What Is Cardano (ADA) and How Does It Work?

2021/08/25 10:05:53

Cardano (ADA) is the fifth largest cryptocurrency by market capitalization, a brainchild of Charles Hoskinson, one of the early co-founders of Ethereum. Cardano calls itself a third generation cryptocurrency that aims to solve scalability problems and energy consumption challenges that are prevalent in the regular Proof of Work (PoW) based blockchain platforms.

Cardano (ADA) price history | KuCoin

Unlike other blockchain projects that rely on community and open source development, Cardano has taken a very academic approach towards the development of the project that is inspired by ‘science publishing’. The Cardano project is developed based on peer-reviewed research, and each additional feature is reviewed and approved by academics before it becomes part of the Cardano project.

IOHK is the parent company behind Cardano, and has published a number of academic research papers on the consensus algorithm and the technology behind the platform. This article discusses the Cardano project, the underlying technology, and how it is different from its counterparts.

What Is Cardano?

Cardano is a scalable and energy efficient blockchain platform based on a Proof of Stake (PoS) consensus mechanism called Ouroboros. Charles Hoskinson claims that with Ouroboros consensus, Cardano is ~250 times more decentralized than Bitcoin.

Cardano was initially started as a research project back in 2015 to improve the cryptocurrency landscape at the time, preferably, the lack of scalability and high energy consumption. ADA is the native platform token of Cardano, named after Ada Lovelace, a famous 19th century mathematician.

Cardano Development Timeline

Here is a brief timeline of how the Cardano project has gradually developed:

Bryon: The first phase of Cardano called ‘Bryon’ was released on September 29, 2017. The Bryon phase only supported ADA transactions.

Shelley: The second phase was called ‘Shelley’ and was released in July 2020. Shelley brought staking to Cardano, allowing users to stake ADA and improve decentralization of the network.

Goguen: The third phase is called Goguen that was initially expected to be released in August 2021, but the tentative timeline is still not announced. Goguen is the most anticipated upgrade in Cardano that will bring support for smart contracts and issuing native tokens (just like ERC-20 tokens on Ethereum).

Basho and Voltaire: These are the two final phases of the Cardano project that are yet to be announced. Basho phase focuses on improving the scalability of the platform, and Voltaire will introduce a module for on-chain governance.

If you’re familiar with English literature, you might have noticed that all these development phases are named after famous English poets. Cardano has successfully completed the Bryon and Shelley phase, and the community is eagerly waiting for the launch of the Goguen phase.

The Ouroboros Consensus

One of the important distinctions of Cardano is the Ouroboros, which is the first blockchain consensus protocol to be peer-reviewed by renowned academics. Ouroboros is a Proof of Stake (PoS) consensus mechanism that uses a unique approach towards transaction validation and block production.

Ouroboros divides all the transactions in the pool into segments called ‘epochs’, that are further divided into different time slots. Ouroboros chooses a slot leader for each time slot segment (think of it as a validator) that can verify all the transactions and produce blocks.

Each slot leader (validator) gets a block reward in ADA, and this is how new ADA tokens are issued. The block reward isn’t fixed, and depends on the stake of the validator. The higher the stake, the higher the block rewards and vice versa.

How to Stake Cardano (ADA) With Pool-X?

In this section, we will briefly explain how you can easily stake your ADA tokens to earn yields through the Pool-X platform.

Step 1: Buy crypto assets from KuCoin exchange

If you don’t have any ADA tokens, you can buy them from the KuCoin exchange platform. With KuCoin, you can buy crypto assets with credit/debit card, Apple Pay, or a SEPA bank transfer. KuCoin also has a KuCoin Express service where you can buy crypto assets with just one click.

Step 2: Pool-X staking

Hop over to the ADA section of the Pool-X staking platform and click ‘Transfer’ to easily transfer tokens from KuCoin account to the Pool-X account. Once the tokens are transferred, you can select the staking amount and earn rewards that are paid daily based on an annualized APY.

Closing Thoughts

Cardano is one of the earliest cryptocurrency projects that started working on a Proof of Stake consensus model to bring speed, scalability, and above all, energy efficiency without compromising decentralization. The developments on Cardano have been slow compared to other protocols today that use Proof of Stake and support smart contracts.

Cardano was started to provide a better Ethereum alternative, but now that Ethereum is gradually moving towards Proof of Stake in the Ethereum 2.0 upgrade, it will be a tough contender for Cardano.

Do you think Cardano will get ahead of the existing smart contract platforms with its upcoming Goguen update?