What Is Cardano? A Beginner-Friendly Guide

What is Cardano?

Cardano is a blockchain that uses smart contracts on a PoS (Proof-of-Stake) consensus algorithm. In other words, Cardano allows developers to use self-executing commands to create decentralized applications (dApps). PoS means the computers securing Cardano's network have to "lock" its native cryptocurrency ADA (named after pioneering computer scientist Augusta Ada King) on the blockchain to confirm transactions. Like Ethereum, Cardano is most interested in welcoming third-party developers to create dApps in fields like DeFi (decentralized finance), NFT (non-fungible token) trading, and play-to-earn games.

The blockchain was created by computer scientist Charles Hoskinson, who was also a core developer of Ethereum. In 2015, developer Jeremy Wood teamed up with Hoskinson to create a blockchain to solve Ethereum's scalability problems. Initially, Hoskinson and Wood founded software company Input Output Hong Kong (IOHK) to develop a new smart contract blockchain. The result of IOHK's efforts was the Cardano blockchain, which officially launched in 2017. Today, IOHK continues to play a pivotal role in the Cardano ecosystem. Company Emurgo and nonprofit Cardano Foundation also coordinate funding and development on the Cardano blockchain. 

How does Cardano work?

Cardano uses a specially designed PoS algorithm known as Ouroboros Praos. Similar to other PoS projects, validators need to "lock" a set amount of ADA on the blockchain to confirm transactions and receive coin rewards. Those who don't want to run a full validator node can also delegate their ADA tokens to a staking pool. 

A unique aspect of Cardano's PoS design is its time division between "epochs" and "slots," which means the blockchain can constantly adjust how long these validation times last, but slots are always shorter than epochs. Generally, a slot is no longer than 20 seconds. Within these slot timeframes, Cardano's algorithm chooses a validator to contribute new transactions to the blockchain. The multi-day epochs help record and organize these thousands of smaller transactions. Cardano claims this flexible time system will allow the blockchain to scale and adjust to meet current demand. 

Cardano also divided its blockchain into two layers: settlement and computational. While the settlement layer processes and stores all transactions on Cardano, the computational layer is where developers can build unique smart contract dApps.

What is Cardano’s ADA used for? 

The official cryptocurrency on the Cardano Network, ADA has a hard-cap supply of 45 billion coins. 

Validators and delegators interacting with Cardano dApps pay gas fees in ADA. They can also stake their ADA coins directly on Cardano's blockchain or through a third-party service to confirm transactions and receive ADA rewards. Since Cardano is a large crypto project, it's easy to find ADA on many centralized crypto exchanges (CEXs), including Gemini, Coinbase, and Binance, which now offer ADA-staking services.   

ADA also plays a central role in Cardano's on-chain governance. Validators can use ADA coins to vote on upcoming changes to the Cardano blockchain, including Cardano Improvement Proposals (CIPs) and Funding Proposals (FPs).  

What makes Cardano unique? 

Although Cardano has many similarities with projects like Ethereum, the blockchain is most notable for its rigorous, measured methodology. From the beginning, Hoskinson and Wood set out to create a blockchain with high scientific standards. Cardano works closely with many universities and research centers to carefully screen improvements before implementing them on the mainnet, which is a completely functional blockchain. Cardano publishes all its peer-reviewed studies on its main website and never rushes to make significant changes to its blockchain. 

While Cardano has been live since 2017, it wasn't until 2021 that it introduced smart contract functionality. The Cardano blockchain still isn't fully operational at the time of writing, and it’s unknown how long it will take for Cardano to complete its final two stages: scaling (aka Basho) and governance (aka Voltaire). 

Some in the crypto community argue Cardano is unnecessarily overcautious in its approach to software development. By the time Cardano is fully operational, similar chains like Avalanche or Cosmos may have a larger user base and a competitive advantage. However, many developers argue Cardano's slow and steady method benefits the crypto space. This strategy ensures Cardano has a lower risk of falling victim to hacks and makes cryptocurrency increasingly credible among institutions. 

What does Cardano do better?

One of Cardano's strengths is its commitment to scientific precision. Since Cardano peer reviews every upgrade to its blockchain, it has gained more credibility with companies, world governments, and colleges. Today, Cardano is one of the crypto industry's most well-connected blockchains. For example, the University of Wyoming and the University of Edinburgh in Scotland frequently collaborate with Cardano on blockchain upgrades. Cardano has also partnered with the governments of Georgia and Ethiopia to introduce novel blockchain-based ID systems. 

Beyond Cardano's institutional reputation, the blockchain has many attractive features from a development perspective. It can handle 250 transactions per second (TPS) and has low transaction fees. Also, Cardano's PoS algorithm makes it efficient and more environmentally friendly. 

Does Cardano have any drawbacks?

Ironically, a critique some people have of Cardano could be viewed as its main strength. Critics often argue it's taking too long for Cardano to complete its blockchain. Although dozens of dApps exist on Cardano, it may take years before Cardano declares itself a "completed" project. By the time Cardano reaches its final stages, it's unclear whether users and developers will be interested in using this blockchain. That’s because multiple competing smart contract PoS blockchains are already operational, like Solana, Polkadot, and Cosmos have multiple Web3 projects and cross-chain bridges in their respective ecosystems. Also, Ethereum recently transitioned to a PoS chain, which may address the scalability issues Cardano was attempting to fix. 

Recent estimates suggest there are about 223,000 transfers on the Cardano blockchain per day in 2022, with 5.3 million ADA wallet addresses. In contrast, the Ethereum blockchain posted an average 24-hour transaction volume of 1 million in 2022, with 216.3 million wallet addresses. 

Which blockchains compete with Cardano? 

Cardano is one of many PoS blockchains using smart contract technology. It falls in the category of blockchains known as "Ethereum killers” because they mimic Ethereum's features but tend to have faster confirmation times and lower gas fees. Some of these blockchains, which happen to be Cardano's key competitors, include:

1. Solana
2. Polkadot 
3. Avalanche 
4. Algorand
5. Cosmos

However, it's not just Ethereum killers that Cardano is competing against. Thanks to Ethereum's recent PoS upgrade, it could introduce many features that already make Cardano attractive, including fast transactions and low fees. Also, layer-2 scaling solutions like Polygon, Arbitrum, and Optimism make it easier to interact with the Ethereum blockchain. These side-chain projects connect with Ethereum to reduce network congestion and offer cheaper transactions.

What is Cardano’s future?  

Thanks to the volatile nature of cryptos, it's impossible to predict their future, Cardano included. However, Hoskinson's blockchain has garnered much attention both inside and outside the crypto space. Cardano’s commitment to exhaustive research has resulted in the blockchain building connections with many elite institutions. 

Cardano may be well-positioned to become a major smart contract blockchain due to its strong technical chops and large amount of liquidity, but it may take years before the blockchain is fully operational. Even if Cardano achieves all its goals, there’s a high chance that its competitors will accomplish more in the meantime.

While Cardano's network activity may be lower than on Ethereum, it has a robust developer community. There's also high demand for ADA on the crypto market, as it has one of the largest market caps and is available on all significant CEXs. 

Wrapping up 

Cardano's commitment to research-backed software development has struck a chord in the crypto community. Many non-crypto institutions feel comfortable working with the Cardano team. While it's unknown how Cardano will evolve in the succeeding years, it’ll likely impact the cryptocurrency space. 

Worldcoin is another emerging crypto project that believes in research, education, and innovation. At Worldcoin, we aim to provide everyone access to crypto for free. We’re also airdropping DAI to anyone who downloads our app. Subscribe to our YouTube channel to learn more.