What is Cardano?

Cardano was founded in 2017 and was presented and the name of this blockchain is named after the 16th century Italian mathematician Gerolamo Cardano. Cardano is a decentralized blockchain that uses so-called smart contracts. Cardano is the first blockchain built entirely on the basis of peer-reviewed research.

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Key points in this article:

• Cardano is a layer one blockchain. A platform that mainly focuses on setting up a network to build decentralized apps. (DAPPS)
• Cardano is built in five stages namely: Foundation (Byron), Decentralization (Shelley), Smart Contracts (Goguen), Scaling (Basho) and governance (Voltaire).
• The heart of Cardano is called the Ouroboros consensus protocol, the best proof of stake model to date
• Cardano's coin is called ADA
• Cardano is a decentralized blockchain with over 3000 stakepools.

Creation of Cardano

Cardano is built by IOHK/IOG (Input Output Hong Kong / Global) company. The founder of the company IOHK is Charles Hoskinson. Before Charles took office as CEO of IOHK, Charles was one of the co-founders of Ethereum in 2013. However, Charles left after a year due to an internal conflict whether Ethereum should become a commercial project or not. Charles was convinced that Ethereum should become commercial. The other founder Vitalkik Buterin didn't think so and saw Ethereum as a non-profit.

After Hoskinson left Ethereum, he was approached by a previous colleague Jeremy Wood to co-create a new project called IOHK with the main project 'Cardano'. A public blockchain that goes beyond pure finance to drive real social change.

Mission of Cardano

When you open Cardano's website, you will already see it saying 'Making The World Work Better For All'. Cardano is a project that focuses on the areas where blockchain can have the greatest successes. Developing areas of this world are currently facing the biggest problems that can be solved by blockchain.

Examples of these problems include the limited ability to open a bank account and store value in a secure manner. Another example is the registration of properties such as real estate.

In the Netherlands we have solutions for all these problems in the form of a notary or a bank. But it is less well organized in other areas of this world. That is why Cardano focuses in principle on these areas.

However, it is expected that if these economies succeed in getting these economies on the blockchain, other parts of the world will soon follow. This is because when an economy comes on the blockchain, there will be such major changes in efficiency. Other countries will soon follow.

Cardano's mission is therefore to create a level playing field for all people on this earth. Everyone is equal for the blockchain and you do not suffer from corruption and mistrust. Someone in South Africa can in theory borrow money from someone in Russia to buy a house in China without these three parties ever talking to each other and without going through any intermediary like a real estate agent or a notary.

Based on scientific research

Cardano is a blockchain developed entirely on the basis of scientific research. All methodologies within Cardano and choices made in the architecture of the blockchain have been scientifically tested before they are developed. This makes Cardano's development process slower, but will win it over performance in the longer run.

Roadmap of Cardano

Cardano's roadmap is divided into five different periods. These all have a separate theme which is central to the creation of the blockchain. We are happy to explain to you what is on the schedule for each period. If you do not yet have enough knowledge about the functioning of a blockchain or what cryptocurrencies are, it is better to read one of the following blogs first

Byron era

Cardano's story began in 2015. During this period, laying the foundation for the further development of the blockchain was central. Cardano's goal was to address the following three strategic challenges: scalability, interoperability (the extent to which the blockchain can work together with other parties) and sustainability. Cardano is a blockchain fully realized on the basis of academic research. In 2017 it was time for the first version of Cardano to be released.

2017 was the first time buyers and sellers could buy and sell the cryptocurrency ADA. This coin ADA is named after the revolutionary programmer Ada Lovelace. Ada runs on the first proof of stake protocol called Ouroboros. This protocol is a mathematically proven secure protocol.

During the Byron era, the Daedalus wallet was also created, this is Cardano's official own Cardano wallet, made by IOHK itself. In addition, the Yoroi wallet was also released during this period. This was developed by partner company EMURGO.

The Byron era was mainly about spreading the idea of ​​Cardano and setting the foundation to build on.

Shelley era

During the Shelley era, decentralization of the blockchain was central. Decentralization is crucial to keep the blockchain viable in the longer term. Decentralization has been stimulated by the introduction of the staking principle. Cardano is a proof of stake network. Very different from the Proof of work blockchains that reigned supreme until then. proof of stake is another consensus method where every Cardano owner is stake (ADA) can delegate to a stakepool† During this period, the number stakepools running on the blockchain has increased enormously. As a result, the Cardano network has shifted from a blockchain that is run centrally, to a blockchain that is used decentrally.

At the end of the Shelley era, Cardano is the most decentralized network. It was expected that around the end of the Shelley era about 1000 stakepools would participate. At the time of writing (2021), there are more than 3000. Other large blockchains often have less than 10 miningpools.

In addition to being many times more decentralized compared to many other blockchains, the Cardano network uses much less energy compared to other major blockchains such as Ethereum and Bitcoin. For example, the Cardano blockchain uses the amount of energy in a house. This is compared to Bitcoin, which consumes, for example, the amount of energy of a small country.

Goguen era (present day)

Within the Goguen era it is mainly about the introduction of smart contracts. The base layer was realized during the Byron era. In addition, the network was decentralized during the Shelley era. During the Goguen era, it is mainly about rolling out Smart Contracts with which the Cardano blockchain can be used functionally.

Goguen is making room for the introduction of decentralized applications. Other developers can now build software on top of the Cardano blockchain. In addition to introducing Smart Contracts, it is time to prepare the blockchain for some new programming languages ​​so that more developers can start building on Cardano. For example, Plutus is being rolled out as a programming language and Marlowe on top of that. Through Marlowe, non-technical people get the chance to build a smart contract on the Cardano blockchain. This is also realized via the Marlowe Playground.

Also new in the Goguen era is the introduction of the Cardano native currencies. With this new option it is possible for developers to build their own token on top of the Cardano blockchain. For example, it is possible to store other assets in the Cardano wallet outside of ADA alone.

basho

Within Basho it is time for a period of optimization, improvement and increasing the scalability of the network. During this period, the growth of the network is central. The main focus here is on increasing the number of transactions that can be done on the network within a period of time and introducing so-called side chains. Side chains are separate blockchains that work together with the base layer to increase scalability at the base layer. This involves moving a large amount of work from the base layer to the sidechains. In addition, sidechains can also be introduced to deploy certain experimental new blockchains without affecting the base layer.

While Cardano's base layer will still use the UTXO model, there is room on the sidechains for other accounting models such as the account based model. The result of this will be that Cardano will be able to connect to more and more other blockchains in the long term.

In short, the Basho era makes Cardano one of the most fast, sustainable and flexible blockchains in existence.

Voltaire

Within the Voltaire era, efforts will be made to transfer the system from its founders to a self-sustaining system. With the introduction of a voting system and its own cash register. In this way it will be possible to vote on the future of the network and the distribution of development funds. In this way Cardano is fully handed over to the ADA owners and they can vote with their 'stake'.

In order to be able to finance these developments within the network, the development of a greenhouse system must also be considered. A fraction of the transaction costs will automatically be reserved for investing in developments. What these developments are then, can the stakeholders to vote periodically.

After the Voltaire era is fully rolled out, Cardano will be completely in the hands of the shareholders and therefore just as decentralized as, say, another fully decentralized network such as Bitcoin. Only then with all the functionalities of a self-sustaining blockchain.

proof of stake blockchain

Cardano is a proof of stake blockchain. This means that based on a sample, it is weighed which party will add the next block to the blockchain. proof of stake is an improved version of the Proof of work consensus model as used in Ethereum and Bitcoin. If you want to know more about Proof of stake vs Proof of work you can take a look at the page 'What is blockchain'.

In short, Proof of stake an improved way to build consensus and to validate transactions. It is important to look at the performance of a blockchain in combination with the degree of decentralization. proof of stake seems to solve this by providing a high degree of decentralization coupled with high performance.

The Ouroboros protocol

The consensus model within Cardano is called the Ouroboros protocol. This protocol was published in the Shelley period and serves to make a selection which pool (slot leader) may add the next block to the blockchain. This system divides time into periods of 5 days. We call this period an Epoch within Cardano. Blocks are produced within each Epoch. In short, a kind of lottery is held per block to see who can produce the next block.

In contrast, we have stakepools. These are nodes that monitor the Cardano network 24/7/365 and approve transactions. Any ADA owner can be stake delegate to a stake pool and benefit from the stake rewards of this pool† If your ADA staked, this does not mean that you can no longer take it off or that you no longer have it in your own possession. This is a separate key that is linked to your wallet. Not your ADA itself.

Each pool has a chance to produce the next block. However, a distinction is made between pools with high ADA relative to pools with little ADA. A maximum of 67 million ADA can be stored in a pool be stopped. From that moment on, this pool no more advantage over smaller ones pools in this system. In this way, the protocol ensures that the network remains decentralized and that not too many people are in one and the same pool staken.

By stakeSo you help to decentralize the network and you also earn extra ADA. This ADA is paid to your wallet every 5 days at the end of an Epoch. Many people will have heard of Bitcoin mining. This is the same principle, but this way is much more energy efficient because a pool is chosen who may add the next block. This compared to Bitcoin where all computing power is used simultaneously to find the next block.

Want to know more about staking, then we have made a separate article for you -> What is staking† If you want to know more about the technical operation of the Ouroboros protocol, you can watch the following video:

Cardano and digital identity

Going forward, Cardano does not see a successful blockchain without implementing a digital identity. This means that you become the owner of your own personal data again and can share it in a much freer way.

When we want to explain the importance of a digital identity, it is important to look at how DEFI currently works, mainly focused on borrowing and lending.

Currently, it is possible to take out a loan through one of the decentralized apps on Cardano or other blockchains. You borrow crypto or stablecoin from another party. The terms of this loan are recorded on the blockchain. However, we are currently facing a problem here. When you choose to take out a loan, lenders currently ask for extremely high deposits for placing the loan. Because this loan is recorded on the blockchain, the person who makes the money available does not know who they are dealing with.

When you take out a loan from a bank, the bank looks at your personal situation. What debts do you currently have? What is your income? How much savings do you have? These are things that we cannot validate on the blockchain at the moment.

This is where digital identity comes into play. How would this work you would think? It's simple. You can create a digital identity on the blockchain via various applications. At that time, you are not registered with your first and last name, but with a blockchain, but your data is stored encrypted on the blockchain. You can then share your data with the authorities of your choice.

For example, you can link your crypto wallet to your digital identity. In this way, an institution can see how much money you have in your wallet, which other loans are linked to your digital identity and what income and other costs you have. In this way, a lender can issue a loan with more confidence at lower interest rates and lower down payments.

This ensures that DEFI is available to a larger group of people. Mainly for people where an identity and bank account are difficult to obtain. Consider, for example, many areas in Africa where people are often not registered or have an identity, but do own a smartphone that is connected to mobile internet. In this way, this system ensures that many financial services become available to people who currently do not have the options for them.

This principle is also referred to as REALFI and is something Cardano is currently focusing on through projects such as ATALA PRISM. For example, Cardano has already built a student registration system for Ethiopia. In addition, Cardano has entered into a partnership with World Mobile to connect people to the internet in more places in the world.

Decentralization in Cardano

One of the most important factors for the network in the longer term is to what extent the network is decentralized. We can approach decentralization in two different ways. This way we can look at the distribution of the tokens among the ADA holders. In addition, we can look at the amount stakepools the network counts.

Stakepools

At the time of writing, there are approximately 3000 stakepools on the Cardano network. This makes Cardano the most decentralized blockchain in existence. These are 3000 nodes distributed worldwide that continuously check the Cardano blockchain for errors and approve or reject transactions where necessary.

How to choose a stakepool?

There are countless different ways to think about how one makes a choice for a stakepool† It is also encouraged for stakepools to distinguish itself. This therefore differs per stakepool† For example, there are stakepools who are committed in a special way to further spread the story of Cardano or are there pools that, for example, part of the pool donate rewards to charity. In addition, there are also pools that focus on delivering maximum returns. The choice is yours!

By delegating your ADA to a smaller one stakepool, help you decentralize the network. By smaller pools, get even more nodes online on the network. This makes the network more and more secure. a smaller one stakepool may give less consistent rewards, but when this pool a new block is produced, these are then also distributed with a smaller group of people, so that the rewards are larger.

Smart Contracts

As discussed in the Roadmap, Smart Contracts are central to the Goguen era. As explained earlier in the section 'what is blockchain', smart contracts are programmable tokens in which agreements about transactions can be recorded. Transactions can be broadly interpreted as the exchange of goods, services and other forms of value.

In September 2021, Smart Contracts were introduced on the Cardano Blockchain. From that moment on it was therefore possible to build external services on top of the Cardano blockchain and to store and verify these in a decentralized way. The apps that are built on Cardano are called the Dapps. These dapps act as an external layer on the Cardano blockchain. Examples include: Decentralized marketplaces, lending and lending services, and other decentralized financial products.

eUTXO vs Account based

Within blockchain smart contracts, 2 different types of accounting models are currently used. Cardano uses the 'Extended Unspend Transaction Output' model. This is in contrast to Ethereum, for example, which uses the 'Account Based Model'.

To properly understand the differences between these two models, you need to have enough knowledge of accounting and programming. We try to briefly explain the differences.

The eUTXO model is the same model that is used in Bitcoin and can in many cases be compared to cash. You can best interpret your Cardano wallet as a wallet full of notes and coins. When Pietje has to pay 27 euros to Jantje and in his wallet are two 20 notes and a 10 note, he gives 30 euros (1x 20 and 1x 10) and gets 3 euros back. This 3 euro goes back in Pietje's wallet. Pietje now has a total of 23 euros in his wallet (1x 20 and 1x 3). When pete at a later moment. When Pietje later goes to the supermarket and has to pay 22 euros, he gives 1x 20 and 1x 3. Pietje receives 1 euro back. We call this 1 euro an Unspend Transaction Output.

An advantage of this method is that the output of a transaction is clear in advance. This is therefore the biggest difference with the account-based model.

This is not so arranged with the account based model (as used in Ethereum). The account based model is more similar to how it records bank transactions. Two parties enter into an agreement and it is still unclear what the outcome will be. For example, the smart contract is not included in the agreement.

In general, the account-based model is experienced as easier for developers of applications. However, the account-based model also has more risks for errors and hacks. In addition, it is difficult to know in advance what the outcome of the transaction will be. This is also the reason that the costs for the account-based model are extremely high.

Scalability of Cardano

An important aspect of blockchain is scalability. How many transactions can a blockchain produce in what time against a stable network with no outages.

At the moment, this is also a factor on which many novice investors mainly bet. However, within the design of the blockchain, there are various choices that can be made to realize (increased) scalability. In this section we discuss some plans for Cardano scalability. Scalability is important to prepare blockchain for the large adoption of blockchain in our daily lives.

Hydra and 2^e low blockchain solutions

As discussed earlier in the 'what is crypto' section, it is possible to get a 2^e layer to build on top of a base layer. We therefore call this an L2 blockchain for short. The L2 blockchain has a specific purpose. For example, L2s are often used to further scale up the number of transactions or to outsource a certain function from the base layer.

After smart contracts have been fully implemented on the Cardano Network, it is time for the next step. As can be seen from the Roadmap, it is time for scalability. Within this scalability, Cardano uses a proprietary L2 solution called 'Hydra'.

Hydra aims to move a large number of trades from the base tier to the 2^e low. However, Hydra will not be disconnected from the base tier and trades will therefore be made directly on the base tier with almost no fees. In addition, Hydra will contain the same smart contracts, scripts as on the base layer. This has the advantage that there is no need to consolidate directly with the base layer.

The big difference here with Ethereum, for example, is that Hydra contains all scripts and smart contracts that are also on the base layer. Ethereum is currently generally scaled through external blockchains. These combine trades and consolidate them with the base layer. However, this causes problems because the smart contracts are not present on the L2. In addition, this has the danger that in the long term people will no longer consolidate on the base layer, but will work purely and solely with the (often) more centralized L2.

side Chains

Within sidechains it is possible to build specific applications for specific purposes. For example, you can build a sidechain for payment transactions, NFTs, Defi and have it consolidated with the base layer. In this way, the development of, for example, Cross chain tokens is becoming increasingly easier.

Cardano Native Tokens

Similar to the Ethereum Blockchain, for example, it is possible to realize Cardano Native Tokens on the blockchain. This means that you can realize your own token that runs on the Cardano blockchain.

To date, most native tokens run on the Ethereum network. We call these tokens ERC-20 tokens. However, the Ethereum network has a major drawback. For example, a native Ethereum token works through a smart contract with the blockchain. The downside of this is that costs have to be incurred every time a token consolidates with the base tier (Ethereum). This is also the reason why the costs for the Ethereum network are so high (gas fees).

Native tokens on Cardano do not use a smart contract. This ensures that these tokens can use the blockchain at no cost. In addition, these native tokens can make use of the security and reliability of the Cardano blockchain. In addition, it is also possible to send native tokens in a transaction, in addition to ADA. At the same cost.

ERC20 Converter

Very soon the ERC20 converter will be rolled out on the Cardano network. The ERC20 converter is a bridge between the Ethereum network and the Cardano network that allows existing ERC20 tokens to be transferred from Ethereum to Cardano. This allows these tokens to use the benefits of the Cardano network at lower or no cost.

Cardano Community

Last but certainly not least is the Cardano Community. Cardano is a blockchain that uses scientific research to make our world fairer by creating a level playing field for everyone. This story also attracts a lot of people within the crypto community. That is why the Cardano Community is the most loyal group within crypto. This can therefore be read from

Differences between Cardano and other blockchain

Starting this piece, let's give an overview of the main differences between the Cardano blockchain and other crypto such as Ethereum. This way you have an overview of what you have been able to read in this article.

• Cardano is a blockchain developed entirely on the basis of scientific research
• Cardano is a proof of stake network, compared to Proof of work, it uses many times less energy and is also faster and more cost efficient
• Cardano is a network that is committed to achieving a level playing field for everyone in the world and financial inclusivity.
• Cardano's smart contracts are built on the eUTXO accounting model
• Anyone can participate in further decentralizing the network by staken in a Cardano stakepool
• Cardano is a blockchain that is very committed to the development of a digital identity on the blockchain.

Governance

The final stage in the development of Cardano (Voltaire) is Governance. Governance entails how the blockchain should be governed once the lead developers let it go. The holders of ADA have voting rights in what will happen with the blockchain in the future. Project Catalyst is an example of this.

Project Catalyst is an annual fundraising round in which a fraction is set aside for every transaction in order to free up a budget for future developments on the blockchain.

Finally,

This was a long article in which we described all the different aspects of the Cardano blockchain. You may have questions about this, let us know and share your question via social media. The world of blockchain is changing very quickly and certain provisions in this article may already be outdated. In that case, leave a comment.