Cardano sets a promising premise for the future of blockchain technology. But, what is Cardano? Let’s take a look.
Cardano is seen as an alternative to the Ethereum Blockchain. Like Ethereum, Cardano is also a distributed ledger and incorporates smart contracts on it’s blockchain. The advantage however, is in the speed, volume and cost of transactions that happen over Cardano. This is achieved by the Proof of Stake algorithm the blockchain uses to settle transactions. ADA token is the native cryptocurrency of the Cardano blockchain.
Cardano blockchain follows a two layered architecture. The first layer known as Cardano Computation Layer (CCL) and Cardano Settlement Layer (CSL). Cardano Computation Layer (CCL) enables the creation of smart contracts, decentralized apps or Dapps. Cardano Settlement Layer (CSL) is a balance ledger and handles the token transactions at scale.
What is an ADA Coin/token?
ADA is a proof of stake token that fuels cardano. Its purpose is to provide a quick and secure transfer of value and to allow users to operate smart contracts and apps.
The max supply of ADA coins that will ever be created is capped at US $45 Billion. The current circulating supply is 31 Billion ADA Coins. When new coins enter the Cardano ecosystem, the blockchain nodes validate them using a consensus algorithm called Ouroboros Proof-of-Stake algorithm.
The algorithm defines the way in which nodes reach consensus about the state of the ledger.
According to Ouroboros POS algorithm, blockchain nodes are first chosen at random as slot leaders. A slot leader is a node which has been given the right to create a block in the current slot and verify the transactions.
Cardano’s slot leaders perform functions much like bitcoin miners do. Anyone holding ADA is a stakeholder and can become a slot leader. Once you become a slot leader, you publish new blocks on the network when consensus algorithm selects a coin that you hold. A node is selected to mint a new block with a probability proportional to the amount of coins this node has. If a node has any amount of ADA staked, it is called a “stakeholder”. If a node eventually becomes to mint a new block, it is called a “Slot leader”.
To simply put, the more Cardano ADA someone holds, the probability of them being chosen as a slot leader is higher and they can receive rewards.
How are transactions faster on Cardano?
The two layer architecture mentioned earlier allows the movement of ADA tokens freely between different accounts without the additional data from the smart contracts like personal identifiers, etc that may not be required for every transaction.
User who are keen on building smart contracts on the Cardano blockchain would tap into the Computation layer where they can create rules to filter transactions based on custom parameters. For example, they can create a permissioned ledger that excludes transactions that don’t include identification data. A feature such as this would be important in the future as more and more regulation around the blockchain technology increases.
Another key feature of Cardano, is the Internet of Blockchains, where interoperability between different blockchain protocols like Bitcoin, Ethereum, Stellar etc, are possible. It’s also called Cross-chain transfer.
Cardano is achieving this through an implementation called Sidechain. This allows the tokens to be traded across different blockchains without an intermediary or middle-men. Cardano supports sidechains based protocol called KMZ sidechains.
KMZ sidechain protocol taps into the secure Computational Layer of Cardano and allows the funds to move freely from one blockchain to any blockchain that supports the same sidechain protocol.
With this protocol, ledgers with certain regulatory compliances put in place can interact with the settlement layer on a Need to know basis without sharing any private data that is stored on the blockchain.
What are your thoughts on the future of Cardano blockchain, let us know in the comments.
Recommended reading: What is Yield Farming?