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What is Cardano and how does it work?

If you’ve scrolled through any crypto market tracker in recent times, you would have undoubtedly encountered the name “Cardano”. In this article, we will explore what Cardano is and how it operates, highlighting its key …

If you’ve scrolled through any crypto market tracker in recent times, you would have undoubtedly encountered the name “Cardano”. In this article, we will explore what Cardano is and how it operates, highlighting its key features and distinguishing it from other popular cryptocurrencies like Ethereum.

Cardano, often referred to as ADA, is a decentralised blockchain platform that aims to provide a secure and scalable infrastructure for the development of decentralised applications (dApps) and smart contracts. Founded in 2015 by Charles Hoskinson↗︎, one of the co-founders of Ethereum, Cardano stands out due to its scientific approach and rigorous academic research.

Differences between Cardano and Ethereum

One of the major differences between Ethereum and Cardano lies in their approach to smart contracts. While Ethereum pioneered the concept of smart contracts, Cardano takes a more academically grounded approach, emphasising formal verification. This means that Cardano aims to ensure the correctness and reliability of smart contracts by employing mathematical proofs and rigorous testing methodologies. By doing so, Cardano aims to enhance the security and stability of the applications built on its platform.

Another notable advantage of Cardano over Ethereum is the difference in gas fees. Gas fees are the transaction costs associated with executing operations on a blockchain. Cardano currently boasts lower gas fees compared to Ethereum, which has been plagued by scalability issues, leading to skyrocketing transaction costs. With its focus on scalability and cost-effectiveness, Cardano aims to provide a more accessible environment for developers and users alike.

Cardano Architecture

Cardano’s architecture is built on two main layers: the settlement layer and the computation layer. The settlement layer deals with the transfer of ADA tokens and ensures the secure and efficient execution of transactions. On the other hand, the computation layer focuses on running smart contracts and facilitating the development of dApps. This separation of concerns allows Cardano to improve scalability and maintain a high level of security.

Moreover, Cardano employs a unique consensus algorithm called Ouroboros, which utilises a proof-of-stake (PoS) mechanism. PoS allows ADA holders to participate in the network’s consensus protocol based on the amount of ADA they hold and are willing to lock up as a stake. This approach reduces the energy consumption associated with traditional proof-of-work (PoW) systems, making Cardano more environmentally friendly.

Market Capitalisation

As of the time of writing, Cardano’s market capitalisation stands at $13 billion (June 2023). The platform’s native cryptocurrency, ADA, plays a vital role in the Cardano ecosystem. Beyond being a means of value exchange, ADA holders can participate in the platform’s governance through a mechanism called staking. By staking their ADA, participants can help secure the network and earn rewards in return, fostering a sense of community and decentralisation.

Takeaway

Cardano offers a unique combination of scientific rigour, scalability, and cost-effectiveness. Its focus on formal verification and lower transaction fees has captured the attention of both developers and investors. As the platform continues to evolve and attract more users, it is poised to contribute to the broader adoption and innovation of decentralised technologies.

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