What is Cardano?
Aug 9, 2020 - 4 min read
One of the growing number of proof-of-stake blockchains under development in the crypto ecosystem, Cardano and its native cryptocurrency ADA have gained increased recognition recently. The Cardano project describes its protocol as a “third-generation blockchain” designed to support smart contracts with potential implementation in supply chain traceability and governance.
The Cardano project, with its aim to build a blockchain based on solid scientific research and best industry practice, appeared in 2015. Its driving force was Charles Hoskinson, one of the Ethereum co-founders and a strong believer in the disruptive powers of cryptocurrencies for the financial system. In 2017, the project raised more than $60M in an ICO. Cardano is sometimes referred to as the “Japanese Ethereum,” as a significant number of its investors came from Japan, and the company backing Cardano implementation, EMURGO, is also based there.
Cardano is a proof-of-stake blockchain which means that consensus on the validity of new blocks is achieved by the users staking their coins in the network. The blockchain uses a consensus protocol developed in-house – Ouroboros – which the developers claim to be “the first provably secure proof-of-stake protocol”. The validity of this claim in practice is hard to assert as the blockchain is still in relatively early stages of development. Some scattered criticisms, however, including from Vitalik Buterin, have called this claim into question – in particular as regards the finality of proposed transactions.
The long-term sustainable development of the Cardano blockchain without centralization is supported by a “treasury” system,” that helps sustain the development of the protocol.
Full rollout of the Cardano blockchain is scheduled in five stages (or “eras”, as they are called): Byron, Shelley, Goguen, Basho and Voltaire. At each stage, a new set of functionalities is added to the blockchain. For instance, the recently launched Shelley era will introduce an incentive mechanism for staking and a possibility to delegate Cardano’s cryptocurrency ADA.
Cardano development is driven by three different organizations. The Swiss-based Cardano Foundation is tasked with overseeing the development and building the Cardano community. Input Output Hong Kong (IOHK) builds the blockchain and the tools for its application. EMURGO is a for-profit company promoting commercial applications of Cardano.
Cardano is presented as a decentralized open-source platform for smart contracts, aiming to outperform competitors by providing more advanced functionality and design options. The blockchain protocol is designed in two layers where one, the settlement layer, handles all the transactions with Cardano cryptocurrency, and the other one, known as the computational layer, hosts the smart contracts. The protocol design aims to ensure better security, scalability and compatibility of the blockchain, which makes it suitable for uses in the financial sector and governance.
As the Cardano blockchain is in relatively early stages of development, its concrete use cases are still somewhat limited. Products developed on Cardano by IOHK generally focus on supply chain traceability, and digital identity.
Using blockchain technology to prove the origin of a resource or provenance of a product is of particular interest with possible implementations in the pharmaceutical, agricultural, luxury, and retail industries. IOHK offers several Cardano products that enterprises can use to increase the traceability in their supply chain. In 2019, the global athletic wear brand New Balance announced its plans to use Cardano tools for product authentication.
IOHK has also launched a digital identity system known as Atala PRISM with the goal of offering digital identity to many of the unbanked citizens of developing countries in places such as Africa and Asia.In 2019, the Cardano Foundation announced its expanded collaboration with 54 African countries to develop blockchain governance tools for sustainable growth and development.
Cardano’s native cryptocurrency – ADA – has been on the market since 2018, when it experienced high volatility for several months. Since then, the price of ADA in USD has stabilized. At the moment of writing, the ADA market cap is around $37.5B.
Cardano is currently passing several significant milestones.
First, the complete transition to the Shelley era took place on 30 July 2020. The pinnacle of the era is the decentralization of the network and implementation of proof-of-stake, which means more and more nodes will be run by the Cardano community. For ADA holders, major news includes the introduction of the delegation and the reward system, which will allow them to receive staking rewards.
By the end of 2020, the Goguen mainnet rollout is planned. Goguen will integrate the functionality for smart contracts and add the ability to build decentralized applications (dApps) on Cardano, which is an important step towards expansion of the use cases.
On the technological front, IOHK is partnering with Wyoming University to develop a crypto-authentication microchip that can give crypto users fiat-like experience, by ensuring it works without Internet access (at least, to some extent). This technology has potential applications for peer-to-peer payments, as well as enterprise uses, such as in the authentication process.