In this series of articles, we look at the top blockchains in crypto to help you understand the alphabet soup of so-called “altcoins” that exist beyond those of Bitcoin’s BTC and Ethereum’s ETH.
We’ll look at what they are, how they work, what they do, and their pros and cons.
Not only will you get a better sense of what cryptocurrencies are all about from this series, but you will also understand why how a token works — the way its blockchain processes transactions — is key to its success or failure as a token Token is digital good.
See also: PYMNTS Blockchain Series: What is Solana?
So what is Cardano?
The Cardano blockchain is made up of several things, including one of the big three Ethereum killers trying to steal the #2 blockchain crown as the top smart contract platform in the decentralized finance ecosystem.
Second, it is the brainchild of Charles Hoskinson, one of the original developers who worked on Ethereum with its creator Vitalik Buterin. According to him, Cardano is Blockchain 3.0, the successor to Blockchain 1.0 – Bitcoin’s value transfer function – and Blockchain 2.0, Ethereum’s smart contract functionality.
For a third, it’s unique, a peer-reviewed blockchain, meaning all code updates and blockchain upgrades are scrutinized in quite some detail before they’re allowed to go live. This makes it easier to spot security issues and other vulnerabilities before they go live. The project is called the world’s first provably secure blockchain.
It is also the leader of the Ethereum Killers by market cap, $48.8 billion at this writing, making it the #5 blockchain.
This was helped by the announcement that a highly-anticipated DeFi project, the decentralized exchange SundaeSwap, or DEX, is launching on January 20 – with a promise to distribute a whole lot of its native SUNDAE tokens to early adopters. Then there’s Pavio, a Decentraland-style Metaverse project that’s shaping 100,000 land parcels as NFTs and is coming soon.
Fun fact: Cardano’s token, Ada, is named after Ada Lovelace, a 19th-century mathematician widely credited as the first female computer programmer. Who happened to be Lord Byron’s daughter.
Cardano’s development is divided into five parts or “epochs”. Named after poets, they begin (of course) with Byron, the seminal work. Next are Shelly (decentralization), Goguen (smart contracts), Basho (scaling), and Voltaire (governance). Far more organized than most blockchain projects, work on Cardano began in 2015 and is currently in Goguen.
Two part scalability
More specifically, like Solana and Polkadot, Cardano is positioning itself as a better, faster, more scalable, and greener platform, unencumbered by Ethereum’s slow block time — 15 to 25 transactions per second, a snail’s pace compared to Visa’s 1,700 TPS.
Cardano works by splitting the blockchain in two. There is a Cardano settlement layer that processes and records all transfers of value in its native token Ada, and a Cardano computational layer that runs the actual smart contracts and decentralized applications or DApps separately. This allows Cardano to handle around 250 TPS. Which Hoskinson and the project developers knew would not provide enough scalability.
So they started working on a Layer 2 solution called Hydra at the same time. It should allow Cardano to theoretically reach one million transactions per second. The upcoming transition from Ethereum to Ethereum 2.0 is said to bring 100,000 TPS.
Typically, a Layer 2 project like the Lightning Network for Bitcoin seeks to accelerate an existing blockchain while doing exactly what Cardano’s settlement and computational layers do – separating transactions from functions. In the case of Hydra, an unlimited number of computational layers are added to the blockchain.
Like the Ethereum Killers and most of the recent blockchain projects, Cardano runs on a proof-of-stake or PoS consensus mechanism that consumes almost no power. It is the main replacement technology for Bitcoin and Ethereum’s power-hungry Proof-of-Work or PoW mechanism.
See also: PYMNTS DeFi Series: What is Staking?
Both are used to secure the blockchain and add blocks of new transaction data, with the validators (PoS) and miners (PoW) earning new tokens as a reward for their work. The electricity demand of PoW corresponds to that of entire countries.
While Hoskinson’s company IOHK is heavily involved in the development of Cardano, it does not control it. The decision to make software updates, technical upgrades and fund projects to support Cardano is controlled in DeFi fashion by a vote of token holders.
In this case, Ada tokens are not only a payment currency, but also a governance token that votes on the future of the blockchain. That doesn’t change the fact that all proposed changes are reviewed by experts before going live.
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