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Cardano (ADA)101 - Complete Guide

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Author: Benson Toti Updated: January 28, 2022

Cardano is a blockchain technology like no other. While Bitcoin (BTC) is the only network that resulted from original work, many technologies that followed were simply its fork. Conversely, Cardano is a product of peer-reviewed research. The technology is the face of a secure and sustainable blockchain with ground-breaking use cases. 

Developers of Cardano say that the technology is capable of “redistributing power from unaccountable structures to the margins”. Is Cardano really capable of achieving this goal? Well, read on to find out this and more, including the investment potential of Cardano’s native token called ADA.

What Is Cardano and Why Was (ADA) Created?

Charles Hoskinson founded Cardano in 2017, barely two years after he helped to create the Ethereum blockchain technology. He also co-founded Internet Online Hong Kong (IOHK), a company that actually built the Cardano blockchain. 

Cardano uses a timestamping scheme called Proof of Stake (PoS). PoS is also the system by which the miners in the Cardano ecosystem validate and mine block transactions. A stake is simply the number of coins, in this case, ADA coins, that one holds, which also determines one’s participation in the creation of new blocks.

Using the knowledge gained from the Ethereum project, Hoskinson injected the idea of smart contracts into the Cardano project. Cardano sets itself apart in the cryptoverse in that it was conceived through peer-reviewed research. The research yielded some unique features, such as unparalleled platform security, system sustainability, and a robust and professional development community. 

According to the project’s website, IOHK created Cardano to “restore trust to global systems” by availing a new standard in technology that is inclusive and open source. Therefore, “changemakers, innovators and visionaries” can leverage the technology to create a society that is, as the website further states, “more secure, transparent and fair”.

ADA is the native digital currency that facilitates transactions among parties in the Cardano environment. The token ranks among the top ten in terms of market cap, as data on CoinMarketCap shows. It enables peer-to-peer transactions in a trustless yet secure environment and free from intermediaries. For this reason, transactions over the Cardano blockchain are fast and cheap.

Cardano’s cryptocurrency claims legitimate advantages over fiat currency. For example, the Cardano Foundation adopted a limit of ADA’s supply at 45 billion tokens. The idea is to avoid inflation such that the value of the token remains strong. Also, ADA defeats fiat currency in terms of transaction speed by virtue of peer-to-peer transactions. Fiat currencies require intermediaries like banks to enforce trust, which leads to bottlenecks along the transaction chain.

How Does Cardano Work?

Unlike most blockchain projects, Cardano did not start with a whitepaper but as a result of peer-reviewed research carried out through evidence-based methods. For this reason, Cardano works according to a philosophy outlined from the outset by Charles Hoskinson. 

According to Cardano’s website, the following principles and philosophies guide its implementation. The platform separates accounting and computation, each into its own layer. Secondly, developers implement the core components of the platform in a “highly modular functional code”. Most importantly, peer-reviewed research guides decision-making within the Cardano community.

Three key elements spell out how Cardano works in light of stated principles and philosophies. They are scalability, sustainability and interoperability. According to Charles Hoskinson and his team of developers, Bitcoin introduced Blockchain 1.0, which entails money transfer in a P2P ecosystem, and Ethereum ushered in Blockchain 2.0 by introducing smart contracts. Therefore, it was Cardano’s turn to deliver Blockchain 3.0 by solving issues that had dogged the ecosystem all along, and they are scalability, interoperability and sustainability. 

How, then, does Cardano work? The blockchain technology uses the Ouroboros protocol to decentralise the network and to scale sustainably without compromising on platform security. Developers and miners validate transactions based on their ADA stake.  

Furthermore, Cardano’s separated layers enable it to achieve great computational speeds. The settlement layer (accounting layer) hosts ADA, and it tracks transactions among peers. Below that is the second layer that takes care of computations. If the accounting layer represents Blockchain 1.0 (Bitcoin era), then the computation layer represents Blockchain 2.0 (Ethereum era) because it hosts smart contracts and decentralised applications (dApps).  

Key 3 Selling Points of Cardano (ADA)



Most blockchain platforms handle one aspect of the technology, which renders them useful only partially. Cardano incorporates all generations of blockchain into three layers, where each layer takes care of one blockchain generation. Ultimately, this architecture makes Cardano more powerful.


Has successfully implemented a Proof of Stake system

The majority, if not all, of the major blockchain technologies, implement a system of network operation called Proof of Work (PoW). PoW is cumbersome, and hence, energy-intensive. On the contrary, the PoS consensus mechanism consumes less energy and completes transactions faster.


Founded on peer-reviewed research

The Cardano development team has implemented an impressive academic rigour unseen anywhere else in cryptoverse. Unlike most projects that are based on code forked from either Bitcoin or Ethereum, Cardano is a product of original work. Perhaps that is why the platform pioneered innovations such as Ouroboros, which is a factor that has made Cardano stable and durable.

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Is Cardano Worth the Investment?

To say that Cardano is an impressive project is an understatement. The platform’s technology is one of the few that have found a perfect fit in the mainstream. One such application of the technology is in agriculture, where companies leverage the technology to track produce from the farm to the table. Another one of Cardano’s applications is in the education sector, where its algorithms are used to store and verify academic credentials. 

ADA’s qualities and the robustness of Cardano have piqued the interest of banks. There is a possibility of these institutions adopting ADA as an industry-standard instead of BTC, mainly because of the reasons discussed herein. Cardano developers have, for a long time, prioritised scalability, interoperability and sustainability. Since these factors are Bitcoin’s major pain points, it is likely that ADA will move higher up the pecking order as mainstream adoption ramps up.

However, while buying Cardano might offer a significant return, it's worth pointing out that the crypto market is highly volatile. As such, your investment decisions must come from thorough research, as well as a consideration of all the risks involved. 

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Frequently Asked Questions

  1. Cardano is the blockchain technology that hosts ADA. ADA is a digital currency used for online transactions. One does not need a bank account to receive or transfer ADA.
  2. Cardano has diverse use cases, but so far, the technology has proven useful in tracking agricultural produce as well as battling counterfeit goods.
  3. For every new block added, the ecosystem’s treasury takes a part of the reward. This part of the block is given out as grants to developers who wish to create a new application. Before the grant is given out, it must receive enough votes from stakeholders. Also, this aspect of block generation feeds into Cardano’s deflationary monetary system. This means that there is a limit that the total supply of ADA cannot breach.
  4. As digital money, you can use ADA to settle transactions in a secure environment and without ever needing to step into a bank. Also, you can stake ADA in the Cardano network via one of the many stake pools. Stake pools facilitate the running of the Cardano network, and “stakers” earn rewards in return.
  5. ADA is accessible for purchase over many crypto exchanges, including Huobi, Binance, Coinbase and others.
  6. Proof of Stake has several advantages over the more traditional Proof of Work system. It consumes less energy and confirms transactions quickly.
  7. Cardano developers created software programs called cryptocurrency wallets for storing details such as keys related to your ADA tokens. You can choose either Yoroi or Daedalus, both wallets have been built by members of the ecosystem. If you are comfortable enough, third-party wallets also work just fine.
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