Guide: Understanding Cardano and How it Works
Cryptocurrency markets are booming. We are in the most extensive bull run the world of cryptocurrencies has ever seen. With Bitcoin and several other altcoins breaking their all-time highs every single week, this is as good a time to invest as any. However, with more than 5000 cryptocurrency coins and tokens out there, which coin should you buy? Surely there must be suitable crypto investments other than BTC and ETH. Of course, there are!
In this blog, we will cover what exactly Cardano (ADA) is, what the coin stands for, its mining, staking, smart contracts, the benefits of investing in this coin, and the reason why it is hailed as the biggest and baddest ‘Ethereum killer’ out there.
- Cardano was launched in 2017 through an ICO and was developed by Ethereum co-founder Charles Hoskinson.
- It works on a PoS model and is supposed to be the ‘Ethereum killer’ predominantly because of its smart contracts implementation.
- ADA coins can be mined by staking, and the process is used to validate transactions on the blockchain.
- Benefits of investing in ADA include high scalability, low transaction times, high transaction volumes, environmental friendliness and potential applications through smart contracts.
- Cardano is on track to become one of the biggest cryptocurrencies in the market, estimated to grow by at least 10000% in the next five years by experts.
What exactly is Cardano (ADA)?
Cardano is a third-generation blockchain platform that is decentralized, just like all other viable cryptocurrencies. Cardano’s coin, ADA, works on a Proof-of-Stake consensus algorithm, unlike Bitcoin and Ethereum (yet), which still use the Proof-of-Work model. Cardano had been initially designed as a network aimed to be a more efficient alternative to PoW networks. The main features of the network are scalability, interoperability, and sustainability. Cardano poses as the better network compared to traditional choices like Ether because they are burdened and hence, limited by the infrastructure burden of growing costs, energy use, and slow transaction times.
Charles Hoskinson, the co-founder of Ethereum, understood the implications of these challenges to blockchain networks and began developing Cardano and its primary cryptocurrency, ADA, in 2015. The coin was launched in 2017.
The Cardano platform runs on the Ouroboros consensus protocol, which is the first platform to be proved secure and the first one to be informed by academic research on the subject. Each development in the Cardano network from its conception has brought progress to the network’s ability to achieve the milestones associated with adopting blockchain technology and the revolution of cryptocurrencies from PoW to PoS.
In recent years, ADA has posed as the alternative or replacement for Ethereum, and this is because both platforms are being used for mainly the same applications – smart contracts. Cardano considers itself a notch above Ethereum and calls itself an ‘updated version’ of Ethereum as a third-generation platform over Ethereum’s second-generation credentials. One of the main applications of the Cardano network is to manage and provide identity management and traceability services.
Cardano was funded through an ICO, an Initial Coin Offering, very similar to Initial Public Offerings in the stock market. When the token was launched, it debuted with a market cap of $600 million. By the end of 2017, it had a market share of $10 billion. Today (10th November 2021), Cardano’s market cap is $74 billion. It ranks #4 on the list of top cryptocurrencies by market capitalization.
In the beginning, Cardano attracted users and more investment by creating the narrative that the network overcame the apparent shortcomings in the then crypto market. These mainly included the slow and inflexible transactions of Bitcoin and the non-scalable nature of Ethereum. Popularly known as the ‘Ethereum killer’, Cardano soon became a viable alternative to ETH in the crypto markets.
Ada Lovelace inspired the coin’s name ADA, a 19th-century mathematician believed to be the first computer programmer. The ADA sub-unit is the Lovelace, where one ADA = 1,000,000 Lovelaces.
Cardano’s network works on the PoS model. Unlike the PoW model that currencies like BTC and ETH work on, Cardano’s miners do not have to guess hashes in order to mine a block. Here, coin holders generate new blocks and verify the payouts through ‘staking’. Hence, anyone with a significant amount of ADA holdings can become a currency miner without investing in expensive mining equipment.
This is why PoS networks are on the rise, and PoW ones are taking a backseat. By eliminating the hash guessing part of the equation, a lot of energy gets saved as a result. Environmentally and economically, this makes sense. The PoS mining system is also considered beneficial because it eliminates forced and brute coin hashing and ensures a much smoother and more stabilized blockchain development process.
Scalability is another issue that gets solved using the PoS model instead of the PoW. Expensive mining equipment, massive electricity requirements, and a low chance of scoring a reward deter new users from entering the networks as miners. With the Proof-of-Stake model, miners are incentivized to stake their coins on staking pools (which we’ll come to in the next section) and earn some passive income.
Cryptocurrencies that support the PoW model allow you to earn or mine more coins by solving hashes with a powerful computer loaded with GPUs and ASICs. However, if you’re looking to earn cryptocurrencies that use the PoS consensus algorithm, you can do so by staking.
In Cardano, you can use the process of staking to validate transactions on the blockchain network. In this process, the chain verification is done by a protocol called node selection. Each new block that is mined needs to be added to a node. The algorithm selects which node will be used next based on how many coins the node has staked or locked away. Nodes don’t usually have one miner with a large number of coins. They’re operated through staking pools where people aggregate their coins together.
As a user, if you want to stake your ADA and earn some passive income, you can lock your coins away on a node. The more coins that are locked away, the higher the node’s chances of producing blocks. When blocks are mined by this method, all pool contributors get a reward proportionate to their pool contributions.
When staking your coins, they never leave your wallet. You earn rewards on them in a way that you earn interest in a bank’s savings account. You can remove your staked coins from the network at any time. Staking your coins while you’re holding them for the long term gives you a source of passive income while also contributing to making the blockchain faster and more efficient.
Cardano Smart Contracts
Ethereum is the most important platform currently being used to make smart contracts. Smart contracts are used to, according to International Business Machines, “automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.”
Cardano’s Alonzo upgrade has considerably impacted the currency’s adoption rate by crypto investors and developers. The upgrade allows users to develop and execute smart contracts on the Cardano blockchain and build DApps on the network. Thus, just like Ethereum, Cardano can also become a vehicle for developing and contributing to DeFi. The currency aims to eliminate banks and other intermediaries, allowing users to lend or borrow funds as well as earn interest in a savings-like account.
The development of smart contracts on Cardano is a bigger deal still because of the immense scalability it provides for the future. While Bitcoin and Ethereum have significantly better-established networks and nodes, Cardano consumes a fraction of the power that Ethereum does. Fees used to transact in Ethereum are also really high compared to Cardano, which boasts fewer gas commissions on decentralized as well as other exchanges.
Future of Cardano
Cryptocurrencies are getting adopted in more significant spheres gradually. Cryptocurrencies have seen many highs, from being a monopoly of early investors to becoming a legal tender in El Salvador. Although there’s a new currency that’s apparently on track to become the ‘next big thing’ on the Internet every month, Cardano (ADA) is actually at the forefront of the crypto revolution.
Like Bitcoin, ADA only has a limited number of coins, although it is much higher than Bitcoin’s limit of 21 million BTC. ADA’s upper limit is drawn at 45 billion coins. At the time of writing, there are roughly 32 billion ADA in circulation. In theory, this will help prevent inflation up to a maximum value amount.
Benefits of Investing in Cardano
Cardano is getting a lot of attention in crypto communities despite big coins like Ethereum and Bitcoin because of the several key benefits that it brings to the table. Firstly, Cardano is massively energy efficient compared to its peers. In contrast, Bitcoin and Ethereum are infamous for their energy-consuming network models that harm the environment and make the technology less scalable over time. According to a report, Cardano only uses about 6 GW hours of energy per year, while Bitcoin consumes a whopping 100 TW hours-plus of energy per year.
Cardano can also process a massive number of transactions per second. Unlike any other coin or token, ADA has high scalability. Currently, it can process roughly 257 transactions per second. Theoretically, that number could eventually grow to 1 million transactions per second after an upgrade called Hydra gets launched on the network.
As for its applications, ADA can be used to store tamper-proof records for students on the blockchain, authenticate pharma orders, or provide consumers with the option to track their records and financial metrics over the blockchain. Although only time can tell whether it is the ‘Ethereum killer’, Cardano does seem to be getting more efficient and appealing every month.
To invest in Cardano at the best prices, use the CoinSwitch Kuber app!
How to invest in Cardano in India?
If you want to invest in Cardano (ADA) in India, the best platform you can use is CoinSwitch Kuber. CoinSwitch Kuber is India’s most prominent crypto platform, with more than 14 million users using the app actively! The exchange supports Cardano, Ethereum, Bitcoin, and hundreds of other coins and tokens that you can buy, trade or sell.
If you’re a believer in the Cardano narrative and want to bet on its long-term growth, here are some steps you can take to set up your CoinSwitch account and get started.
- Step 1: Open CoinSwitch – The first step is to, of course, download the CoinSwitch Kuber app on your Android or iOS mobile phone. You could also visit our website and enter your phone number, and we’ll SMS you a link to the app!
- Step 2: Register and open an account – Once the app has been successfully installed, you will be asked to enter your mobile number for OTP verification. Once the OTP has been received and entered by you, you will be asked to set a PIN on the app for added security.
- Step 3: Complete your KYC – To complete this step, head on to the ‘Profile’ section of the app in the bottom right corner and click on ‘User Verification’. Enter your name, PAN number, date of birth, and email address for primary verification of your identity. Once this is done, you will be asked to upload your PAN card’s picture along with a picture of a government-issued ID card to complete the verification. On CoinSwitch, the KYC process is completed within 2 minutes!
- Step 4: Add your bank account details – To transfer funds from your bank account to the CoinSwitch app, you need to provide the app with the relevant information. These include your account number and IFSC code only. The app sends Rs. 1 to your account to verify if the details are correct and if they are, the account is linked to your profile.
After this is done, you’re free to use the CoinSwitch wallet to buy, sell or store Cardano (ADA) coins. Investing in the coin is also very easy. All you need to do is click on the currency you want to buy (in this case, ADA), enter the amount, and click Buy. That’s it! The corresponding amount of cryptocurrencies gets credited to your CoinSwitch crypto wallet, which can then be monitored under the Portfolio section of the app.
As of 10th November 2021, Cardano’s ADA coin is being traded on major exchanges at roughly $2.26. Experts predict that this could go up to $11.87 by December of 2023. Other experts predict that the crypto price is expected to reach at least $3.83 by the time 2021 ends and $15 by the end of 2025. The gradually increasing market cap and more adoption send positive signals to Cardano investors everywhere. With more awareness about the game-changing features of Cardano and the crypto narrative in general, the future could certainly look bright for ADA.
Frequently Asked Questions
What is so special about Cardano?
Cardano works on the PoS model and is one of the top cryptocurrencies supporting smart contracts on its network. This functionality was added to ADA by the Alonzo upgrade earlier this year.
Can Cardano hit $100?
Analysts predict that the coin could reach a maximum high of $15 by the end of 2025. However, no one knows for sure what the future holds.
Is Cardano the next Ethereum?
Often called the ‘Ethereum killer’, Cardano does challenge Ethereum by implementing smart contracts, a PoS model, more salability, and lower gas fees. However, it is still significantly smaller than Ethereum. While only time will tell whether Cardano becomes the next Ethereum, it depends on its adoption, and constant upgrades brought to the network by its community and developers.
How much is Cardano’s total supply?
The total supply of ADA coins at writing is 32 billion, with an upper limit of 45 billion ADA.
When was Cardano created?
Cardano was created in 2015 but was launched through an ICO 2 years later in 2017.
Who is the founder of Cardano?
Charles Hoskinson, a co-founder of Ethereum, is one of the core founders of the Cardano network.
What is the Cardano wallet address?
A Cardano wallet address is a target key that can receive ADA coins. This wallet address is the identification code the network can use to recognize the target wallet during an ADA transaction.
Is Cardano a legit cryptocurrency?
Cardano is one of the largest cryptocurrencies by market capitalization in 2021, valued at around $75 billion. It also ranks #4 out of the top crypto coins by market share, trailing behind BTC, ETH, and BNB.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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