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What is Cardano and how does it work?
Cardano was created in 2017 by Charles Hoskinson and Jeremy Wood.
It is a Smart Contracts platform whose objective is to enable transactions in its native cryptocurrency, ADA, a third-generation digital currency that aims to improve the scalability problems present with bitcoin and ethereum.
One of the features of Cardano’s platform is that its Blockchain is divided into two layers:
- Cardano Settlement Layer (CSL): used to transfer ADA between accounts and to record transactions.
- Cardano Computational Layer (CCL): based on Smart Contract logic that can be leveraged to move funds programmatically.
This architecture makes Cardano truly unique as most blockchain platforms run on a single layer, which causes network congestion, slowing down transactions and making fees more expensive.
ADA: the Cardano token
ADA is the name of its cryptocurrency, in honor of Augusta Ada Byron, Countess of Lovelace and daughter of the poet Lord Byron, recognized as the first computer programmer of the 19th century.
Cardano (ADA) has a limited supply of 45 billion tokens. At the time of this writing, there is a supply of nearly 32 million in circulation.
Between September 2015 and January 2017, there were five rounds of public sales of Cardano tokens that were so distributed:
- At the time of the network launch, ADA 2.5 billion was allocated to IOHK;
- Another 2.1 billion ADA tokens were awarded to Emurgo, a global blockchain technology company that became the founding entity of the Cardano protocol;
- Finally, another ADA 648 million was granted to the Cardano Foundation, which aims to promote the platform and increase its adoption levels.
In total, about 16% of ADA’s total supply was distributed among the founders of the project, and the remaining 84% was distributed among the investors.
How to mine Cardano (ADA)?
ADA, as Cardano’s native token, is used by platform users to perform peer-to-peer transfers, as well as participate in the network’s staking functionality.
This means that ADA cannot be mined like most cryptocurrencies as it uses the Proof of Stake (PoS) algorithm i.e. it works through cryptocurrency staking and all ADA coins were previously mined during its inception.
As in all protocols based on the PoS algorithm, all users who are holders of ADA tokens and who bet their tokens can participate in its governance, become validators, and function as a node. Their participation in the successful operation of the network entitles them to rewards.
In the following paragraph we will see how Cardano Staking works in detail.
How does the Cardano Participation Test (ADA) work?
Ouroboros is the name of the Proof of Stake consensus algorithm used by nodes running Cardano software to protect the network, validate transactions and obtain ADA tokens.
It is a very efficient method compared to other protocols and is very secure as the Cardano code is written in the Haskell language, used in the banking and defense sectors.
In Ouroboros time is divided into epochs and slots, where epochs are the general time frames and slots are 20 second increments within epochs. That is, each block is drawn every 20 seconds and every 20 seconds a new slot leader is chosen.
Unlike other PoS algorithms, in Ouroboros there is no competition between interested parties to produce a block. Instead, a slot leader is randomly selected among the nodes, proportionally to the amount of tokens it owns (stake). The slot leader is in charge of choosing the blocks to be added to the blockchain.
So, the ownership of ADA tokens determines who will be the slot leader and will be able to add new blocks.
It is important to specify that only mCore nodes can be elected to become slot leaders.
With the Shelley platform upgrade in July 2020, Cardano enabled Delegated Staking. This allows ADA owners to delegate their rights (not their actual tokens) to participate in the protocol, assign votes to other users and earn ADA rewards without always having to be online.
That is, ADA token holders can delegate their participation to a third party to act on their behalf for a fee.
Delegates are known as staking pools and commit to execute the protocol as delegates and to be online 100% of the time.
The user can choose to participate through a staking pool or bet on his own at any time.
HOW DO OUROBOROS INCENTIVES WORK?
As in any consensus system, delegates who issue blocks and verify transactions do so in exchange for a reward (in the form of ADA) and transaction fees.
Incentives come from two sources:
- Transaction fees;
- Funds extracted from Ada Reserve.
In Ouroboros, the rewards of an epoch are distributed among stakeholders and staking pools in proportion to their participation.
The group leader gets a fraction of the rewards to cover its operating costs and a profit margin.
The remainder is distributed among the members of the pool, including the pool leader, in proportion to the share provided by the pool.
At the end of an epoch (a 5-day period), rewards are distributed to the staking pool and its delegates.
If you want to know the estimated ADA rewards you can earn by staking, you can use the calculator available on the Cardano.org website.
Cardano Wallet (ADA)
ADA holders can bet their ADA tokens in first person or by joining a staking pool through the use of a wallet/wallet.
Remember that if you decide to bet by delegating your rights to a staking pool, you do not need to be constantly connected to the Internet.
The Wallets recommended on Cardano’s official website are Daedalus and Yoroi.
Daedalus is a full node desktop wallet developed by IOHK. It is a unique wallet in that, unlike ‘lightweight’ wallets, it downloads a full copy of the Cardano blockchain and independently validates each transaction in its history. This provides maximum security and completely reliable operation, with no centrally hosted third-party servers.
Daedalus is built with web technologies on Electron, an open source platform for writing multiplatform desktop applications.
Yoroi is a lightweight hierarchical deterministic (HD) wallet that runs as a Chrome or Firefox extension. It connects to a full Cardano node hosted by a third party (Emurgo) without the need to download a copy of the blockchain history. This makes it a simple and fast way to store and transact with ADA.
HOW TO BUY CARDANO (ADA)?
As you can see, to get rewards in ADA you first need to own its tokens. The more tokens you wager, the greater your chance of earning rewards in ADA.
So, if you don’t already own Cardano tokens, you can buy ADA on the Bitnovo platform.
And if you don’t know why you should choose Bitnovo, we explain it below.
Bitnovo is the reference platform that allows you to buy bitcoin and more than 20 different cryptocurrencies:
- Easy: online or in more than 40,000 physical stores across Europe. Here’s a complete map. 👉 📍
- Fast: you will be able to buy Cardano on Bitnovo without endless registrations. You will only be asked for the essential data. Once you have completed the purchase process in a few simple steps, and once the blockchain has verified the transaction, you will receive your ADA tokens almost instantly.
- Safe: Buying Cardano (ADA) and other cryptocurrencies on Bitnovo is 100% safe.
Now you know… buying Cardano (ADA) has never been easier!