Cardano- Third-Generation Cryptocurrency
The following blog will introduce another cryptocurrency from our dynamic portfolio – the Cardano, which is considered a third-generation platform. The main goal of Cardano is to solve problems faced by almost every cryptocurrency of the first (Bitcoin) and second (Ethereum) generation.
The development of the Cardano cryptocurrency began in 2015 to change the way and principles of cryptocurrency design and development. The concept of Cardano was constructed by Charles Hoskinson, one of Ethereum’s co-founders.
After leaving Ethereum over disagreements, Hoskinson, together with the Cardano Foundation and Emurgo, founded the IOHK (Input-output Hong Kong) company. IOHK focuses on blockchain development, and its main activity is the development of the Cardano platform.
The Cardano cryptocurrency became publicly tradable on 27 September 2017 with a market capitalisation of $600 million. Within three months, it increased its market capitalisation 15-fold. Presently, Cardano is one of the TOP cryptocurrencies on the market.
What Is Cardano?
Cardano is the first Proof-of-Stake blockchain founded on peer-reviewed research in the world. The non-profit Cardano Foundation, responsible for developing the platform, has brought together academics and scientists from some of the world’s best-known universities to review Cardano’s protocols before they are published.
As a third-generation cryptocurrency, Cardano was created in response to the problems and shortcomings of the first and second-generation cryptocurrencies. Additionally, Cardano is a smart contract development platform offering high scalability and security through multi-layered network architecture.
Cardano has its own native ADA token, which is designed so that its holders have the right to participate in the operation of the network. Therefore, those who own the token have the right to vote on any proposed software changes.
The development of the Cardano platform is making significant progress. Cardano is currently the second most development-active cryptocurrency, with over 37,327 developer code changes (so-called commits). Monthly, over 250 developers work on the development of Cardano.
Three Generations of Blockchain
- The first generation – Bitcoin – Bitcoin originated as a form of money that could be transferred between two people via blockchain without the need for an intermediary. Along with the creation of Bitcoin, a decentralised monetary system was born that allows users to make such transfers. Over time, a problem appeared that affects all first-generation cryptocurrencies – although this system allows financial transactions, it is impossible to apply conditionality. In short, this means that person A can send money to person B but cannot set the conditions under which person B can use these funds.
- The second generation – Ethereum – Solved the conditionality issue through smart contracts. Smart contracts make it possible to exchange money or assets between persons transparently and seamlessly. At the same time, it is possible to define the conditions under which the transaction will take place. The main problem with second-generation cryptocurrencies is scalability – the speed at which a network is able to process user requests.
- The third generation – Cardano – Charles Hoskinson knew that blockchains needed to be developed even more. Cardano implements all the positive elements of the first and second generations while trying to improve on their flaws.
Among the main issues Cardano is trying to solve are:
- Scalability – As the number of network users increases, the network begins to overload and eventually becomes virtually unusable. Cardano is trying to solve this problem by implementing sidechains to support the mainchain and sharding (the process of the horizontal data distribution to reduce network load).
- Interoperability – The main problem with various blockchains is that they cannot communicate effectively with each other (it is not possible to run an Ethereum smart contract on a Bitcoin blockchain). Therefore, Cardano wants to become a platform that can also communicate with other blockchains, recognise their data, and work with them effectively. Cardano wants to use metadata in particular to solve the interoperability problem. In conventional financial systems, metadata is considered to be the information behind the transaction (who sends the money to whom, for what purpose, etc.). Cardano’s primary goal is to find a way to connect this metadata to the blockchain, which would allow it to work with the traditional financial system in the future.
- Sustainability – In order for the development of the protocol to be sustainable in the long term, it is necessary to find the optimal way of financing it, provided that decentralisation is maintained. Cardano seeks to address this by implementing a funding method based on three pillars: ICO, volunteer development, and institutional development.
Ouroboros is the proof-of-stake consensus protocol used for Cardano network security. This is the first blockchain protocol based on peer-reviewed research. Ouroboros combines unique technology and mathematically proven mechanisms – which in turn combine behavioural psychology and philosophy of economics – to ensure the safety and sustainability of the blockchains that depend on them.
The result is a protocol with proven security guarantees that is able to facilitate the spread of global networks without permits with minimum energy requirements. The advantage of proof-of-stake over proof-of-work is that they do not consume such a high amount of electricity and computing power.
The development of the Cardano platform consists of five phases:
- Byron – This phase is associated with the creation of Cardano as such. This was the initial phase of the platform. The network was tested, the basic blockchain infrastructure was built, and the Daedalus wallet, IOHK’s official desktop wallet for the Cardano platform’s native token, was created. The Byron phase was officially launched in September 2017.
- Shelley – This phase ensures that Cardano becomes a fully decentralised autonomous system. As a result, Cardano has become 50 to 100 times more decentralised. This phase also allowed users to stake Ada tokens and thus participate in decentralisation and network security. Shelley Hard Fork took place on 29 July 2020.
- Goguen – Integration of smart contracts. This phase allowed developers to build decentralised applications on the Cardano blockchain. An important part of this phase is the Marlowe language, which allows even the general public without technical knowledge to create smart contracts. This upgrade went live on 12 September 2021.
- Basho – An optimisation phase that increases network interoperability and scalability. Its main goal is to optimise the Cardano platform and support the growth and implementation of decentralised applications. One of the most important parts of this phase will be the introduction of so-called sidechains, which will be able to communicate with the main chain and will serve primarily to ‚lighten‘ the main chain.
- Voltaire – Ensures that the Cardano network becomes a self-sufficient system. Using the treasury system and public voting, the network participants will be able to use their shares and vote on the future development of the network.
Cardano’s competing projects include Ethereum, Polkadot, Cosmos and Avalanche. Cardano tries to compete with these platforms using the following tools:
- Haskell programming language – Cardano is programmed in the Haskell language, which many consider the most appropriate programming language for business applications and data analysis.
- Implementation schedule – Cardano has pre-planned and set implementation of the individual development phases of the platform, which generally increases the likelihood of the network running smoothly.
- Marlowe – A simplified programming language that allows almost anyone to create a smart contract, even if they have no previous programming experience. If Marlowe works as expected, it could attract thousands of new users who wouldn’t be otherwise able to create their own smart contract.
- Staking – Cardano uses a proof-of-stake consensus. Staking through the official Daedalus wallet allows users to lock their ADA tokens and collect rewards for it. Staking support from 10 ADA motivates users to stake their tokens directly through Cardano instead of third parties.
Who Is Behind the Cardano Platform?
Organisations primarily involved in the development of the Cardano platform:
- Non-profit Cardano Foundation – Organisation based in Switzerland with a mission to raise awareness about the Cardano platform, build community, and monitor regulations.
- Emurgo – Founded to help organisations implement Cardano. The company’s activities include consulting, partnership, and investment in startups that operate on the Cardano platform.
- IOHK (Input Output Hong Kong) – Founded by Charles Hoskinson. This institution works on research, development, and promotion of the Cardano platform.
- Academics and researchers – Cardano is supported in research by academics from world universities, such as the University of Edinburgh, Oxford, and Tokyo.
The potential future use of this cryptocurrency is enormous. With the massive development of the decentralised finance sector over the past few years, it can be expected that if Cardano provides the optimal environment for the development of decentralised applications, some of these applications might transfer to the Cardano platform. Their concept of development is very rational and well thought out, which is, after all, confirmed by the opinions of scientists and academics.
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