love it or hate it, Cardano users have some of the highest ‘conviction’ among L1 blockchain communities.
However, to set expectations straight, Cardano’s ecosystem is still relatively new (smart contracts were only enabled in September 2021).
Cardano NFTs (CNFTs)
Let’s start out with the Cardano NFT space. It all began when SpaceBudz released the first NFT collection on the network last March 2021.
Spacebudz is a collection of 10,000 pfp NFTs showcasing various animals like dogs, cats, wolves, bulls, etc. as cute astronauts with unique traits. The founders created the collection to test the rising blockchain capabilities of the network, a ‘bet’ that has finally paid off. Several months after launch, the same team also released the first 100% smart-contract-based marketplace on Cardano, cementing its role as the ‘OG’ collection.
Cardano’s next promising collection is Metadams, a collection of NFT land parcels allowing holders to participate in its play-to-stake game. Like almost any digital land project, it gives you the full capabilities to develop and customize your plots the way you want them to be. Moreover, the more land you own, the more digital resources and ADA you can generate.
Its first batch of land has already achieved a “sold-out” status, but you may check out its map to see if there are any available parcels on sale.
Unlike other glorified utilities seen in other projects, ClayNation one provides a promising benefit with its staking feature, which basically offers holders an ROI opportunity without having to sell or flip their assets.
Apart from these promising collections, you may also want to peek at another promising NFT project called Bumping Uglies. Aside from having 10,000 characters, it also comes with play-to-earn (P2E) games, which are accessible by buying one of these ugly yet adorable monsters.
Collectors can do plenty of things to their Ugly characters, such as glamming, breeding, and growing, that can further increase their value. Holders can also earn in multiple ways from their NFTs, including winning in P2E competitions and applying as a Nanny for other collectors’ Ugly Babies.
Next, let’s explore the different decentralized finance (DeFi) applications on the network, starting with the holy grail of DeFi — decentralized exchanges (DEXs).
ADAX, a decentralized exchange (DEX) and automated liquidity protocol equipped with an ‘ERC-20 Converter’, a user-friendly tool that allows you to migrate any ERC-20 (Ethereum-based) tokens inside the Cardano ecosystem. Another prominent DEX is SundaeSwap.
Lending Pond is a decentralized lending platform that facilitates peer-to-peer lending and borrowing. You can lend your ADA and earn interest, or borrow some by collateralizing your Cardano NFTs. Moreover, Lending Pond eliminates the need for cumbersome credit and KYC checks to make way for smooth and fast lending-borrowing services.
The next one is VyFinance, a web3 staking platform that offers token and NFT staking, yield-farming, and auto-harvesting. On top of these things, it also functions as a DEX and equips users with governance power.
The Cardano Eras is the blockchain network’s five development stages to achieve a secure, decentralized, scalable, and community-governed protocol. These phases cover five critical areas such as foundation, decentralization, smart contracts, scaling, and governance.
But despite being in the development stage, a fast-growing number of projects have already seen its potential and have built (and are building) on its chain. In fact, it is currently one of the top layer-1 blockchains in the world (has been since its launch).
Let’s now have a closer look at each of these stages and see the progress made so far and what’s left to execute.
Byron is the first era (or phase) in Cardano’s development and is also called the foundational period of the network. The ‘Let There Be Light’ phase of the project, if you will.
This phase is already over, and its success is the main reason Cardano continues to evolve as a competitive blockchain platform. While the Byron Era, which started in 2017, was the foundational period of Cardano, it wasn’t exactly born in this period.
Its concepts actually bloomed way back in 2015 and sat silently under the stacks of peer-reviewed research papers for two long years. Fortunately, an initiative took place to revive this research and test its potential in real-world applications.
Moreover, during this era, Cardano started developing the critical aspects of the platform, including the ADA token, Ouroboros consensus protocol, and the block explorer.
‘Shelley’ is the second era of the Cardano network, which has focused on the platform’s decentralization. This phase achieved its goal of implementing low-risk progress while maintaining zero interruptions on the network’s growing services.
Shelley has also marked the protocol’s first few steps into decentralization as the community’s control over the nodes is expanding. As a result, this gradual expansion slowly but surely steered away the protocol from centralized control. But to remind you, Cardano’s decentralization isn’t over yet.
On top of it, the project has also integrated more features in this stage, including stake pools, consensus incentives and fees, and delegation certificates.
Goguen (We Are Here)
‘Goguen’ is Cardano’s third and current era, focusing on smart contracts.
This stage is also where the protocol’s smart contracts went live, giving it another big push towards becoming a full-blown blockchain network. Goguen has essentially made a monumental achievement by finally allowing developers to create decentralized applications (dApps) on its mainnet.
Another milestone is the integration of a multi-currency ledger, equipping users with the ability to create their natively-supported tokens. This upgrade also made way for four other great opportunities: the creation of fungible tokens, NFTs, and the tokenization of other vital assets.
‘Basho’ is the fourth phase of Cardano’s evolution, which will involve scaling the established features of the platform. Reaching this stage is critical to expanding the entire network’s growth and adoption considering it is currently facing congestion issues.
Successfully integrating key elements in an ecosystem isn’t enough to compete with the bigger guys; scaling these things must come into the equation. Another potential addition to this phase is the inclusion of interoperable sidechains, which could increase the capabilities and benefits of the Cardano network.
Voltaire Era is the fifth stage of the network’s development, which will focus on the governance features of the platform. It will be the last puzzle piece of Cardano’s mega plan to be a 100% decentralized network.
Once this phase kicks in, users can finally submit their improvement proposals and vote on different parameters that affect the protocol’s future. A treasury system will soon roll out to fund any proposals that will be voted on and approved by the majority of voters.
The platform, by the way, will take a small bite from the transaction fees and pool them into the treasury fund, to finance upcoming proposals for the network.
This is the era when ADA holders finally become Cardano governors.
Key Components of Cardano
Ouroboros is Cardano’s proof-of-stake protocol that boasts verifiable security through peer-reviewed research and environmentally-friendly features.
And since we don’t want you to get caught up in the rabbit hole of technicalities, let’s have a simplified overview of Ouroboros.
Cardano’s PoS mechanism combines the power of mathematically-verified mechanisms, economic philosophy, and behavioral psychology in order to secure the platform and keep it running smoothly. Moreover, the Cardano organization designed Ouroboros to be a massively scalable system right from the start and wasn’t just an afterthought.
It was built for scalability from the ground up to accommodate the high transaction demands that blockchain networks, if successful, ultimately face. And with the current influx of developers and projects building on the protocol, the network is already facing congestion issues, a challenge it aims to address through Hydra (see later section).
Cardano Settlement Layer (CSL)
Cardano Settlement Layer (CSL) is one of Cardano’s two layers that do the heavy lifting on its overall transactions.
CSL’s main job is to ensure that currencies move between senders and receivers smoothly and prevent technical interruptions. In other words, it always ensures that every digital currency within Cardano is sent and received accurately and in real time, hence, the name.
Cardano Computation Layer (CCL)
Cardano Computational Layer (CCL), meanwhile, is responsible for managing the platform’s scalability in the long run, including the addition of critical security features.
It also aims to efficiently clone the Bitcoin network’s smart contract platform, RSK, which helps BTC offer smart contract capabilities and improve its transaction speed.
Hydra is a layer-2 platform designed to improve Cardano’s scalability and help it manage heavy-duty services such as payments, mobile services, games, and more. It is built to improve Cardano’s transaction throughput and reduce its storage demands and latency to bring enhanced services to its growing user base.
In other words, it will make Cardano transactions so much faster and smoother than today.
Moreover, despite its off-chain operations, it’s not entirely separated from the blockchain as it still connects with the main chain.
Hydra Head serves as the L2’s first protocol, which is the first part of its many series or ‘heads’ of improvements and features in the future. The aim to introduce more ‘heads’ is a nod to the platform’s namesake mythical creature, ‘Hydra’, which possesses multiple heads in its body.
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