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What is Cardano (ADA)?

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PDAX

October 28, 2022

3 min read

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Cardano (ADA) is a token that holds the title of the first ever “third-generation” cryptocurrency, after Bitcoin (BTC) and Ethereum (ETH). As Bitcoin’s contribution to the blockchain is the immutable ledger, and the flexibility of smart contracts was Ethereum’s, Cardano’s role focused on scalability, which was a recurring problem for its predecessors. 

Launched in 2017, Cardano is also known for its rigorous and laborious approach to its ongoing development, backed by intensive peer-reviewed academic research, with numerous papers published to support its technology. This approach is evident in its name, as “Cardano” is a reference to the Italian polymath Gerolamo Cardano, while its native token “ADA” is a nod towards the English mathematician Ada Lovelace, who is regarded as the first computer programmer.

Cardano was founded by Charles Hoskinsin, who was one of the original developers of Ethereum alongside Vitalik Buterin. 

How does Cardano work?

To address scalability, Cardano employs a Proof-of-Stake (PoS) protocol and was among the first blockchains to do so. In a PoS blockchain, the network relies on “staking” to secure the network, requiring validator nodes to only put up a financial stake as a collateral in exchange for  lending their processing power to the network to earn rewards. This is in contrast with the Proof-of-Work (PoW) protocol (used in Bitcoin and also in the pre-Merge Ethereum) which relies on miners to compete in solving complex mathematical algorithms to earn rewards, creating a lot of computational overhead, resulting in network congestion as the more and more users join in the network. 

Cardano’s PoS, named “Ouroboros” is claimed to be environmentally sustainable and more secure, and is 47,000 times more efficient than Bitcoin

Cardano also utilizes an additional Layer-2 solution called Hydra, (after the mythological beast which grows two more heads when you cut off one), which increases the network’s overall throughput as more nodes are added to the network, instead of adding more network traffic as compared with traditional PoW systems. 

Compared to Bitcoin which can only handle 3-7 transactions per second (TPS) and Ethereum with 25 TPS, Cardano is able to scale much more efficiently, at 250 TPS

Cardano is also able to execute smart contracts similar to Ethereum, after the “Alonzo” update in 2021, opening for the creation of decentralized applications (dApps)

What is ADA for?

ADA is the digital currency used for transactions on the Cardano network, such as rewarding validator nodes, executing smart contracts, and minting Cardano-based non-fungible tokens (NFTs).

Aside from being a tradable asset, ADA can also be staked to earn passive income, via setting up a validator node, joining a staking pool, or on third-party staking platforms. 

Tokenomics

ADA has a market capitalization of $13.9 billion and a maximum supply of 45 billion, with about 34.3 ADA in circulation as of October 2022. ADA currently has no burning mechanism, with Hoskinsin taking an opposing stance into integrating it with the network’s tokenomics. 

Upon its launch, 80% of ADA was sold to the public, while 20% were allocated to three organizations involved in the project development, IOHK, Emurgo, and The Cardano Foundation.

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DISCLAIMER: The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.

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