Cardano (ADA) Overview – Will It Be the King of Cryptocurrency?

For all the excitement around cryptocurrencies, the original and best-known networks today have a few dirty little secrets. 

First, their transaction speeds limit how scalable and efficient they are as their network load increases. Second, they rely on a proof-of-work mining model that incentivizes miners to consume vast amounts of energy to run computer hardware in the pursuit of new coins. 

The newest generation of cryptocurrencies has tried several approaches to resolving these issues. One of the biggest and most successful of these altcoins is Cardano. 

What Is Cardano (ADA) Cryptocurrency?

Cardano is a blockchain and smart contract platform created in 2015 by Charles Hoskinson, the co-founder of Ethereum. It’s a third-generation blockchain platform that incorporated peer-reviewed research into its development in the hopes of avoiding the pitfalls and limitations of earlier blockchain networks like Bitcoin and Ethereum

Motley Fool Stock Advisor recommendations have an average return of 618%. For $79 (or just $1.52 per week), join more than 1 million members and don’t miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now

The Cardano network’s internal cryptocurrency, ADA, is the sixth most popular cryptocurrency by market cap at more than $30 billion. 

History of Cardano

Hoskinson began developing the Cardano blockchain platform in 2015 and finally released it in September 2017. 

The Cardano network takes its name from Italian Renaissance mathematician Gerolamo Cardano. Its native token is named for 19-century English mathematician Ada Lovelace, who created an early digital computer prototype and is considered the world’s first computer programmer.

The Cardano Foundation, a nonprofit based in Zug, Switzerland, oversees and supervises the Cardano network and brand. 

The foundation has partnerships with prominent blockchain developers and engineering companies — like Hoskinson’s IOHK (Input Output Hong Kong) and EMURGO — to help ensure the technology is being developed and promoted as a secure, transparent, and accountable system. It also works with regulators to inform blockchain legislation and commercial standards.

The Cardano development roadmap consists of five phases (eras) named for famous computer scientists and philosophers:

  • Phase 1 (Byron) — Foundation: This era began in 2017 when the first version of Cardano launched.
  • Phase 2 (Shelley) — Decentralization: This era involved the growth and development of the network to include more nodes, ensuring network participants increasingly ran it.
  • Phase 3 (Goguen) — Smart Contracts: This era adds smart contract functionality, introducing the ability to build decentralized applications (dApps) on the Cardano platform. 
  • Phase 4 (Basho) — Scalability: This era focuses on optimizing the network’s performance for widespread adoption, allowing support for growth and applications with high transaction volume. A major feature of this era is the introduction of sidechains, which are separate blockchains that run in parallel and are interoperable with the main Cardano chain. Sidechains can be used to offload work from the main chain to vastly improve the network’s capacity.
  • Phase 5 (Voltaire) — Governance: The final phase of development will introduce systems that make the network self-sustaining, including decentralized voting and treasury systems. Once these systems are in place, Cardano will no longer be managed or supervised because the community will possess the voting rights to determine the future of the network.

The platform’s development is currently at Phase 3, having launched smart contract capability in September 2021.

How Cardano Works

Cardano is the largest cryptocurrency by market capitalization that uses a proof-of-stake (PoS) consensus mechanism called Ouroboros to mine new tokens. Compared to Bitcoin and Ethereum’s proof-of-work (PoW) protocols, which require intensive computing power that consumes massive amounts of energy, Cardano is a greener alternative. 

Cardano’s proof-of-stake mining system involves pools of participants staking an amount of ADA, locking up their currency for a period of time. By holding and staking the tokens, users support the basic function of the network and earn rewards — in the form of ADA — in the process.

The Cardano protocol divides time into time slots, which are currently one second apiece. A lottery selects a participant with staked ADA in each time slot to validate transactions, create transaction blocks, and add new blocks to the Cardano blockchain. The more ADA a user has staked, the greater the odds of being chosen in the lottery and receiving the rewards. 

Cardano and its Ouroboros algorithm are touted as being based on scientific philosophy and peer review. Cardano’s open-source blockchain has undergone the academic peer-review process, whereby scientists and programmers at academic institutions have formally evaluated it. Scholarly research has also informed its development since its inception. 

Pros and Cons of Cardano

Cardano is one of several blockchain networks billed as so-called “Ethereum killers,” designed to outcompete the world’s leading blockchain platform for developers. Unlike many other networks that claim this ambition, Cardano is large enough and has enough developer support to give Ethereum a real run for its money — but it isn’t the king of the hill just yet.

Pros of Cardano

There’s a lot Cardano developers and investors like about the platform, including. 

  1. Fast Transactions (and Scalable). The Bitcoin network processes around seven transactions per second, and the Ethereum network can process around 30 per second, which places some constraints on how scalable these networks are. Cardano can process more than 250 transactions per second today. The sidechains that accompany Phase 4 of Cardano’s development could allow the network to process 1 million transactions per second or more in the future. 
  2. Low Fees. Cardano fees are currently 0.16 ADA per transaction, or about $1 as of this writing. The transaction fees for Bitcoin and Ethereum are often five to 50 times greater, depending on the spot prices of these coins.
  3. Better for the Environment. Cardano’s proof-of-stake protocol requires far less computing power. Thus, it consumes vastly less energy than traditional proof-of-work models other cryptocurrencies employ. 
  4. Strong Development Team. The team developing and building on Cardano is well respected in crypto circles, including its founder, Hoskinson. Having this talented team will be key to launching the succession of promising upgrades that are in the works. 

Cons of Cardano

Despite all its advantages, there are some speed bumps on the road to widespread adoption of the Cardano network and the growth in value of ADA tokens. Consider these primary cons before investing:

  1. Less Name Recognition. Although among the top 10 cryptocurrencies by market cap, and its popularity among developers and cryptocurrency enthusiasts, it lacks the mainstream name recognition of more established coins like Bitcoin and Ethereum. 
  2. Still Under Development. The Cardano protocol is still a work in progress. It remains to be seen how quickly (or whether) its team will be able to develop the platform to its full potential. Some critics say the network was late to get into smart contracts, only releasing this functionality in September 2021. By contrast, this use case was supported by Ethereum upon its launch in 2015.  
  3. Growth Potential Limited by Adoption. Developers must build dApps using this platform over other alternatives like Ethereum for the ecosystem to blossom. Because Ethereum came first, there are many times more projects and dApps currently built on the Ethereum network than there are using Cardano. 

Where Can You Buy and Sell Cardano?

Most large cryptocurrency exchanges support buying and selling ADA tokens, including Binance, Coinbase, and Kraken. But notably, the popular trading platform Robinhood doesn’t yet let users buy Cardano on the platform. 

Not every cryptocurrency exchange is available in the U.S., and availability can even vary by state, so ensure the exchange you’re considering is licensed in the U.S. and available where you live before you sign up. 

When choosing a platform or brokerage, pay special attention to the transaction fees you pay. These vary widely by platform and can really add up.

Depending on whether you want to trade other cryptocurrencies for ADA or exchange fiat currency for the tokens, you’ll want to choose a platform that offers a wide selection of other coins and makes it easy to deposit and withdraw funds.

Finally, if you want to move your Cardano into a secure crypto wallet, choose a platform that allows you to move your crypto holdings offsite (take possession). Many platforms force you to liquidate your crypto holdings before withdrawing your funds.    

Final Word

Cardano is already one of the largest crypto projects around, and it has a bright future as a growing blockchain ecosystem. Its use cases include a host of smart contracts, dApps, and an NFT marketplace that can credibly compete with Ethereum. 

The fact that Cardano is easier on the environment and based on academic peer-reviewed ideas may prove to be the differentiators that allow it to be a more sustainable solution in the long run. With more and more features and expanded interoperability on the horizon, this is one cryptocurrency you don’t want to sleep on. 

Source link