What is Cardano (ADA) and how does it work?

As multiple cryptocurrencies emerged on the scene, many perceived them simply as chances for financial profit. This angle drew in people from different walks of life, curious about the potential of a more secure future for both personal and corporate finances. While the majority of cryptocurrency investors understand the challenges of suggesting a project that seems to favor all stakeholders, it’s important to tackle any technological limitations that might overshadow its ethical benefits.

The Cardano platform is a product of the new web3 renaissance, which has the goal to improve the already established practices surrounding financial dealings and propose more sustainable solutions for all kinds of users. The name of the organization was inspired by the Italian mathematician Gerolamo Cardano and the coin was named after what is thought to be the first programmer – Ada Lovelace. You can tell that the founder of the network is no stranger to the history of STEM and wanted to pay homage to his personal inspirators. Thus being said the brain behind this crypto project didn’t just put their time into making a business but did indeed fill in many of the technical holes, which their rivals had.

The Cardano blockchain hasn’t stopped evolving and has made headlines for pioneering enhanced principles of work in the crypto sphere. That’s why it should be in everyone’s interest to learn more about the Cardano ecosystem and its impact on Web3’s further development.

Who invented Cardano?

Charles Hoskinson is the creator of the Cardano blockchain and of its native ADA token. The beginning of Hoskinson’s career path in crypto started back in 2014 when he joined forces with Vitalik Buterin and Jeremy Wood to establish Ethereum. However, he had different intentions about the platform and wanted it to be for profit, which led him to butt heads with his colleagues, who were pretty set on the idea of Ethereum being a non-profit organization.

After Hoskinson left Ethereum he began working with Wood, who introduced him to another project of his called “Input-Output Hong Kong” (IOHK), which was set to provide governments, academic institutions and commercial corporations with blockchain related solutions. This collaboration was more than inspiring for Hoskinson, who was a mathematician by trade and knew very clearly what he knew was right to do in terms of building an effective blockchain ecosystem.

The Cardano foundation is a result of the partnership between Hoskinson and the IOHK team. It was born in 2015 right after a client of IOHK requested an Ethereum-like platform, which at the time operated mainly in Japan and was funded by Japanese investors. In 2017 the Cardano network was launched globally and a few years later in 2020 its users were introduced to ADA – the native coin, which could be staked, in order to actively take part in the blockchain platform.

What is the purpose of Cardano?

The purpose of Cardano is to enable individuals and organizations with blockchain related services, which are sustainable, don’t fail to scale and allow interoperability. And all of that is possible with the application of smart contracts and the deflationary nature of the ADA tokens. The team behind Cardano’s establishment claim it to be a new generation blockchain platform, which has the intent to tackle certain problems, which other crypto foundations have not yet been able to address.

One of the biggest cons of popular cryptocurrencies like Bitcoin is that it is volatile and has scalability issues. That means that only up to 7 transactions can be validated per second, which clearly is not enough. The Cardano blockchain scales linearly, which means that the more people use it, the faster the network is, which is the exact opposite of what Bitcoin does.

Another significant goal of Cardano is to provide interoperability solutions to its users. By using the KMZ sidechain protocol the platform allows people to bridge other cryptocurrencies, which are on different blockchains with Cardano.

But most importantly the Cardano foundation aims to be more sustainable in both environmental and financial ways. Being a proof of stake cryptocurrency reduces its power consumption tremendously and has also turned itself into a self-sustainable cryptocurrency, which means that it collects fees which are used for rewarding the contributors to the network.

How does Cardano work?

After it has become clear what the intentions are behind this project, it will be somewhat easier to understand how the Cardano platform operates, in order to fuilfil its aims.

The platform is made up of two layers – the Cardano settlement layer (CSL) and the Cardano computational layer (CCL). It is exactly this separataion of layers that enables the blockchain to verify millions of transactions in a second.

All digital currencies created on the Cardano platform like ADA are set on the CSL. This layer acts as a value ledger and it enables the network to work more efficiently and perform at higher demand. This is where transactions are going through because of the Ouroboros, that has to do with the consensus mechanism, about which you shall learn later.

The CCL acts as the brain of the platform and is responsible for creating the conditions upon which the DApps, the tokens and the entire network will operate.

As we have already mentioned Cardano uses the proof of stake consensus mechanism, which means that it is run by the people who have the most digital assets and are therefore eligible for becoming validators and keeping the blockchain going. The functioning of the platform is in the hands of individuals staking their ADA and of course, the stake pools. That means that transactions are being validated at a higher speed and minimal electricity is required for validation tasks to be completed. Unlike the proof of work consensus mechanism, PoS doesn’t perpetuate competition which is based on computational power and is therefore more convenient for everyday people, who can’t afford to be equipped with special rigs. But there is one technological advance which separates Cardano from other cryptocurrencies and it is Ouroboros system.

What is the Ouroboros protocol?

The Ouroboros protocol is an algorithm based on the proof of stake consensus mechanism, which implements the use of “epochs”, which are set to divide which validator is set to validate certain blocks. And there are also “slots”, which can be also divided. This method allows the network to actually scale and also cuts off any kind of competition, which is only possible in the proof of work consensus mechanism. Briefly said, this protocol is what facilitates the transaction validation process.

This model of work has repeatedly shown to be more productive and also more secure. It is also important to mention that when you become a validator, there’s no requirement for your ADA to be locked, which allows flexibility. And if you don’t have enough assets you can start your own stake pool, through which you can scout other people to join forces with you.

How to buy Cardano (ADA)?

If you are just starting out with your crypto investments and you want to buy Cardano it is recommended that you make your first purchases through a trusted crypto exchange and not directly from a stranger who offers to sell you some of their ADA.

  • Choose the cryptocurrency exchange which sells ADA. Some of the most used and reliable centralized exchanges for trading Cardano are Binance, Kraken and Coinbase. You still have to pay transaction fees but they’re minimal.
  • You have to set up a personal account through the registration form. You’ll have to provide the exchange with your name, e-mail and phone number.
  • After that step you’ll have to wait for your identity to be verified, which will require some personal information.
  • Select the payment method of your choice and decide how much you’d be willing to spend on your first purchase.

In order to make reasonable choices, you have to plan out your investment strategy and figure out how low or high your risk bar is. It is important to make sure that you first experiment with the cryptocurrency in question and then make greater investments. You also shouldn’t forget that you have to keep your digital assets safe in the meantime.

How to store Cardano (ADA)?

The more security you have, the better, however if you don’t own that much coins you don’t have to spend a lot of money on a hardware wallet, instead you can use a free hot wallet.

Here are your best options for storing Cardano:

  • Use the software wallet provided by the crypto exchange. Binance and Coinbase are the most highly rated due to their ease of use and many features. These mobile applications are great convenience for those who want to go into trading and need to have constant access to both the exchange and their funds.
  • Invest in a hardware wallet, which will help keep your assets in a more secure environment – offline. Ledger Nano and Trezor are great options for those seeking extra safety. However, these devices are more pricey and aren’t necessary for more modest amounts of crypto.

Daedalus wallet for ADA

The Daedalus wallet is made especially for ADA and it is created to grow along with the blockchain technology. This wallet has a copy of the Cardano blockchain and is able to automatically validate transactions in the history. It can run on all types of devices and ensures additional security for your ADA due to its direct connection to the platform. Through the wallet application you can also stake Cardano.

What can you do with ADA?

The Cardano network has managed to prove itself worldwide and has therefore made some outstanding partnerships, which are more than impressive. It has secured a collaboration with the government of Georgia to create a system which has to verify IDs and was also hired by New Balance to exploit their decentralized technology for checking the authenticity of the sneakers the company produces.

Although these are important news for the adoption of the Cardano blockchain technology in different spheres, there still not much to do with its cryptocurrency coin directly. With that being said, you can take advantage of the Cardano network for creating smart contracts and other projects concerning the deployment of decentralized applications, however there still aren’t many avenues to spend your ADA on.

According to peer reviewed research it will take some time for ADA to be included in the list of coins you can spend on groceries and other consumer goods because it is still firly new to the market and needs more time for further establishment and recognition.

Should you buy Cardano (ADA)?

It is always risky business when you invest in any cryptocurrency because its prospects are highly affected by the state of the economy and the level of popularity among traders.

In September of 2021 ADA reached a peak in value coming at $3.10 but 2022 wasn’t that good for any cryptocurrency and inflicted a massive dip even for Cardano. The second half of the year didn’t start too good because ADA cost just $0.42 and is yet to recover from that low price.

Needless to say, every crypto coin is now suffering and for all those who owned ADA, the dip was more than unfortunate. However, this is probably the perfect time to invest in it, because the price is so low you can purchase just enough amount to test out what could happen in the following months.

Since Cardano claims to be more scalable than its competitors. There should be no doubt that ADA will retrieve its higher value stats but the underlying question is always when will that happen? That’s why the most important part of investing in crypto is to be able to hold it long enough to actually make a profit off of it. In the meantime the beginner investors can benefit from the low price by being able to buy more and then wait for the value to rise.

*The article contains fundamental facts about the Cardano platform and is not aimed for professional financial advisory!

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