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What Is Cardano? How Does ADA Work?

Image of a dark background and two gold coins on it. The top coin has the Cardano logo on it

If you’re new to cryptocurrencies, and you’re looking at the top 10 cryptos by market cap, you may be wondering what is Cardano (ADA). Cardano is one of the most successful and popular projects on the market, attracting new and experienced investors and traders, with the solutions it provides to blockchain issues and the attractive native asset of the project.

In this article we’ll be providing an answer to your question what is Cardano, by giving you more information about this interesting blockchain and cryptocurrency.

What Is Cardano?

To understand what is Cardano you should learn how it was created and with what goals. In 2017 the open-source blockchain of Cardano was launched, along with its native token ADA. The project began in 2015 by Charles Hoskinson who previously worked on the Ethereum blockchain. The difference of opinions between Hoskinson, who considered Ethereum a for-profit project, while Vitalik Buterin, the main person behind ETH, wanted it to be a non-profit one. That’s why Hoskinson started Cardano and aims to make it better not only than Ethereum, but to Bitcoin as well.

What is Cardano’s advantage as a blockchain is that it’s a third generation, meaning the technological advance is on its side. Cardano aims to process transactions even quicker than Bitcoin and after September 2021, it supports smart contracts like Ethereum. But what is Cardano’s initial goal is to out best the two biggest players in the crypto field. Cardano’s main goals are the following:

  • Sustainability: Bitcoin equires very high quantities of energy to be mined, making it inefficient from an energy point of view. Cardano implements the Proof-of-Stake mechanism, unlike Bitcoin’s Proof-of-Work. This means the transactions for ADA require a lot less energy to be confirmed, making it a much more sustainable option.
  • Scalability: Second-generation blockchains who use the Proof-of-Work mechanism also have problems with transaction scalability. Cardano aims to solve this issues as well.
  • Interoperability between cryptocurrencies: Cardano allows multiple digital currencies to communicate quickly with each other through the KMZ protocol. In this way, the ADA tokens can be transferred to a different blockchain with the same protocol, also favoring the conversion between cryptocurrencies without intermediaries.

What Is Cardano’s Native Asset?

Here we use Cardano and ADA interchangeably, however, you’ve probably understood that Cardano is the name of the blockchain. The native cryptocurrency of Cardano is called ADA. It’s a very popular asset that’s been holding its spot in the top 10 by market cap for a while now, it even was number 3 for some time as the bull runs of 2021 were held.

You may find it interesting to know that ADA cryptocurrencies can’t be mined, instead you can stake them. This is due to the fact that Cardano relies on the more energy sufficient mechanism Proof-of-Stake, meaning that unlike the Bitcoin’s Proof-of-Work, you don’t mine the cryptocurrency and receive rewards for it. Instead, you stake it and that’s how you earn passive income, and at the same time you don’t spend as much on electricity as you’d with mining.

Screenshot of the Cardnao website

What Is Cardano’s Company Ecosystem?

There are three organizations behind Cardano – The Cardano Foundation, IOHK (Input Output Hong Kong), and EMURGO. IOHK was created in 2015 by Hoskinson and the other ADA developer, Jeremy Wood, and could be considered as to what is Cardano’s driving force. The company is dedicated to blockchain research and solutions. EMURGO provides solutions for developers, startups, enterprises, and governments. The two companies can be counted as the more technological backing to ADA. The Cardano Foundation, on the other hand, is responsible for the popularization of the project. The non-profit organization want to work closely with lawmakers and regulators to shape blockchain legislation and commercial standards and use the Cardano protocol to solve real-life problems.

What Is Cardano’s Way of Competing With Ethereum?

As we’ve mentioned, Cardano is an open competitor of the first and second cryptos. And though the project aims to solve the issues Bitcoin has, it’s main goal is to dethrone Ethereum, the so-called king of smart contracts. When Charles Hoskinson began Cardano, he already knew what Ethereum’s weaknesses and focused on them as to now what is Cardano’s main goals to improve.

It took some time for Cardano to reach Ethereum in progress, but in 2021 the platform finally started implementing smart contracts. This means that now developers can build decentralized apps (dApps) and the number of projects on the blockchain started growing.

However, Ethereum and Cardano different in philosophy, design, and method of work. Let’s look what is Cardano and Ethereum’s main field of competition and how they’re doing so far.

📍 Project completion state: Ethereum development is at around 50%, Cardano still has a long way to go and is entering the fourth stage of its road map, organized in five phases: Byron, Shelley, Goguen, Basho and Voltaire. Each stage aims to add new features and provide multiple versions.

📍 Circulating supply: There are 33 billion ADA tokens with a maximum supply of 45 billion. For ETH there are 121 billion in circulation and the max supply could be infinite. This means that the scarcity of ADA is bigger, contributing to potential price rises in the future.

📍 Blockchain speed: Ethereum can handle around 30 transactions per second while Cardano exceeds 250 TPS. For comparison, Visa, the leading credit card transaction company, allows processing of 1,700 transactions per second. The Ethereum Upgrades (known previously as Ethereum 2.0), however, is working on a network scaling mechanism to process up to 100,000 TPS. Similarly, Cardano is developing its Hydra protocol capable of scaling up to 1 million TPS.

📍 Consensus mechanism: Since the beginning, Cardano has been using the Proo-of-Stake mechanism, while Ethereum, which is an older cryptocurrency, still relies on Proof-of-Work. The upgrade of Ethereum is supposed to transition it to Proof-of-Stake but the end date of the project remains unclear.

📍 Transaction speed and fees: Ethereum remains the most popular programmable blockchain today. However, it’s no secret how high the fees for transactions can get, as well as how slow they could be sometimes. Cardano’s fees are lower but they will increase proportionally to its price. But the speed it aims may become higher than Ethereum’s.

What Is Cardano Going to Be Used for in the Future?

If we have to put simply what is Cardano, we could say this:

Cardano is a blockchain that aims to solve the issues of the biggest cryptos in the world by implementing newer technology and trying to be more sustainable and scalable. The Cardano’s native currency ADA is a promising digital asset that remains in the top 10 cryptocurrencies, even after the months of high volatility on the market.

Cardano was created by an ex-Ethereum employee and the competition between the two blockchain seems inevitable. Even though ADA has a lot to prove before it reaches the second-largest crypto, it provides many solutions for outdated blockchain technology and the potential of it seems obvious. Critics of the project have expressed their opinions that Cardano and ADA are moving rather slowly, compared to other assets, but the developers always claim that their main goal is security and quality, over speed. The meticulousness of the creators could built the next most used and popular blockchain, however it could also be what is Cardano’s doom. If the project falls too much behind its competitors, not only Ethereum, but today blockchains like Solana and Avalanche are moving very fast by all means, then even its many advantages may not help it. 

Only time will tell if the Cardano project will achieve its aim to become the world’s most famous sustainable decentralized project, or fall a victim of the ambitions of its creators.

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