What is Cardano
It is a blockchain with its own cryptocurrency that has been designed using different technologies that have been endorsed by different academic communities. Its development is based on a multidisciplinary team, where we find engineers, mathematicians, scientists and finance and business professionals.
Cardano is a solution that began to be developed in 2015 by the company Input Output Hong Kong (IOHK). The company is founded by Jeremy Wood and Charles Hoskinson, the latter well known and highly recognized by the community for being one of the co-founders of Ethereum. Hoskinson disassociated himself from Ethereum after a series of disagreements with other heads of the cryptocurrency.
All of Cardano's developments have a scientific focus. One of the main goals for Cardano are security, scalability and interoperability.
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The cryptocurrency of the Cardano blockchain is called ADA. The name of this cryptocurrency is in honor of the British Ada Lovelace, an important mathematician and writer who collaborated with Charles Babbage in the development of the first analytical machines (calculators). Lovelace is also the developer of the first algorithm intended to be processed by a machine.
Characteristics of Cardano
This blockchain, and therefore cryptocurrency, has a high academic and scientific philosophy behind it. To give us an idea, more than 90 technical reports have been published between the different Cardano development teams. It also has a transparent, clear and solid roadmap, always focused on security, scalability and interoperability.
The integration of smart contracts in Cardano is currently in the development phase, with the first tests of these contracts within the Alonzo testnet. It is expected that once smart contracts are integrated, they will have the capacity to be a disruptive element for FinTech. Even Cardano is postulated as one of Ethereum's main rivals in terms of building and developing solutions based on smart contracts.
It differentiates Cardano from Bitcoin and Ethereum (not Ethereum 2.0) is that its consensus is based on Proof-of-Stake (PoS). The developers have gone for Proof-of-Stake because it requires less computing resources and less power consumption. In addition, what PoS consensus offers is better capabilities in terms of scalability, one of the main weaknesses currently of cryptocurrencies.
ADA token
Within the Cardano blockchain we find the ADA token. The goal for this token is for it to become a first-class token that can outperform Bitcoin or Ethereum, offering transactions with low fees and high security. Additionally it is the platform's native token to be able to develop scalable smart contracts.
An issuance limit of 45 billion ADA tokens has been set. To initially finance the project, 57.6% of the supply was issued through an ICO in which $62.2 million was raised.
How Cardano works
We should keep in mind that Cardano is a scientific blockchain that has different technologies focused on supporting a large volume of transactions. We will now see the most outstanding elements developed for this cryptocurrency.
Ouroboros, the consensus
The name of the consensus of this cryptocurrency is most interesting. Ouroboros is named after the mythical symbol used by different civilizations and alchemists. This term is used as a representation of the infinite cycle of things.
The name Ouroboros in Cardano refers to the Proof-of-Stake (PoS) consensus algorithm. It is called Ouroboros because of a technical aspect, namely that the Ouroboros consensus is a verifiable and highly secure protocol. This is because it is the first protocol that has undergone extensive and demanding peer review and mathematical proofs.
A very strict verification of Ouroboros has been chosen because it is the consensus on which the network is based, so it is crucial for its operation. As it is based on a proof of participation, Ouroboros is considered to offer speed, scalability, energy efficiency, decentralization and security.
Ouroboros is a PoS consensus that has been developed to generate blocks every 20 seconds. This offers high network speed and high security.
In addition, Ouroboros has some differences with respect to the conventional PoS protocol. Proof of participation is usually based on leveraging a certain amount of cryptocurrency.
uroboros, the consensus
The name of the consensus of this cryptocurrency is most interesting. Ouroboros is named after the mythical symbol used by different civilizations and alchemists. This term is used as a representation of the infinite cycle of things.
The name Ouroboros in Cardano refers to the Proof-of-Stake (PoS) consensus algorithm. It is called Ouroboros because of a technical aspect, namely that the Ouroboros consensus is a verifiable and highly secure protocol. This is because it is the first protocol that has undergone extensive and demanding peer review and mathematical proofs.
A very strict verification of Ouroboros has been chosen because it is the consensus on which the network is based, so it is crucial for its operation. As it is based on a proof of participation, Ouroboros is considered to offer speed, scalability, energy efficiency, decentralization and security.
Ouroboros is a PoS consensus that has been developed to generate blocks every 20 seconds. This offers high network speed and high security.
In addition, Ouroboros has some differences with respect to the conventional PoS protocol. Proof of participation is usually based on leveraging a certain amount of cryptocurrencies. The higher our amount of coins, the higher our participation in the network and the higher rewards we get. Ouroboros changes this mechanism and the validator nodes that generate the blocks are randomly selected.
The current version of the Cardano consensus is called Ouroboros Praos. The next version, which is under development and verification, will be called Ouroboros Hydra.
Slots and epoch of Ouroboros
Within the Ouroboros consensus, two elements have been added that are not found in other proof-of-participation systems. These are slots (intervals) and epochs (cycles).
A slot in Ouroboros has a duration interval of 1 second. The epochs are a set of 432,000 intervals that elapse in a period of 5 days. These epochs and cycles are due to the PoS system, ensuring that they can be generated constantly and in a decentralized manner.
These two elements provide protection against malicious actors seeking to corrupt the protocol. Validation can only be performed at the appropriate intervals and cycles within the 20-second window. If this does not occur, you must wait for a new random election process in order to participate.
Ouroboros also has the particularity that not all the blocks generated by the nominees are added to the chain. Only one will be added and the rest will be rejected. This reduces reorganizations in the blockchain and the possibility of generating a fork unintentionally.
What Ouroboros simply does is to divide the chain into different cycles that at the same time are divided into time slots. For each time slot a slot leader is selected, who is responsible for adding a block to the chain.
As an element of protection against malicious actors, the leader checks the last blocks received as transient. The preceding chain is only considered valid when a specified number of transient blocks is achieved. It receives this mechanism as "settlement delay" and is an additional element for the blockchain to be transmitted securely between network members. The process is finalized when the cycle leader signs the epoch.
Stake pools
For PoW cosensus there are pools, where miners connect to contribute their mining power to that of the other members and thus have a better chance of winning. Stake pools are similar, several members of the network join together to generate a node with a large amount of ADA tokens. What they do is centralize trust, voting and block generation delegation within Ouroboros.
ADA issuance
A maximum of 45 billion ADA tokens can exist within the Cardano blockchain. A mechanism has been created for Cardano to help control deflation using a dynamic system. We won't go into the mathematical formula that sets the reward per block for each cycle, we will just highlight the highlights it takes into account:
- Amount of coins still to be issued.
- Influence of the pool staking
- Relative saturation size of the pool
- Delegated participation of the pool which includes the participation of token owners and delegated participation.
All these elements are combined in a complex mathematical formula that ensures a "fair" issuance that prevents speculation. For Cardano cycle 242, each block generated a reward of 750 ADA.
Layers of operation
The operation of this blockchain is based on two layers, which are named CCL and CSL.
CSL
The layer in charge of managing everything that has to do with Cardano's ledger (ledger) or history. This layer also contains the main set of rules of the blockchain consensus. This is precisely the consensus protocol layer, the reward issuance layer and where transactions are handled.
Within this layer the following tasks are also given: - Manages the scripting language used for performing the different network operations.
- Adds elements that protect against overlapping transactions, as well as providing sidechain interoperability.
- Offers support for different types of cryptographic signatures, supporting quantum-resistance
- Adds modularity and extensibility
CCL
This layer is in charge of maintaining the information of all transactions performed within the blockchain. The idea of this element is to add additional functionalities that do not alter the consensus.
Theoretically, it allows Cardano to apply additional consensus rules on this layer in order to join other networks. This achieves interoperability with other blockchain networks without affecting the core of its technology and simplifies the evolution of the network as a single element. Smart contracts can be aggregated through this element, although more possibilities and uses for this layer are being studied.
In addition, CCL allows smart contracts to run on the virtual machines necessary for them to function. Smart contracts are written under the Haskell programming language, which makes them simpler to write and much more powerful. But the capacity can also be extended by interfacing with Ethereum's EVM, supporting smart contracts written in Solidity to run on the network seamlessly.
Cardano Development
One of Cardano's strengths lies in its development roadmap, which is one of the clearest. Currently the Cardano blockchain is in the Shelley period which was activated last June 2020. This upgrade improved the decentralization of the network and improved the scalability of Ouroboros Praos. Thanks to this increased decentralization, the network became more secure, faster and scalable.
The next steps in the development of Cardano are:
Goguen: Deployment of smart contracts
Work is currently underway to include smart contracts within the blockchain. What Goguen will do is to add the capability to Cardano so that DApss can be developed on its blockchain using the Plutus programming language (Haskell-based programming language). Currently the first smart contracs are already running (successfully) inside Alonzo, Cardano's testnet.
A testnet is a copy of the blockchain operated locally for testing purposes. This ensures that any potential bugs in the upgrade or enhancement being tested do not affect the mainnet.
# Final words from Cardano <h6>
Perhaps the great strength of Cardano is that its development is powered by people with a great preparation in different fields. Its development at the moment is centralized, but as we have explained, the goal is to leave everything in the hands of the community. Once the development is released, it will be the community who will support the improvement proposals and who will finance them.
Mining Considerations
A stake pool is a reliable server node that is committed to run the protocol 24/7, on behalf of the contributing ada holders. Stake pools hold the combined stake of various stakeholders in a single entity and are responsible for processing transactions and producing new blocks.
In a Proof-of-Work (PoW) system, the economic incentives for miners to participate in the network and create blocks are rewards of the cryptocurrency and transaction fees. Ouroboros collects rewards from an epoch and distributes them among stake pools and stakeholders. Each is rewarded based on the proportion of their stake contributed during the epoch, meaning a higher stake will receive more rewards.
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