The Cardano network had a great year in 2020, and some began speculating it had the potential of becoming an Ethereum killer. So far, there hasn’t been much Ethereum killing going on, however, this could change with Cardano. Cardano is the third generation blockchain; Bitcoin being the first and Ethereum being the second.
Cardano is a blockchain protocol based on peer-reviewed research. Cardano uses a proof of stake protocol called Oroboros. Oroboros allows for scalability without compromising on security.
Cardano was founded by one of Ethereum network’s co-founders, Charles Hoskinson. Charles Hoskinson runs an engineering and research company called IOHK (Input Output Hong Kong). IOHH specialises in cryptocurrencies and blockchain.
Is Cardano and Ada the same thing?
Cardano’s cryptocurrency is called Ada, and participants can stake their Ada in a pool or delegating a stake in Ada to a stake pool. Delegating a stake to a stake pool allows Ada holders who don’t have the skills, time, or desire to run a node to still participate in the network. They will be rewarded in proportion to the amount they stake delegated their Ada coins.
So, Cardano and Ada are 2 different things.
Cardano is the blockchain and Ada is the cryptocurrency. You can use the Cardano blockchain to send the cryptocurrency Ada to your wallet. Cardano can also be used to create smart-contracts and dApps. Ada is the proof of stake coin that fuels Cardano.
Cardano has two layers:
- The Cardano settlement layer that acts as the balance ledger for the transfer of Ada coins.
- The Cardano computing layer that contains information on why transactions occur and this layer can run smart contracts and dApps.
How are new Ada coins generated?
The maximum amount of Ada that will ever be generated is 45 billion. A new block is created when a stakeholder who earns a position as a slot leader verifies a transaction. A slot leader is randomly selected to create a block in the current slot, and this randomness in the selection of slot leaders is the key to securing the network. This consensus algorithm is called the Oroboros protocol.
Read more about Ada staking at the end of the Article.
What is the Oroboros protocol in Cardano?
Oroboros divides chains into epochs and further into slots when it processes transaction blocks. For each time slot, a slot leader is randomly selected and is responsible for adding a block to the chain. Each new slot leader is required to consider the last few blocks of the received chain as transient in what is called settlement delay.
Ouroboros Hydra enables Cardano to scale to the level of global payment systems, performing thousands of transactions per second.
You can learn more about how Oroboros work here.
Oroboros protocol was designed by a team led by IOHK chief scientist, prof. Aggelos Kiayias.
According to Cardano’s website, Oroboros solves the need for more and more energy to achieve consensus and is up to 4 million times more energy-efficient than Bitcoin. Bitcoin uses Proof of work algorithm which means mining.
What is the difference between Proof of Work and Proof of Stake?
Proof of work means the protocol uses mining instead of staking to validate the blockchains. One example is Bitcoin mining.
What is Bitcoin mining?
Bitcoin mining is simply put: Computer mining for virtual coins.
Bitcoin mining is the backbone of the network as they secure the network and confirm transactions. Mining is used to issue new Bitcoins. There are all up 21 million Bitcoin and the more time passes, the harder it gets to mine. The more miners, the more secure is the network. Bitcoin mining is performed by high-powered computers that solve math problems. Solving these complex math problems produces new bitcoins.
Ethereum was a Proof of work protocol but is currently (end of 2020) upgrading to a Proof of stake protocol. This will take some time since the Ethereum network is so large. Proof of stake protocol is more scalable and faster than a Proof of work protocol.
Anyone holding Ada can stake their funds on the Cardano blockchains. Staking solves or reduces the chances of a 51% attack. To be able to launch a 51 % attack in a Proof of work protocol, one would have to have over half the processing power to take over the network. In a Proof of stake network, one would instead need over half of the coins in circulation which is very unlikely to happen. You can learn more about 51% attack here.
How to stake Ada?
Once you hold the Cardano currency, Ada, you can stake your Ada to a pool. Both Exodus and Atomic wallets let you participate in Ada staking. In these two wallets, you don’t get to choose your staking pool. These wallets come with their own pool integrations. However, you can also stake your Ada using Cardano’s official wallet, the Daedalus reward wallet, in which you can choose your pool. You can learn more how to stake using the Daedalus reward wallet here.
Check out the staking award for Ada here.