Cardano is a peer-review network based on blockchain technology. Cardano network is a smart contract platform that consists of two layers. The top layer is called the Cardano Settlement Layer and it serves the purpose of settling transactions where ADA is used as a medium for sending and receiving payments. The second layer is called the Control Layer. The Control Layer represents an operational environment for smart contracts. Dividing the network’s architecture into two layers results in a scalable network where two simultaneous operations can be conducted – smart contract operations and exchanging value.
The second layer has yet to become operable, as it is still being developed as a Computational Layer where smart contract operations are enabled. There are also plans for the platform to be interoperable with traditional financial systems. The project is facilitating interoperability, sustainability and scalability. Small groups of scientific and academic teams are competing with peer-review research, while the network’s architecture is separated into layers and has the ability to upgrade without resulting in forked coins. All these factors make Cardano a third-gen platform that values scalability as a part of necessary development. To enable scaling, Cardano is observing a new technology created by John Day – RINA. RINA, or Recursive Inter-Network Architecture, can structure the platform by creating a heterogeneous network. RINA also facilitates transparency and privacy alongside scalability.
The ultimate goal of the Cardano project is to create an internet of blockchains, which is an ecosystem created from multiple side chains that connect different blockchain networks. This case would enable communication between chains, i.e. the Ethereum network could communicate with the Cardano network for example. The Cardano project is still in development according to the roadmap, while transacting with ADA is enabled.
What is the ADA?
ADA is a native currency to the Cardano network and it operates on the top layer of the platform. The Cardano Settlement Layer uses ADA to exchange value and make transactions. ADA is not only used for transactions, as the currency also fuels development, creation and utilization of smart contracts and Dapps on the second layer of the network. ADA can grant access to Dapps on the network. At the same time, ADA is one of the top trading cryptocurrencies on the market. The maximum supply of ADA is set at 45,000,000,000 units. ADA transactions are validated and verified through staking.
Cardano (ADA) uses a special wallet created for storing ADA called Daedalus. To be able to use ADA coins, users need to download the Daedalus wallet. The wallet is created specifically to store and use ADA and it represents a hierarchical deterministic wallet with multi-platform properties and built-in security. After downloading Daedalus from the official Cardano website, users can install the wallet on their desktop computer and run the application. The wallet is then ready to be used for storing, sending, and receiving ADA. Daedalus also records received and sent payments so users may access their transaction history.
The history of all transactions can also be accessed through the Cardano Block Explorer. Moreover, Daedalus offers security and protection against malware attacks through the use of spending passwords and encrypted private keys. Users’ funds can also be kept in cold storage as Daedalus can be exported as a paper wallet for improved security. Daedalus also supports encrypted and unencrypted ADA redemption certificates. Daedalus works by downloading a full copy of the Cardano blockchain, which means that the wallet is performing independent validation of every transaction in the chain’s history. Daedalus is thus classified as a full node wallet that facilitates maximum security and trustless operations without the interference of third parties. Back-up and restoration features can be used to restore ADA funds where necessary, while users can organize their ADA funds across numerous wallets. Daedalus is built on the top layer of an open-source platform for cross-platform desktop applications called Electron.
Daedalus also hosts a newsfeed, which enables users to stay in touch with the latest and most important news related to Cardano and ADA. Finally, Daedalus is created to enable the personalized display of the interface of the wallet, where users can choose from six different themes. There are also plans for the wallet to support Bitcoin (BTC) and Ethereum Classic (ETC) and provide an application store where users can get community-built applications for any cryptocurrency. The wallet is supported by all operating systems and a mobile version is available for iOS and Android.
Cardano’s ADA transactions are validated through the process of staking. For staking and validating transactions, Cardano uses a special algorithm called Ouroboros. Ouroboros implements the Proof of Stake algorithm in a different way than the PoS would otherwise be implemented. A typical Proof of Stake algorithm would have nodes with maximum stake, which is the highest number of cryptos creating blocks on the blockchain. However, Ouroboros implements the PoS algorithm by dividing the physical time needed for transactions into fixed periods of time. These fixed periods are epochs that are divided into slots. Epochs are circular, which means that whenever an epoch ends, another one comes online, while slots are changing shifts within epochs. Each epoch is assigned to a slot leader. These slots are selected by nodes that have already participated in the generation of new coins or stakeholders. Slot leaders are supposed to create blocks and confirm transactions on the Cardano blockchain.
Since slots are working in shifts, whenever a slot leader fails validation, another slot leader will take on the role of the validator with the next epoch. When a slot leader creates a transaction, the next set of stakeholders is ready to approve the transactions. The second set of stakeholders is in charge of running the protocol. There can be a single stakeholder or multiple endorsers within a given epoch, while slot leaders are chosen based on stakes through the election system that has two inputs. A multiparty computation system is the first input where a set of stakeholders perform a computation similar to a coin toss, then share the result between stakeholders. The distribution of stake is the second input where nodes with the highest number of coins are more likely to be elected as slot leaders. When validators approve and validate transactions, they are rewarded with ADA. The amount of ADA-based rewards for staking depends on the value of stakes, i.e. the number of frozen ADA coins used for staking. The fact that the Ouroboros protocol is implemented on top of the Proof of Stake algorithm means that all stakeholders have an equal chance to become a validator and earn rewards for participating in block generation and transaction verification.
Moreover, the Cardano blockchain separates the data that is not relevant and rests on the blockchain from the data related to active transactions, facilitating scalability. The team is looking into speeding up transactions and improving scalability by introducing “Sharding.” Sharding works by increasing the speed of the network based on the rising number of transactions – the more users the network has, the faster the verification process. Cardano tested the network’s capacity back in 2017, which resulted in 257 recorded transactions per second. The goal is to increase that number to tens of thousands of transactions per second. Rewards in ADA are split into three on-chain stakeholders, which include multiparty computation stakeholders, input stakeholders (endorsers) and slot leaders.
The second layer of Cardano is created for Dapp development and smart contract operations. Cardano’s IOHK team for the lead of development created tools for Dapp creation. The tools are called Plutus and Marlowe. Plutus is a Haskel-based general-purpose programming language for creating decentralized applications for the fintech sector. Before new smart contracts are deployed to the blockchain, Plutus uses a blockchain emulator to allow testing and exploration. Marlowe is similar to Emerald SDK and is designed as a non-programmers’ generated code. Marlow thus represents a special tool for non-coders who are not familiar with the complexity of programming but would still like to build Dapps.
According to the IOHK team, Plutus is kept simple as an on-chain code to be future-proof and support verification. Cardano’s computational layer created for decentralized apps and smart contracts is still not fully operational, though the network has had its first project built on the platform. The first project to be built with Cardano smart contracts was Traxia, a project that works on interoperability and deals with the conversion of business invoices to smart contracts, but it was later moved to the Binance Chain.
The Cardano Foundation
Cardano has three organizations working on the active development of the platform, IOHK, Emurgo and the Cardano Foundation. These teams are working together to develop Cardano and ADA as a third-gen crypto and blockchain network. IOHK is the leading development team with Charles Hoskinson, the creator of Cardano and ADA. The Cardano Foundation is based in Switzerland and is focused on growing Cardano’s global community while ensuring stakeholder accountability and driving adoption of ADA and Cardano.
The foundation is working independently and is also in charge of making partnerships and shaping commercial standards and legislation. All three entities are a part of Cardano but all have separate ownership and leadership. Emurgo is based in Tokyo, Japan, and works on development and support for Cardano. Emurgo also incubates commercial ventures on Cardano. Together, the teams are working on facilitating effective solutions based on the blockchain technology through the Cardano project – its native currency ADA and the Cardano network.