Cardano (ADA) is a third-generation blockchain looking to improve the workings of Ethereum and Bitcoin. Named after Gerolamo Cardano, a 16th-century Italian polymath, Cardano describes itself as a third-generation blockchain equipped with the technologies required to enable a sustainable and secure crypto network.
Like every Layer 1 blockchain project, Cardano also has its native token, which doubles as the consensus anchoring mechanism and a settlement currency. This token is named ADA after Augusta Ada King, Countess of Lovelace, who developed the first computer algorithm and is regarded as the first programmer.
The workings of Cardano all boil down to implementing an energy-efficient consensus mechanism called Ouroboros. Ouroboros is a Proof-of-Stake (PoS) consensus mechanism where users stake their assets to validate transactions. The validators are rewarded in ADA in proportion to their staked assets.
This in-house developed technology allows Cardano to use only a fraction of the energy used by legacy blockchains like Bitcoin and Ethereum to validate transactions and keep their networks secure.
Besides offering an environmentally friendly network, Cardano resolves the scalability issues plaguing established blockchains without dialing down on the importance of decentralization.
Specifically, Cardano currently processes 250 transactions per second (TPS), a considerably high figure compared to Ethereum's 15 TPS and Bitcoin's 4 TPS.
It does this while providing the infrastructure required to develop and launch decentralized applications. Notably, these functionalities have elevated Cardano's popularity in the crypto community.
ADA tokens are used to pay transaction fees, and users can also stake their ADA tokens to receive ADA-denominated yields. In the future, holders can use their ADA tokens to participate in governance-related processes. When this happens, ADA holders will become the major stakeholders of the Cardano economy and will collectively decide on the future of the blockchain.
Over the years, Cardano (ADA) has emerged as one of the top ten cryptocurrencies by market capitalization due to its sophisticated blockchain architecture and the endless potential it offers as regards blockchain scalability.
The Alonzo upgrade was one of the most significant enhancements to the network, as it added smart contract capabilities. It was implemented on the mainnet in September 2021 and furthered its aim of competing with Ethereum.
The introduction of smart contracts laid the path for developers to build various applications on Cardano and even mint non-fungible tokens (NFTs).
Another significant development for the Cardano ecosystem was the Vasil upgrade.
Named after Vasil Dabov, a Bulgarian mathematician and former Cardano contributor who passed away in December 2021, the upgrade aims to enhance the network's capabilities. While the upgrade was initially scheduled for June 2022, it was delayed to September 22, 2022, a week after Ethereum, Cardano's biggest competitor, switched to a PoS network.
The Vasil upgrade enhanced Cardano's programming language Plutus, enabling developers to build decentralized applications (DApps) with greater speed, transactional capability, and powerful scripts.
The upgrade also introduced diffusion pipelining, which streamlined the sharing of new blocks with network participants, ensuring that blocks can be shared in the network within five seconds of their creation.
The Vasil upgrade was implemented as a hard fork and aimed to enhance the network's throughput and experience for all users.
ADA has a maximum supply of 45 billion tokens, while 34.18 billion ADA tokens were already in circulation by September 2022. Initially, ADA was distributed through an Initial Coin Offering (ICO) in which 25.9 billion ADA tokens were sold in five rounds of public sales for around $79.2 million.
A total of 5.18 billion ADA tokens, or 20% of the circulating supply of 25.9 billion, was distributed among the three entities responsible for the development of Cardano. They are IOHK, the Cardano Foundation, and Emurgo.
IOHK received 2.46 billion tokens, while Emurgo and the Cardano Foundation received 2.07 billion and 640 million ADA tokens, respectively.
Therefore, 31.11 billion ADA tokens were in circulation at Cardano's official launch, and the remaining 13.88 billion ADA tokens were set aside as a reserve to incentivize and reward stakers.
The primary distribution mechanism of ADA is its staking mechanism. Like most blockchain solutions, Cardano runs an incentive-based economy designed to encourage participants to contribute positively to the growth and safety of the ecosystem.
Specifically, stakers are rewarded with ADA tokens as part of the mechanisms to encourage users to participate in the transaction validation process. In essence, staking doubles as a token emission system for Cardano as newly issued coins are periodically allocated to successful stakers. This will continue until 45 billion ADA coins are in circulation.
As mentioned earlier, the supply cap of ADA is 45 billion tokens, with approximately 34.18 billion tokens already in circulation. Considering that 31.1 billion ADA was allocated to various entities at the launch of Cardano, it is safe to say that around 2,9 billion ADA has been distributed via the staking mechanism.
Cardano was launched in 2017 by founder Charles Hoskinson. Although Hoskinson started researching and building Cardano in 2015, the project and its native token, ADA, did not officially launch until 2017.
Before this, Hoskinson was heavily involved in creating Ethereum as one of its co-founders. Then, unfortunately, he left the project due to differences in ideologies over the future of the network.
Hoskinson reportedly wanted to accept venture capital and turn Ethereum into a for-profit project, while Buterin wanted to keep it running as a non-profit.
Former Ethereum colleague Jeremy Wood approached Hoskinson soon after, and the two started Input Output Hong Kong (IOHK) in 2015. IOHK is an engineering company that focuses on the development of Cardano while helping to build cryptocurrencies and blockchains for academic institutions, enterprises, and government entities.
In addition to being a contributor to Ethereum, Hoskinson was the founding chairman of the Bitcoin Foundation's education committee. He also established the Cryptocurrency Research Group in 2013.
One thing that continues to set Cardano apart is how its development has unraveled via an open-source and peer-reviewed model. Cardano is peer-reviewed, as all of the components that have come together to make up its infrastructure were academically researched by experts around the globe using evidence-based methodologies.
As such, it has taken longer than expected for some of the features of Cardano to come to life. This is due to the strict scrutiny that each upgrade must undergo before implementation.
Like most cryptocurrencies, Cardano's price is susceptible to the larger crypto market price trends. This means that during bull cycles, Cardano price increases, and the price of Cardano falls during bear markets.
Apart from the market trend, Cardano's price is also affected by factors such as network upgrades and positive or negative news around the network.
At OKX, we advise you to research any cryptocurrency before investing objectively. Cryptocurrency is deemed a high-risk asset and prone to sharp price movements. Therefore, we ask that you only invest what you are willing to lose.
Furthermore, like all cryptocurrencies, Cardano is volatile and carries investment risks. Therefore, before investing, you should do your own research (DYOR) and evaluate your risk appetite before proceeding.
Bitcoin uses the Proof-of-Work (PoW) consensus mechanism that requires miners to use computers to solve a complex mathematical problem, making the process energy intensive. However, the miner who solves the problem gets to validate transactions and create a block and is rewarded in BTC.
But Cardano uses the PoS consensus mechanism that is several times less energy intensive. In fact, according to Hoskinson's estimates, Cardano's energy usage is 0.01 percent of Bitcoins. This is why Cardano is sometimes referred to as the "green blockchain," although many contenders have emerged with claims of being more sustainable.
Cardano's development roadmap is divided into five stages: Byron, Shelley, Goguen, Basho, and Voltaire. During the Byron era, the Cardano team developed the foundational code for the network with the Ouroboros consensus mechanism at its heart, allowing users to exchange the native token ADA.
The Shelley era focussed on decentralization to ensure that the nodes were run by a diverse group of people instead of centralized groups. Finally, the Goguen phase saw the Alonzo upgrade that introduced smart contract capabilities to Cardano.
The Vasil upgrade, part of the Basho era, focused on improving the network's scalability by improving throughput. Cardano is also working to introduce side chains to boost scalability during this phase further.
The Voltaire period will see the addition of voting and a treasury system for a self-sustained governance mechanism. It will allow users to stake their assets and vote on the future developments of the network.
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