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What is Cardano?

Cardano is a decentralised blockchain for the development of smart contracts and the deployment of decentralised applications. The blockchain's proof-of-stake consensus mechanism and unique, layered architecture is designed to provide enhanced security and scalability in comparison to competitors, such as Ethereum.

One of the distinguishing factors that set Cardano apart is that it's the first blockchain project guided by academic research and scientific philosophy. The platform is being developed by a global collective of expert engineers and researchers, with related academic papers published on the website regularly.

Cardano's developers hope to create a platform that combines the need for consumer privacy and protection, while simultaneously providing regulatory oversight.

Where is Cardano headed? See our Cardano (ADA) price prediction.

Cardano use cases

When the Cardano project first started to take shape in 2015, the overarching aim was to change the way cryptocurrencies are designed and developed. According to its whitepaper, "The overall focus beyond a particular set of innovations is to provide a more balanced and sustainable ecosystem that better accounts for the needs of its users as well as other systems seeking integration."

That all sounds great in theory, but what real-world uses does the platform have?

Cardano use cases:

• A payment protocol, providing fast and affordable transfers between users
• To create and deploy smart contracts, which combined create decentralised applications. Smart contracts have a myriad of applications across numerous industries
• To digitize physical real-world assets

What is ADA and what does it do?

ADA is the native cryptocurrency of the Cardano blockchain. The primary use of the coin lies within the network's proof-of-stake mechanism. This involves token holders locking away (staking) ADA coins to validate transactions and secure the blockchain.

A transaction fee must be paid in ADA when using the Cardano blockchain. This allows validators in the network to complete the transfer within Cardano's settlement layer (see below for more details). All applications that are built on the Cardano blockchain will use ADA for transactional fees.

The coin also carries monetary value and, therefore, can be used to transact between friends, pay for goods and services and deposit funds on an exchange or decentralised application.

The supply of tokens is capped at a maximum of 45 billion ADA, with more than 35 billion already in circulation.

What are Yoroi and Daedalus wallets?

The private keys to digital assets should be securely stored within a cryptocurrency wallet. But all crypto wallets are not created equally. Cardano offers two native cryptocurrency wallets for users to store ADA tokens. These are Daedalus and Yoroi. Which wallet a user chooses depends on the levels of security required.

Yoroi is a lightweight cryptocurrency wallet that comes in the form of a browser extension or mobile application. The setup is instant and connection to the Cardano blockchain is facilitated through Emurgo.

In comparison, the Daedalus wallet was developed by IOHK and is thought of by many as a more comprehensive offering. Daedalus downloads the blockchain's entire history, which allows it to validate all transactions for complete trust and autonomy. It is often referred to as a full node wallet and removes the requirement of any centrally hosted third party server.

What makes Cardano unique?

Every smart contract blockchain is inevitably compared to Ethereum. Just like Ethereum, Cardano offers a platform where developers can create dApps and deploy smart contracts.

However, it is not intended to be a carbon copy and offers several other versatile features. Cardano allows smart contracts to be executed on a different layer than where transactions take place thanks to its layered architecture. This makes it possible to quickly deploy a wide range of advanced smart contracts on the blockchain.

It's also the first cryptocurrency to be based on Haskell code, which is widely considered to be one of the most secure programming languages, providing a range of safeguard protocols.

Rather than a roadmap or whitepaper, the project was initially based on a collection of design principles, engineering best practices and other key considerations, including:

• Separating accounting and computation into different layers
• Small groups of academics and developers competing with peer-reviewed research
• Building on the ability to upgrade systems once they've been deployed without destroying the network
• Building a cryptocurrency that can work on mobile devices and provide a reasonable and secure user experience
• Finding a "healthy middle ground for regulators to interact with commerce without compromising some core principles inherited from Bitcoin"

From these ideas and principles, Cardano was created.

The technology behind Cardano

Cardano is being built with two layers – the Cardano Settlement Layer and the Cardano Computation Layer. The two layers provide the flexibility businesses need to tailor smart contracts to their requirements.

• Cardano Settlement Layer. The settlement layer acts as the platform's balance ledger. It uses a proof-of-stake (PoS) algorithm to generate new blocks and confirm transactions.
• Cardano Computation Layer. The execution layer for smart contracts. Smart contracts on Cardano are built with Plutus, which went live with the Alonzo upgrade in September 2021.

As previously mentioned, instead of using a proof-of-work consensus algorithm like Bitcoin, Cardano uses a proof-of-stake algorithm called Ouroboros. Under this system, blocks are generated and transactions verified by slot leaders, or validators. Anyone who holds ADA tokens can become a slot leader, with slot leaders randomly chosen using a coin-flipping protocol.

What is Ouroboros and how does it work?

Ouroboros is the name given to the proof-of-stake protocol that secures and validates the Cardano blockchain. Marketed as an energy-efficient alternative to the proof-of-work protocol used by Bitcoin, the algorithm enables the same levels of security without the need for excessive power consumption.

Instead of computing power, a user can become a node in the network by locking away (staking) ADA tokens. Nodes are then randomly selected to perform the operation of validation. The more ADA tokens staked, the greater the chances of being selected. For those that do not wish to become a validator but still wish to participate, users may delegate their tokens to an already operational validator. All those that stake within Ouroboros are then rewarded with more ADA tokens.

Ouroboros splits time into epochs and slots. A new slot is created every second, with 432,000 slots composing an epoch. An epoch is, therefore, approximately 5 days. A new validator is randomly selected every 20 seconds to become a 'slot leader' and create a new block in the blockchain.

The Ouroboros system works based on the honest majority theory. Any major stakeholder is likely to perform validation honestly because it is in their financial interest to see the network succeed.

Mining (staking) Cardano

ADA coins cannot technically be 'mined', however, they can be earned through the process of staking. Staking requires users to deposit and lock up ADA coins for a set period of time. In doing so, those coins are then used within the proof-of-stake consensus mechanism.

As mentioned previously, the proof-of-stake mechanism, Ouroboros, is what keeps the Cardano blockchain secure. To keep it secure, validator nodes are randomly selected to validate all transactions that take place. They also look for any malicious activity. To incentivise participation, validators are rewarded with a share of all transaction fees and a percentage of the ADA reserve.

While validating requires a complex knowledge of Cardano, users can also participate by delegating ADA tokens to other validators. This process allows users to remain in control of tokens, but allow a validator to include that share with their ADA holdings. If chosen for validation, rewards are then distributed between the validator and all those supporting them.

Cardano’s team and history

The Cardano platform is the brainchild of Charles Hoskinson, a tech entrepreneur and mathematician who also co-founded Ethereum. Launched in 2015, Cardano is being developed by not one but three organisations:

• The Cardano Foundation. Registered in Switzerland, the foundation's mission is to standardise, protect and promote the Cardano Protocol technology.
• Input Output (formerly IOHK). A tech company founded in 2015 by Hoskinson and Jeremy Wood, Input Output is responsible for most of the technology behind Cardano.
• Emurgo. Founded in 2017 and registered in Japan, Emurgo focuses on integrating businesses into Cardano's blockchain.

Cardano held an extended ICO from September 2015 until January 2017, raising just over $62 million. It launched the first phase of its mainnet in September 2017.

Cardano vs Ethereum comparison

Ethereum has become the most widely used platform for the creation of decentralised applications and the deployment of smart contracts. It remains one of Cardano's strongest competitors. While the two are similar in focus and ambition, there are some fundamental differences.

Ethereum was first launched in 2015 and has therefore had two extra years of development in comparison with Cardano. The Ethereum network pioneered the smart contract industry with a vision of creating a platform suitable for decentralising all kinds of applications.

Thanks to launching smart contract capabilities quickly it has been one of the largest contributors to the cryptocurrency industry. Thousands of applications are now hosted on the network, including the popular DeFi and NFT sectors.

Cardano wanted to build on Ethereum's success but utilise a more scientific approach. From the early phases, Cardano developers have focused on peer-reviewing all updates via an academic panel. This has led to some optimisations regarding the internal architecture and operation of the blockchain. The mainnet updates for Cardano are very structured and are separated into five distinct 'eras'.

When it comes to development, Ethereum updates are performed by a dedicated developer community backed by the Ethereum Foundation. While Cardano is supported by a similar Cardano Foundation, two independent organisations - IOHK and Emurgo - have also developed important aspects of the network.

Both systems now use a proof-of-stake mechanism, which means the network is secured by users staking the native cryptocurrency to validate transactions sent across the network.

Ethereum continues to be the platform of choice for many dApp developers. Cardano will need to offer several improvements to draw a significant proportion of market share away from the second largest cryptocurrency project.

Frequently asked questions

• Which wallets support Ada?

  Cardano's official wallet, the Daedalus Wallet, is a popular choice for storing Cardano. However, it isn't your only option. Find out more about wallets that can store Cardano.

• Can I mine Ada?

  No, ADA is not a proof-of-work cryptocurrency and, therefore, cannot be mined. However, token holders can stake ADA within Cardano's proof-of-stake system in return for rewards. Validators in the network earn rewards by validating transactions and securing the network.

• How can I buy and sell Cardano tokens on an exchange?

  Check out our how to buy Cardano guide for step-by-step instructions.

• How quick is Cardano in comparison to Ethereum?

  Cardano can process approximately 257 transactions per second in comparison to Ethereum which currently processes 15.

• Is there anywhere to track Cardano transactions?

  Yes, much like Ethereum transactions can be followed via Etherscan, Cardano transactions can be followed via Cardano Explorer.

Written by

Tim Falk

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Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 20-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

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James Hendy

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James Hendy is a writer for Finder. After developing a keen interest in traditional financial investing, James transitioned across to the cryptocurrency markets in 2018. Writing for cryptocurrency exchanges, he has documented some of the key blockchain technological advancements. James has a Masters of Science from the University of Leeds and when he isn't writing, you will either find him down at the beach, reading (coffee in hand) or at the nearest live music event. See full bio