Introduction to the Cardano Blockchain
An explainer about the key features of the Cardano blockchain
In this article, I will explain the basic concepts of the Cardano blockchain.
If you prefer videos over articles, then you can check out this video that I made explaining the concepts of Cardano.
Choosing the right cryptocurrency to invest in is as important as choosing the right life partner, as both these decisions will have a massive impact on your future. With that being said, in this article, I will try to explain why Cardano could be the cryptocurrency you are looking for.
The Cardano project was started by Charles Hoskinson, who also co-founded Ethereum. Cardano is a 3rd generation blockchain that is based on peer-reviewed research papers and is designed with three core principles in mind.
The scalability of a cryptocurrency can be sub-divided into three parts
- Transactions Per Second (TPS) / Throughput
- Network Scaling
- Data Scaling
Transactions Per Second
TPS is an integral scaling component for any cryptocurrency. It ensures that a large number of transactions can be processed quickly.
A cryptocurrency with a higher TPS has a higher probability of powering the global financial system in the future.
So, if we want a truly Decentralised Finance system, then optimising TPS is paramount.
Cardano ensures a high TPS rate by using its Proof-Of-Stake protocol called Ouroboros (no, it’s not the name of a Greek god, rather it's a Greek symbol that means circle of life)
If you were not impressed by the name of the protocol, then you will be impressed by its working for sure.
Ouroboros divides the work into epochs, in each epoch, a slot leader is chosen. A slot leader is similar to a miner in Bitcoin, but here since we are using a PoS protocol instead of a PoW protocol, the computational power required to verify a transaction reduces exponentially.
In a PoW setting people are competing against each other to mine a block whereas in a PoS setting a person will be chosen at random to verify the transaction or mine a block.
In the case of Cardano, the probability of being chosen as the slot leader also depends on how much ADA are you putting at stake (ADA is the coin used in the Cardano blockchain)
The more ADA you are willing to put at stake, the higher is your probability of being chosen as the slot leader.
So, here the person putting 3 ADA coins at stake has a higher probability of being chosen as the slot leader.
seed is used to introduce a degree of randomness to this function
As the num of transactions per second will grow, the requirement for network bandwidth will also grow. In a blockchain, every node stores the entire ledger, so the network bandwidth becomes a bottleneck.
A large amount of data needs to be transferred reliably over a network for a blockchain to scale, which is very complex in the current networking architecture where we use TCP/IP for network communication
The current TCP/IP architecture was not designed to handle such complexity, and hence it has a lot of security and scalability issues.
Cardano uses RINA or Recursive Internetwork Architecture to mitigate this problem
RINA only has 2 types of protocols, one for data transfer and one for layer management and each block is secured by default, so we don’t have to add additional protocols for maintaining security.
Cardano uses multiple techniques like Pruning, Compression and Partitioning to mitigate the data storage issue
All these techniques work on the basic principle that each node should not be required to store all the data, rather it should store only partial data in such a way that the information loss is minimal
Data storage is fairly cheap and hence it is probably the easiest of the three challenges in terms of Scalability
The co-founder of Cardano Charles Hoskinson believes that the future will not belong to a single blockchain, rather multiple blockchains will be used to serve different purposes.
In the current scenario, there is no way for two blockchains to communicate directly, so if you want to convert your Bitcoin to Ether, it is not directly possible and you would have to use an Exchange for that.
So, to tackle this challenge, Cardano is designed in such a way that it can talk to multiple blockchains.
Most of the blockchains are playing the zero-sum game whereas Cardano focuses more on playing the positive-sum game.
So Cardano’s growth is not only dependent on the ADA coin, rather it will grow when the whole blockchain ecosystem grows.
Sustainability is another major factor at play when you analyse any new cryptocurrency, most of them launch with an ICO or Initial Coin Offering, they gather some funds and start working on the project, but the issue with this approach is that most of these projects rely on cutting edge research, which is pretty expensive and difficult to sustain.
So, if you are planning to invest in any new cryptocurrency, always focus on its Sustainability plan, as it will give you a fair idea about how its creators will manage the development of the project once the ICO money runs out.
One way is to launch another cryptocurrency, just to raise funds for the existing cryptocurrency, which is not the ideal way to fund a research project, so, to mitigate this issue Cardano uses a Treasury model inspired by Dash.
For every transaction done on their blockchain, they take a small amount and deposit it in the Treasury, and any developer or individual can submit a proposal to use that money for the betterment of the blockchain.
Example: A developer could submit a proposal to add some code to enhance the security of the blockchain, All the participants of the blockchain will then vote on whether this money should be allocated to this project or not.
It is an efficient method to ensure the continuous development of the project