What is Cardano? | Beginner’s Guide

What is Cardano?

Cardano is a smart contract platform, similar to Ethereum, with a focus on security through a layered architecture. It’s the first blockchain project to be created from scientific philosophy and built on peer-reviewed academic research.

The team is building Cardano with both the end-user and regulators in mind. They’re attempting to find a middle ground that balances the need for regulation with the privacy and decentralization principles at the core of blockchain technology.

The platform also uniquely uses Haskell, a programming language with a high degree of fault tolerance. With the relatively unknown future and complexity of blockchain-based systems, it’s important to build flexibility into projects. It’s near impossible to know what a system may have in months or even years, so it’s important to have a robust language like Haskell which allows you to have a certain margin of error.

Cardano Homepage

Unlike some other crypto projects, the goal of the Cardano team isn’t to overhaul the entire financial system. Their aim is to use blockchain technology to bring banking systems to places where they’ve previously been too expensive to implement – specifically the developing world.

In this Cardano guide, we’ll cover:

How does Cardano work?

Cardano is being developed in two layers that separate the ledger of account values from the reason why values are moved from one account to the other. This separation enables the smart contracts that are written on the platform to be more flexible.

Businesses can take advantage of this separation to tailor the design, privacy, and execution of each contract to more perfectly fit their specific use-cases.

Cardano Settlement Layer (CSL)

The CSL acts as the balance ledger and is the first layer of the platform. Created as an improvement to Bitcoin, this layer is a cryptocurrency built from the whitepaper “Ouroboros: A Provably Secure Proof of Stake Blockchain Protocol” by Aggelos Kiayias.

The CSL uses a proof-of-stake consensus algorithm to generate new blocks and confirm transactions.

The roadmap for the CSL is as follows:

  1. Two sets of scripting languages
    1. One set to move value
    2. One set to enhance overlay protection support
  2. Sidechains to link to other ledgers
  3. Multiple signature types including quantum resistant signatures
  4. Multiple user-issued assets
  5. Scalability in which the capabilities of the system increase as more users join

Cardano Computation Layer (CCL)

The CCL is the second layer of the Cardano platform and contains the information on why transactions occur.

Because the computation layer is detached from the CSL, different users of the CCL can create different rules when evaluating transactions.

For example, you could create a permissioned ledger that leaves out any transactions that don’t include AML/KYC data – something that will become more important as blockchain regulation continues to increase.

The Cardano team is creating a new programming language to use to develop smart contracts on the CCL – Plutus. The CCL also support Solidarity, the language behind Ethereum smart contracts, for low assurance applications on the platform.

To help developers, Cardano will also include a reference library of Plutus code that’s available to use in dApp projects. Beyond that, the team is creating a set of tools for the purpose of verifying code and improving code assurance.

KMZ Sidechains

Cardano will support sidechains based on a new protocol by Kiayias, Miller, and Zindros (KMZ) involving proofs of proofs of work.

The KMZ sidechain protocol allows funds to move securely from the CSL to any CCL or any blockchain that also uses the protocol.

Ledgers with certain regulatory compliances will be able to interact with the CSL without having to share data that needs to remain private by using KMZ sidechains.

Daedalus Wallet

Daedalus is an open-source wallet created by the Cardano team. Although this wallet is coupled closely with Cardano, the team is planning to greatly expand its functionality.

Daedalus will eventually be a multi-currency wallet where you can freely exchange between the supported currencies. The wallet will begin the expansion of support with Bitcoin and Ethereum Classic.

daedalus wallet

The wallet will also include an app store containing applications built by the Daedalus community.

Daedalus is currently only available on the web, but will soon be offered on iOS and Android as well.

Ouroboros Proof-of-Stake

Instead of using a Proof-of-Work (PoW) consensus algorithm, Cardano uses the Ouroboros Proof-of-Stake (PoS) algorithm to reach consensus on the state of the ledger.

In this protocol, slot leaders generate new blocks in the blockchain and verify the transactions. Anyone holding a Cardano ADA coin can become a slot leader. When the “Follow the Satoshi” algorithm selects a coin that you hold, you can become a slot leader and publish new blocks to the network.

Your node automatically does this process, so you don’t have to worry about manually verifying each transaction.

There are currently almost 26 billion ADA coins in circulation, and the Cardano team has set that there’ll be a maximum of 45 billion coins that will ever be created.

Cardano fees

The fees to transfer ADA vary and are determined by the following equation:

transfer fee = a + b * size.

a = a constant currently equaling 0.155381 ADA

b = a constantly currently equaling 0.000043946 ADA/byte

size = size of the transaction in bytes

This effectively means that the minimum transaction fee you’ll pay is 0.155381 ADA and will increase by 0.000043946 ADA with each byte increase of your transaction size.

The transaction fees of each epoch are collected in a pool and distributed amongst the appropriate slot leaders.

Some Cardano history

Three organizations are working together to develop Cardano:

  1. Cardano Foundation
  2. Input Output Hong Kong (IOHK)
  3. Emurgo

Charles Hoskinson, CEO of IOHK, was previously the CEO of Ethereum and is actively involved with Cardano.

Charles Hoskinson tweet

As a smart contract platform, Cardano is competing with similar crypto projects – most notably Ethereum. Cardano is also in competition with several newer projects focusing on smart contract development such as EOS, Lisk, NEO, and NEM.

The team is attempting to separate themselves by focusing on scalability through peer-reviewed research and highly-secure coding practices.

Cardano trading

Cardano had a lengthy ICO from September 2015 through January 2017 and the Cardano ADA token began trading on the open market in October.

The price remained relatively stable until the end of November when it jumped from ~$0.03 (0.00000345 BTC) to ~$0.14 (0.0000142 BTC) in 3 days. That’s an increase of over 360%.

Since then, ADA has settled down to a price consistently between $0.12 and $0.14.

ADA has only been trading for a short amount of time, so it’s hard to predict what the price moving catalysts will be. The recent spike seemed to be caused by the increasing number of exchanges listing ADA as well as the release of the Cardano roadmap.

Where to buy ADA

You can purchase ADA on just a few of the major exchange platforms. Bittrex and Binance have the highest ADA trading volume of the exchanges and offer the coin as a trading pair with Bitcoin and Ethereum.

To buy ADA on one of these two platforms, you’ll first need to purchase Bitcoin or Ethereum on another platform and transfer it over. GDAX and Gemini are good choices to start this process.

ADA will also be available for purchase through a network of ATM machines in Japan soon. Although no ATMs are available yet, there will be 25 offering the token within the year.

Full a full list of exchanges to purchase ADA, you can visit the Cardano website.

Where to store ADA

In order to receive the reward from staking, you’ll most likely need to store your ADA in a wallet off of an exchange.

Right now, there’s only one wallet where you can store your ADA – the official Daedalus wallet. The wallet is currently only available on Mac and Windows (sorry Linux users), but a mobile wallet on Android and iOS is estimated to be released soon.

Cardano has an 8-person team working on Daedalus, so they should be able to move quickly to add the additional platforms.

Ledger is working with a third-party to build ADA support into their products but hasn’t released a completion date yet.

Final Thoughts

Cardano is an ambitious project tackling a large number of problems in the crypto industry. After seeing the potential security flaws of Ethereum through the DAO hack and recent Parity wallet fiasco, it’s nice to see that Cardano has a focus on code scrutiny and peer-reviewed security measures.

The sheer scope of the project could be lethal to the project, as it leaves a lot of opportunity for error. However, Charles Hoskinson at the helm does help instill some confidence that the team can handle a project of this magnitude.  

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Steven Buchko

Steven is a cryptocurrency writer at Coin Central and a blockchain investor. He is also the co-founder of Coin Clear, a mobile app that automatically turns your daily spending habits into cryptocurrency investments.