What is Cardano?

Cardano is an open-source, decentralized blockchain platform that operates the ADA cryptocurrency. First conceived in 2015 by Ethereum co-founder Charles Hoskinson, Cardano aims to directly compete with Ethereum and other smart contract platforms by providing greater scalability, interoperability, and sustainability.

With a research-driven approach, Cardano seeks to create a next-generation blockchain platform using peer-reviewed academic research and high assurance development methods. Since its mainnet launch in 2017, Cardano has grown to become one of the top cryptocurrencies, cementing itself as a leading contender in the crypto space.

The Origins and Goals of Cardano

Cardano was founded by Charles Hoskinson in 2015, who departed from Ethereum due to a differing vision around commercialization. Hoskinson aimed to build a blockchain platform that could rival Ethereum while overcoming its limitations around governance and scalability.

Some of Cardano's main design goals include:

  • Highly secure platform architecture to protect users' funds and privacy
  • Mathematically verified smart contracts that eliminate bugs and hacks
  • Scalability through layered architecture supporting millions of users
  • Interoperability with ability to connect to external systems
  • Sustainable community-driven governance model
  • Compliance with regulations for real-world adoption

Underpinning these ambitions was a strictly research-first approach. Instead of rushing to launch, Cardano committed to peer-reviewed academic research to ensure a robust and technically sound platform. This distinguished it from many crypto projects at the time.

Cardano's Development Phases

Cardano's development has been structured across five major phases:

1. Byron Phase

The Byron phase encompassed initial research and the launch of Cardano's mainnet in September 2017 with the ADA coin. During this time, the Daedalus wallet was also released.

2. Shelley Phase

The Shelley phase focused on decentralization, allowing ADA holders to stake and participate in network validation. Shelley brought full proof-of-stake to Cardano in July 2020.

3. Goguen Phase

The Goguen phase will introduce smart contract functionality, enabling developers to build decentralized apps on Cardano. This is set to roll out through 2021-2022.

4. Basho Phase

The Basho phase aims to enhance scalability and interoperability through optimizations like sharding and sidechains. This will significantly boost Cardano's throughput.

5. Voltaire Phase

The Voltaire phase will implement advanced community-led governance with voting on network updates and treasury decisions. This will make Cardano fully autonomous and decentralized.

This staged roadmap allowed rigorous testing and review of Cardano's blockchain before enabling advanced functionality. The project is now transitioning between the critical Goguen and Basho phases.

The Cardano Blockchain Explained

At its foundation, Cardano's blockchain architecture consists of two layers that separate the accounting ledger from computation:

Cardano Settlement Layer (CSL)

The CSL contains all transactions and accounts on the Cardano blockchain. It uses Ouroboros, a groundbreaking proof-of-stake consensus developed by IOHK researchers, to validate transactions. Ouroboros allows ADA holders to participate in network security through staking.

Cardano Computation Layer (CCL)

The CCL handles computation for smart contracts and decentralized applications. Once enabled, developers can build dApps with security benefits from the underlying CSL. The CCL also enables scalability improvements like sharding.

This layered design provides flexibility to upgrade specific components without compromising security. Sidechains will eventually enable thousands of dApps to run in parallel while relying on the main chain for liquidity. Altogether, Cardano will become an advanced blockchain ecosystem made of interconnected protocol layers.

The ADA Cryptocurrency

ADA is the native cryptocurrency that powers Cardano. It serves several key purposes:

  • Securing the network through proof-of-stake consensus
  • Paying transaction fees to prevent spam
  • Providing governance voting weight to ADA holders
  • Incentivizing participation through staking rewards

A total supply of 45 billion ADA was created during the Byron phase, with new tokens entering circulation as block rewards. ADA can be bought and sold on all major exchanges, stock brokers like eToro, and hardware wallets like Ledger. Its price has risen significantly since launch, reaching a market cap of over $90 billion in September 2021.

While created as a utility coin, ADA presents a speculative investment opportunity. The blockchain's progression through development phases often spurs investor interest in Cardano. ADA hit its all-time high of $3.10 in September 2021 amidst the smart contract rollout on mainnet.

The Companies Behind Cardano

There are three core organizations contributing to Cardano's development:

Input Output HK (IOHK)

IOHK is an engineering company contracted to design and build Cardano until at least 2025. Founded by Charles Hoskinson, IOHK oversees research and development for Cardano's protocols.

Cardano Foundation

The non-profit Cardano Foundation promotes adoption and provides commercial standards for the project. It aims to proactively work with governments to enable mainstream use.

Emurgo

Emurgo invests in startups and commercial ventures that adopt Cardano's blockchain. It also builds developer tools to support decentralized app creation on Cardano.

This separation between commercial entities (Emurgo), non-profits (Foundation), and contracted developers (IOHK) provides a balanced governance structure.

"Cardano has charted a unique path amongst blockchain projects. A philosophy of patience, careful progress, research-first development, and community-driven growth underpins this ambitious yet principled project."

Cardano's Approach to Smart Contracts

Smart contracts are self-executing code that run decentralized applications on blockchain networks like Ethereum. But high-profile hacks have exposed security flaws in Ethereum's smart contract programming language, Solidity.

To avoid such issues, IOHK developed an advanced programming language called Plutus specifically for writing secure Cardano smart contracts. Plutus features:

  • Functional code to eliminate side effects that cause bugs
  • Formal verification that mathematically proves code is logical
  • Native tokens minting and exchange features
  • Interoperability between scripts written in other languages

This rigorous approach prevents many of the pitfalls caused by Solidity's imperfections. It provides assurance that Cardano dApps will function as intended.

Plutus smart contracts will enable use cases like:

  • Decentralized exchanges and markets
  • Lending and borrowing platforms
  • Tokenized assets and collectibles
  • Identity and certificates
  • Supply chain tracking
  • Voting systems
  • Gaming and entertainment

Altogether, Plutus will provide the advanced tooling to build the next generation of blockchain applications on Cardano with security guarantees.

As Cardano evolves into a fully-fledged smart contract platform, one area of innovation will be around catering to regulated institutions and applications that require some compromises on decentralization and censorship-resistance.

For example, Cardano may implement optional identity frameworks to enable compliance with KYC/AML laws. Selective data partitioning could also allow regulated dApps to exist alongside fully decentralized ones on the same chain by restricting access to certain transactions. And standardized APIs could be added to improve interoperability with external systems used by banks, insurers, and other legacy institutions.

By selectively centralizing certain components, Cardano could position itself as the premier regulated blockchain ecosystem without compromising its core principles around security, scalability, and community-driven governance. This would broaden its appeal across both decentralized and regulated use cases in DeFi, supply chains, identity, voting, healthcare, and more.

Cardano's Community Governance

A core part of Cardano's design is its vision for community-driven network governance once the Voltaire phase launches. This will include:

Cardano Improvement Proposals

CIPs are the mechanism to propose protocol changes, similar to Ethereum's EIPs. CIPs will be voted on by ADA holders.

Treasury

The Cardano treasury will fund future development and growth initiatives with a portion of staking rewards. The community can vote on treasury allocations.

Voting

ADA holders will have proportional voting rights on proposed changes and community initiatives. This decentralized governance embraces Cardano as a community-owned project.

This governance framework provides a democratic means for stakeholders to influence Cardano's future direction. Combined with the Foundation's standards work and IOHK's contracted roadmap, Cardano will have a comprehensive governance model.

Cardano's Scalability Advantage

One limitation of early blockchains like Ethereum is scalability, or the number of transactions processed per second. Cardano overcomes this through:

Ouroboros Hydra

Hydra allows parallel transaction processing through multi-party state channels on the CSL. This increases throughput to potentially millions of TPS.

Sharding

Sharding partitions the blockchain into segments that can process transactions concurrently at higher speed.

Sidechains

Sidechains are interconnected chains that offload processing while benefiting from Cardano's security.

Thanks to these and other optimizations, Cardano is engineered to achieve the scalability required for mass adoption. This provides a key competitive edge.

Cardano's Environmental Sustainability

Proof-of-work mining used by Bitcoin and Ethereum has raised sustainability concerns due to its high energy usage. As a proof-of-stake blockchain, Cardano is much more eco-friendly with negligible energy costs.

Some sources indicate Cardano is 6 million times more energy efficient per transaction than Bitcoin. This gives Cardano a huge advantage as environmental impact becomes a priority across industries. The project has committed to continued optimization and research into greener consensus protocols to uphold sustainability.

Overall, Cardano aims to provide a secure and scalable blockchain platform that sustains itself using community-driven governance. This comprehensive vision represents a giant leap forward from early blockchains. If successful, Cardano could power mainstream decentralized apps, finance, identity solutions, supply chains, voting, healthcare, and much more.

What Critics Say About Cardano

Despite its promise, Cardano isn't without its critics. Some common criticisms include:

  • Its slow, academic development has delayed technology
  • The tech is still largely unproven until recently
  • The community is cultish and uncritical of challenges
  • Its leadership relies too much on marketing hype
  • Real-world usage is still lagging behind rivals

Regardless of its potential, Cardano still faces an uphill battle to deliver complete technology and real adoption. But its methodical approach does provide assurance that the blockchain has a strong technical foundation. As Cardano activates smart contracts and scales up real-world use in 2021-2022, its execution will be put to the test.

Will Cardano Achieve Mass Adoption?

For Cardano to achieve mainstream adoption, it must check several boxes:

  • Fully operational technology across all five phases
  • Large and active development community
  • Extensive real-world applications deployed
  • Seamless user experiences for non-technical users
  • Regulatory compliance where required
  • Compelling advantages over rival platforms

This is an extremely high bar that will require flawless execution across technological and commercial lines. While Cardano has strong potential, it must still convincingly clear these hurdles to emerge as a ubiquitous global blockchain. But its thoughtful strategy gives it a fighting chance to reach that lofty goal.

Can Cardano Compete With Ethereum?

Cardano is most often discussed as a competitor to Ethereum. Indeed, its ambitions explicitly aim to rival Ethereum's dominance. To truly compete, Cardano must surpass Ethereum in areas like:

  • Developer activity and dApp ecosystems
  • Total value secured on-chain
  • User adoption and trading volume
  • Enterprise and institutional usage
  • Decentralized finance ecosystem
  • Name recognition and network effects

This is an imposing challenge. Ethereum enjoys first-mover advantage with dominant developer mindshare and usage. But Cardano's tech improvements around security, governance, and sustainability give it potential to become the blockchain ecosystem of choice for the next generation of decentralized systems - if it continues to execute successfully. The race is on.

Conclusion

As one of the top blockchain projects, Cardano stands out for its research-driven approach to building a sustainable, scalable, and decentralized ecosystem for global adoption. With slow but steady progress through its development roadmap, Cardano aims to 'do it right' rather than rushing to market.

Of course, this deliberate strategy has exposed Cardano to criticism about delays and hype exceeding reality. But the project now approaches major milestones that will validate - or refute - its potential to emerge as the premier smart contract platform. Its vision stretches decades into the future of decentralized governance, finance, and more.

The coming years will determine if Cardano can live up to its lofty ambitions. But regardless of the outcome, Cardano represents a turning point where blockchain projects recognized the need for rigorous software engineering, peer-reviewed research, and comprehensive governance. This discipline alone is a great leap forward - even if Cardano merely inspires future platforms to achieve its vision. Through rigorous science and principled technology development, Cardano aims to create a sound foundation for decentralizing and democratizing society's institutions in the 21st century.

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